The metal of a physical currency today is worth little. In the past, a coin still had value, because it was made of gold. Later there was a gold exchange standard.
The equivalent of our money was neatly kept in the form of gold in the bank’s safe. But that standard was abolished in 1971. Now there is fiduciary money, money that derives its value not from its material or from a fixed countervalue, but from the confidence that goods and services can be bought with it.
A new phenomenon in the development of money is cryptocurrency. These are digital coins, pieces of encrypted code, that are stored on the internet. A well-known example is bitcoin. To get this money available you have to mine it, just like gold. Not physically of course, but digitally with smart formulas that sometimes count hundreds of computers.
This mining is artificially made increasingly difficult, creating scarcity in the supply. If there are enough buyers, a price arises. If enough cryptocurrency has been mined, countries or large companies can accept the digital money as a means of payment. With the bitcoin this has now succeeded: at some companies you can pay with it.
Also read: Fintech: what is it actually and what does it mean to you? A mortgage of cryptocurrency
In the future, people may take out a mortgage in cryptocurrency or make payments with it. That is why I follow the developments around digital money closely. Halfway through 2012 I considered buying some bitcoins, mainly out of professional interest, because I did not immediately expect the coin to increase in value much. They then cost about 10 euros each.
In the end, I decided not to put any real money in it, but I did open a fictitious account. A year and a half later, the price was around 1100 euros.
Suddenly there was worldwide interest in cryptocurrency, because these kinds of price jumps naturally appeal to everyone’s imagination. Immediately there were also the regulators who indicated how risky these types of coins were.
They are risky – and also very threatening to the existing money system. There is no supervisor. You can have millions in digital money, without the need for a bank. Secret bank accounts in Switzerland are no longer necessary, because millions of black money can be stored at home on a USB stick.
Another risk is that you can easily lose digital money. When bitcoin was still worth little, a Brit collected a number of them. Just when he had given his computer with the garbage truck, he discovered that the price had risen above 1000 euros. The man had unknowingly become a millionaire, and these digital millions were now in the garbage dump. Cryptocurrency: a keeper?
The Dutch government does not yet accept cryptocurrency. The tax authorities would like you to declare your possession of cryptocurrency in the declaration. Of course you are not allowed to conceal assets, but indirectly this looks a lot like an acceptance.
Will cryptocurrency eventually replace existing money? I think cryptocurrency is here to stay and there will be more and more stable variants. Now this kind of virtual currency is still very shaky. You should not think about taking out a mortgage in cryptocurrency and then the debt increases by a factor of 100. For the time being, it will therefore mainly be a toy for money launderers and speculators.
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