I recently got into learning and understanding crypto while preparing for an interview at Crypto.com which I disastrously flunked. But that’s fine, I got to takeaway some important lessons.
There are several goals of crypto. Here is what I understand them to be, it is by no means exhaustive
- As a medium of exchange, like a currency that we all know and love
- As a store of value. This is more relevant for coins like Bitcoin (BTC)
- To revolutionise industries, such as cross border payments, insurance etc. This is more relevant for coins on the Ethereum (ETH) network
- Censorship, decentralisation and privacy nonsense
Currently crypto struggle with the first 3 goals, which in my opinion, are the more useful ones. It achieves the goal of censorship and privacy pretty well, but who does that serve? Only the paranoid and the criminals if you ask me.
The stability of a currency
I came across an idea that I agreed with quite a lot. A currency has to be stable. Bitcoin (BTC) is not stable, at least for now, and thus cannot be a currency. But why does a currency need to be stable?
A currency is meant to be:
- A medium of exchange — people use it to buy and sell goods/services.
- A unit of account — prices and debts are measured in it.
- A store of value — you can hold it over time without losing (too much) purchasing power.
If the value is swinging wildly, all three functions are disrupted. Imagine if you are a Singaporean, and most of your assets are in SGD, if the value of the SGD were to vary drastically everyday, it would be a rollercoaster of emotions, so that would make you lose confidence in the currency and not want to hold it anymore.
So will crypto ever be stable? In my opinion, it would be difficult. Unlike traditional investing in companies, where their value is backed by their earnings report and how much money they make, crypto is backed mainly by speculation. One comment from some important person like trump would result in the value of a crypto token going sky high or crashing into the abyss. But its an incredible asset for people who want to short and make some quick money though.