Money, as we know, has two functions. It can be used for transactions, or it can be held as an asset. Is Bitcoin then a means of transaction, or is it an asset? Or is it both, as almost all currencies are?
I would argue that Bitcoins cannot be meaningfully used for transactions, except in a very restrictive sense, and hence are not money.
It is an asset class, and speculative pressures explain the volatility of its price. I am restricting myself here to Bitcoins, considering it to be representative of other cryptocurrencies.
The reason that Bitcoins are not used for everyday transactions, unlike all other forms of money, is because it simply cannot be scaled . Any transaction in paper money is independent of any other transaction; it is independent of how many other transactions are taking place simultaneously in the system. It is fully scalable, subject only to the amount of currency in the system.
In the world of digital transactions, decent credit card systems today can handle 60,000 transactions a second. Bitcoin, as it involves solving a hard cryptographic problem, can currently handle only 3 to 7 transactions a second, as each block contains a maximum of 2,000 transactions, and takes about 10 minutes to mine. That means that transaction completion times can be anything from a few minutes to hours, and if it is for everyday transactions, the transaction cost can become a very large fraction of the transaction itself.
One set of transactions with cryptocurrency can still happen in the real world. These are criminal transactions, where anonymity is the key; where those hijacking your computer using the Wannacry ransomware demand to be paid in Bitcoins. Apart from such criminal transactions, there does not appear to be any reason why transactions in the real world should take place in Bitcoins.
Why is the value of cryptocurrencies than yaw-yawing wildly?
As we answered, it is largely speculation. More than 40 per cent of all Bitcoins are held by less than 1,000 accounts, leading to the potential for large market manipulations. Further, with transborder flows becoming important in the age of tax havens, a number of the super rich want to hedge their bets by holding their wealth in different forms: from stolen paintings to Bitcoins.
In the age of global financial oligarchy, the hype in Bitcoins and its wild fluctuations are simply indicators of the increasing criminalisation of the financial system.