Cryptocurrencies are attracting a lot of attention because they are promising to replace trusted long-standing institutions.  For clarity, trusted long-standing institutions are commercial banks, central banks, and other authorities who have been serving customers and individuals with monetary transactions.

If we need to look beyond the hype, we need to see if cryptocurrencies will be able to play any role as a money without trusted institutions by way of the blockchain technology and distributed ledger technology (DLT).

Crypto enthusiasts keep repeatedly pointing to historical events like episodes of monetary instability and stories of failed currencies.  This failure they attribute to the problems, which exist in the institutional arrangements.

Money is about trust and stability of value.  It coordinates transactions.  Money should be able to scale providing for the fluctuating demand for money when there is an increase in the numbers of transactions. To help with scaling and to balance the demand for money with increased transactions there is a need for institutional arrangements and this is one reason for why there are Central Banks providing for the accountability factor.

Financial institutions who feel threatened by the coming of cryptocurrencies have been discussing about the “economic limitations” which is inherent in the process of “decentralization of trust.”

In a decentralized network, if trust should be maintained, majority of the node operators should be honest, the supply should be determined by the protocol, and every user should be able to verify the history of transactions.

There is also a reported risk of a particular cryptocurrency completely stopping to function and therefore causing issues related to finality of individual payments. This can mean complete loss of value. The cryptocurrency technology so far is one which consumes lot of energy, and when the cryptocurrency protocol is not able to provide for the transaction demand, the value can fluctuate greatly in value. Thus, financial experts feel that cryptocurrency is not a good substitute for money backed by solid institutions.

However, majority of them agree that the technology will be able to simplify the administrative process of settling financial settlements; however, this also requires more testing. Perhaps, cryptocurrency will be around for a long time; however, after regulation and policy making which permits is private use. Several delicate issues like preventing the abuse of the cryptocurrency technology should be dealt with due measures.

History has shown several attempts of creating new and private moneys. All of these are happening in an attempt to come up with a better money type than what we already have.  Maybe, for now, the big guys say crypto cannot substitute institutional money.