Are cryptocurrencies money?

The debate about what money is and how it was created has one more chapter in the world of cryptocurrencies. How does traditional money relate to cryptocurrencies?

According to the historian Yuval Noah Harari, homo sapiens managed to dominate the earth thanks to our ability to generate “fictions” that help us to coordinate in large numbers and in a flexible way. Examples of these fictions are brands, countries and … money. This last fiction is the one that allows commercial coordination between people who do not know each other on a global scale.

A recurring question in the world of cryptocurrencies is whether they are or can be “money”. To answer this question, it is important to understand that there are two preponderant theories that try to answer what money is and what its origins were. The first is the classical theory, which says that money is a “thing” and the other is one that says that money is really and always was a debt.

Money as a “thing”

Classical theory (Aristotle, Locke, Adam Smith, etc.) says that money is a “thing.” According to it, originally, human beings traded based on barter. This type of transaction was not efficient due mainly to the problem of double coincidence, according to which, if someone needed, for example, to exchange a couple of fish for a little firewood, they would have to find someone who wanted to do exactly the same exchange in the opposite direction and in the exact same moment. To avoid this problem, society would have chosen a commodity that worked both as a means of exchange and unit of account.

As time went by, that chosen instrument evolved to end up in metals such as gold and silver that, due to their intrinsic characteristics, were much more suited to be used as money.

Money as “debt”

But there is another part of the library that states that this theory does not have a true archaeological support, is based only on logical assumptions, and that also does not even make common sense (see Mitchell-Innes 1913 and 1914, Félix Martín 2014, David Graeber 2011).

According to this second theory, money is and always was a debt.

Suppose someone sold a good or service to another and this other one was “in debt” with that one. The one who transferred the goods or provided the service would have a credit against the other, an asset. If the debtor had a good social reputation (had “credit”), that debt could be transferred for the purchase of other goods and services. That debt would have become, in that way, money.

Little by little, specialists would have appeared to “unite the tips” between people who wanted to accumulate credits and people who needed to borrow. Today we call these specialists banks. When a bank grants a loan it is, in fact, creating money in the form of debts against itself, the famous secondary creation of money.

Coins, bills, electronic money, etc. would be, according to this theory, nothing more than instruments that are used to represent and / or settle those debts. But the essence of money would actually be something ethereal and what changed would simply be the form it took.

What is the difference?

The fundamental difference between the two theories is that in one case the quantity of money could be determined and in the other not. In the case of money as a “thing”, if one keeps the issuance fixed, it would be controlling the quantity of money with the ultimate goal that inflation does would not deteriorate the purchasing power of the owner, and instead, in the case of money as “debt” the quantity of money becomes exogenous and cannot be so easily controlled.

Are cryptocurrencies money or not?

If one knows a little bit of cryptocurrencies, one will have already discovered that Bitcoin is designed based on the theory of money as a “thing.” The speed of issuing new bitcoins is predefined in its code and has a limit of 21 million that nobody can alter (at the time of writing this note more than 18 million were already issued). This is one of the fundamental bases to understand the monetary philosophy behind this cryptocurrency.

The debate regarding the origin and essence of money reached the world of cryptocurrencies and it seems that two stands are being set up; On the one hand, Bitcoin enthusiasts, who obviously lean mostly to the theory of money as a thing, and Ethereum enthusiasts who apparently support money theory as a “debt.” Vitalik Buterin (founder of Ethereum), in fact, defined himself towards the theory of debt with a tweet from April 3, 2018 addressed to bitcoiners where he recommended the book “Debt” by David Graeber (2011) mentioned above.

Both the theories of money as “thing” and the theory of money as “debt” need some instrument to function. In the first case, the instrument would be the money itself and in the second, it would be the mechanism through which that debt is represented, transmitted and saved.

Today, money tends to disappear physically. Except for honorable exceptions, as in my country, Argentina, money begins to be managed, almost exclusively, in centralized digital ledgers managed by central and commercial banks.

Cryptocurrencies are exactly that, ledgers, only that unlike those mentioned in the previous paragraph, they are decentralized. That they are decentralized implies that there is no central entity that can define who can or cannot use those currencies. Thousands of computers have a copy of it and nobody has the power to change it a piacere.

Whether money is a “thing” or a “debt”, what matters is to know that it can work on the technology that runs cryptocurrencies. In the same way that today money is handled in centralized digital ledgers, cryptocurrencies could perfectly be the ledger where the money is saved and transferred.


The most successful case of using cryptocurrencies as transactional money is clearly the famous stablecoins. They, as the name implies, are cryptocurrencies that seek to have price stability and for that, they usually “stick” their value to a stable currency such as the US dollar, the Euro or others.

Today, the most important stablecoin in the market is called Tether. According to, Tether has a circulation of more than 4.5 billion Tethers. That means that there are more than 4.5 billion US dollars denominated in the form of “Tethers” circulating around the world being Asia the region with the broadest usage, according to analysts.

Basically, what Tether does is to back each token (each Tether) with the same amount of US dollars, Euros, etc in bank accounts. The ownership and transfer of those tokens, instead of being managed in centralized ledgers in central or commercial banks, occurs in decentralized ledgers managed by the technology behind cryptocurrencies.

Microtransactions with cryptocurrencies

Until now Tether works in several decentralized ledgers. The main one is Ethereum that gathers approximately 50% of the issued tokens. The current challenge of this network, however, is scalability. The technology on which it works is called “Proof of Work” (the same one that Bitcoin uses) and in case the use of the platform grew too much, the platform could not scale, which would generate an important delay and a high cost of transactions. It is for this reason that this technology could not be used for microtransactions which would derive in high costs for each payment made.

Earlier this year, Tether began operating on another cryptocurrency called Algorand. Algorand is a cryptocurrency that, unlike Bitcoin and Ethereum, uses a technology called “Pure Proof of Stake”. It was developed by the Turing award winner Silvio Micali and was launched in June 2019. This platform allows decentralized operations at a minimum cost, very high speed and great scalability.

According to Coindesk magazine, Algorand will allow Tether to enter the world of micropayments: “This broadens the options for stablecoin users and boosts the potential use cases for tether. Tether users gain fast confirmation times (under four seconds) and low fees, which could enable micropayments.”

Stablecoins for the unbanked

Whoever lives in a developed country and with a stable currency usually takes for granted the possibility of paying for things digitally, without the need to use cash (with all the risks involved) and without fear of inflation reducing his savings in a short time.

However, it is estimated that approximately 2 billion people in the world do not even have bank accounts and are years away from that reality. For them, making payments usually entails large transactional costs that, added to the high inflation they usually suffer, deteriorates their already limited purchasing power.

The arrival of Algorand to the world of stablecoins and its ability to perform microtransactions safely and at a low cost, will probably give them a new impetus to reach all these people with a reliable and efficient savings and payments tool, competing on a large scale with traditional centralized platforms.

Money, both as a “thing” or as a “debt,” makes our life better. It can definitely work on top of cryptocurrencies technology and thanks to them, those possibilities, which many of us take for granted, would be increasingly available to everyone.

Gonzalo Martinez Mosquera (h)