The following video was released from CBRT’s Youtube account on August 3, 2018. Below is a translation of its transcript.
What is a cryptocurrency?
Cryptocurrencies, also known as virtual money, only exist in the electronic medium. Today, hundreds of different cryptocurrencies have come into existence, but the most famous one is Bitcoin, released in 2009.
Despite us calling these products money, cryptocurrencies are pretty far from having the functions of real money.
Different from the money we use everyday, there is no central bank minting cryptocurrencies. Bitcoin and other cryptocurrencies alike are created by a network of computers using mathematical formulas. Meaning there doesn’t exist an authority protecting the validity and value of cryptocurrencies.
For example, using the 50 Liras you have in your pocket, you can buy a dress from a store. The Central Bank guarantees your right to pay with 50 Liras. But you cannot pay for the dress using Bitcoin in every store. Because nobody guarantees your right to pay with cryptocurrencies, and protect the value of cryptocurrencies. Furthermore, it is costly to transact with cryptocurrencies.
The places where cryptocurrencies can be used as a payment vehicle are pretty limited. For example storekeeper Auntie Asli doesn’t accept cryptocurrencies. With storekeeper Auntie Asli, the Turkish Lira speaks.
A real money is a reliable vehicle for storing value and a unit of measurement. Because you can guess that your money can buy roughly the same things today or in the future. The value of cryptocurrencies, on the other hand, changes too quickly. Nobody would like to use something whose value tomorrow cannot be predicted — like cryptocurrencies — for saving or shopping.
Cryptocurrencies, which exist in the digital medium, can be stolen by computer hackers. Furthermore, it’s not possible to correct a faulty transaction submitted to the system, as of today. Cryptocurrencies’ use in illegal businesses is another factor that makes us question their safety.
So, what are cryptocurrencies, if not money?
Cryptocurrencies are speculative assets. In other words, it is risky to take action with them. It should not be forgotten that something whose value is so unstable carries the possibility of loss.
Economy for everyone. The Central Bank of the Republic of Turkey.