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Date: 2024-04-22

Is A Cryptocurrency An Asset Or Currency?

Since the inception of cryptocurrencies in 2009, we have seen their popularity grow exponentially, to the point where governments and banking institutions have begun to taken notice. The first and most notable cryptocurrency to come to light, is of course Bitcoin, which as we know was built to be a peer-to-peer payment system. This unique payment system was developed with the purpose of not needing any third party, or intermediary to step in to monitor transactions.

However, many naive people have yet to fully understand what cryptocurrencies actually are, because without diving beneath the surface, all they see is what is on top, and not what really drives its value. Whilst there are countless other cryptocurrencies out in the world, it is Bitcoin that has got the most attention with its explosive ascension to become the most valuable cryptocurrency to date.

It started in September 2017 when it was trading at approximately $3000 per coin, then fast forward all the way to December of the same year, and it was trading at over $19,000 per coin.

One of the most attractive features of using cryptocurrencies like Bitcoin for example, is the speed in which the transactions are dealt with. They are typical dealt within a few seconds, give or take the stability and integrity of the network. Since Bitcoin runs on a global blockchain network, users have the capacity to send their coins from side of the world to the other side almost instantly, all while incurring minute fees.

However, many economics advisors and government officials have raised the question as to whether cryptocurrencies, like Bitcoin are in fact a currency or an asset. Some people have stated that they are official currencies, whilst other people are adamant that they are nothing more than digital assets.

According to Investopedia, a currency is an accepted form of money, including coins and paper notes, which is issues by a government and circulated within an economy. A currency is used as a method of exchange for goods and services. Now the argument for cryptocurrencies being actual currencies could be made here, because hundreds of companies are now accepting Bitcoins as an official payment for goods and services.

Furthermore, an asset is something that has a perceived value and can be converted into cash. And this is also true for Bitcoin, because people who own them can trade and exchange them for actual money. Herein lies the problem because cryptocurrencies have the characteristics of both currencies and assets, but we simply cannot say for sure whether it is one or the other.

Certain governments and banking institutes have taken extreme measures by overly stating that the likes of Bitcoin, are in actual fact, assets not currencies. The Bank of Israel have said that cryptocurrencies are simply assets rather than currencies, and in doing so the Israeli Securities Authority have said that they are seeking to ban any company that has a major investment in Bitcoin trading the Tel Aviv Stock Exchange.

This debate has certainly caused quite a stir, but until there is an agreed consensus around the world as to what cryptocurrencies actually are, we will continue to see a constant back and forth argument.