Generations of Finance and Economics students have learned about fiat currencies—government-issued currencies that are not backed by a physical commodity such as gold or silver, but rather, by the government that issues them. There are currently around 180 such currencies in the global marketplace, including the U.S. and Canadian dollars, the euro and the Chinese yuan.
With fiat currencies, the country’s central bank guarantees the currency’s value: A $100-bank note is backed by the central bank’s promise to pay 100 dollars to the bearer. But cryptocurrencies are very different—and their proponents believe that this difference is what justifies their utility.
Digital currencies are not regulated by any central bank, or for that matter, by any authority whatsoever. They do away with so-called intermediaries—despite the fact that in the real world, it is these very intermediaries that infuse confidence in a currency as a method of payment. Cryptocurrencies don’t fit the definitions of ‘money’, ‘asset’ or ‘investment instrument’. Instead, they can