The Federal Reserve Bank of St Louis, one of 12 regional Reserve Banks that make up the United States’ central bank, has conducted a study asking some of the biggest questions in cryptocurrency today – and they may have found some real answers.
Their researchers investigated the control structure of various currencies and looked into whether central banks will adopt cryptocurrencies as a form of payment.
Commodity, Cash, or Digital?
In an effort to assign Bitcoin one of the above monetary categories, the researchers concluded that Bitcoin actually defied traditional categorization – it’s none of the above, as shown in the chart below.
There are a number of dimensions used by the bank to categorize money.
The first is representation: Is the currency represented physically or virtually?
The second is transaction handling: Are transactions handled in centralized or decentralized payments?
The third is money creation: Is the production of the currency competitive or monopolized?
These dimensions make it easy to distinguish between commodities like gold, physical currencies like fiat cash, and so on. However, Bitcoin proved elusive when analyzed in the traditional manner.
The researchers pointed out that gold has decentralized transaction handling, a competitive creation process wherein anyone can mine it, and a finite supply – all traits which are shared by Bitcoin. However, it also has an inherent value as a commodity, unlike fiat currency which represents the value of a commodity (like gold, silver, etc). Gold is not a low-liquidity form of money, but it doesn’t require extensive bookkeeping or proof of ownership.
Much like fiat cash, simply being in possession of the gold at the time of transaction is enough to prove ownership. Cash is totally decentralized in this sense, with no oversight or bookkeeping required for it to be spent in most cases. The creation, however, is centralized and monopolized. Electronic cash is also monopolized with an infinite supply.
Commercial bank deposits and central bank electronic money are considered virtual money because they don’t have any physical representation – they exist as records only. On the other hand, physical forms of money like gold and cash often don’t even need a record in order to function in the market.
Full article:
https://www.ccn.com/us-federal-reserve-bitcoin-study/
