Cryptocurrencies - a future form of money? An analysis of the functionality of Bitcoin as a means of exchange and payment

Abstract

With the rise of market capitalisation of cryptocurrencies in 2018, Bitcoin in particular and to lesser extent also its offspring, commonly referred to as Altcoins, have gained significant interest by governments, institutions and investors. The future of these new forms of currency remains a topic that is debated heavily. While some enthusiasts believe that the status of cryptocurrencies will rise up to the point where they are equivalent or even replacing traditional currencies in some departments of online commerce, sceptics usually evaluate them as a dubious new form of assets with no intrinsic value. The latter thereby often point at the large sell-off of cryptocurrencies in the first quarter of 2018 as the beginning of the end of the crypto era. This work aims at elaborating the characteristics of the cryptocurrency Bitcoin by applying monetary theory to answer the research question whether Bitcoin is actually feasible to serve as a future means of payment and exchange and which consequences result of this feasibility for the cryptocurrency in the future. While Bitcoin provides reasonable advantages to individuals involved in monetary online transactions and from a theoretical perspective also fulfils the criteria for a means of exchange, the cryptocurrency will likely face difficulties to attract more users due to issues regarding its scalability, price volatility and many more. Alongside with other technical restrictions, the author concludes that - considering all facts presented in this work – Bitcoin in its current state will be unable to achieve a transaction volume comparable to PayPal, Visa or Mastercard and will therefore only play a niche-role in certain environments as a future means of payment.