[SNE] Cryptocurrencies

The cryptocurrencies, or virtual money, created by scientists a few years ago to compensate for allowing them to use the processors of personal computers who wished to allow them to run systems operations while they were not used, today have become elements of mercantile speculation, with a lot of fashion within it.

The best-known currency is Bitcoin, but, anyone can create their own currency. There are already companies that accept the payment of their goods offered with that currency and in some cases other existing ones. The peculiarity is that they are not regulated by any governmental entity, but rather a series of fixed rules by their creators, such as limit on available quantity, encrypted security by complex mathematical systems and computing, among others.

Cryptocurrencies had been overvalued and fashionable, with 1000% growth per year in bitcoin and some cases up to 35000%, completely out of place, but true, because who is a holder of one of those currencies, can convert it into any other currency or goods for the current market value.

Beyond bubbles, speculation and probable collapse topics, the most important economic theory topics stand out. It happens that money is ordinarily seen by people as an element with which to act in the market. The problem is that this vision becomes closed in that it is believed to be the only form of market participation, when in fact, in that market, anyone can participate with any exchange. Money, say the Mexican peso, is one of the many, but simplest ways to participate in a market.

The traditional definition of money is that it is a means of exchange accepted by a society for the payment of goods, services and all kinds of obligations. And it must comply with 3 basic characteristics: it is a mean of exchange easy to store and transport; accounting unit that allows to measure and compare values; and it is value refuge, making savings possible.

Therefore, money is another good equal to any other, be it clothes, computer equipment, any fixed assets, and not something special to acquire those goods. Even its value is measured on similar elements such as interest rates, but also on other currencies (currency market). And of course, they carry the same economic laws of supply and demand, to understand the reason for their value at a time.

Understanding those conditions equality between any good and money, then we can transpose the understanding to the same conditions between goods, money and cryptocurrencies.

Now, about the definition set forth 3 paragraphs above, it could be applicable to any good for some people. Therefore, it is equally applicable to cryptocurrencies. And, therefore, any good in economic terms is equal to a currency and of course to a cryptocurrency.

Returning speculation issue and even particularly the bubble, the same can and has happened with any good, such as housing, which in 2008 burst the bubble created around it in the US, causing the bloodiest global recession in history.

We do not seek in this text, to support speculative operations, but simply to leave bases that we consider relevant to understand the context and act accordingly. With any good you can speculate (given its supply and demand), create bubbles that sooner or later will deflate (cellular equipment weakened given competition or housing for defaults), fraud (business frauds such as the use of illegal cars, identity theft in credit / debit cards), or simply operations (there are some who, illegally in Mexico, do not accept pesos, and nevertheless operations are carried out).

The central issue, especially with fashionable or innovative elements and lack of knowledge scares and makes people to look for a safe spot with regulation. The government's paternalistic arm, acting on behalf of its poor fellow citizens potentially to be harmed is regulation. That potential overregulation, is much more harmful in many occasions. And it's not about avoiding laws. But it is relevant to understand that a legal system, a norm, implies obstacles to individual freedom. And that only with clear and accurate justifications, those rules that make up that legal system should be created.

Due to the above, the following governmental expositions are dangerous because they are notoriously unjustified, due to simplicities or even notorious ignorance of what happens in the cyber world with the famous cryptocurrencies.

For example, in Russia, the central bank seeks to restrict or prohibit transactions with cryptocurrencies. Like the Chinese government, already try the same. But the defenders, sometimes fall properly in the opposite notion of the existence of cryptocurrencies, that is, that are not regulated.

Among the arguments to defend the prohibition or its regulation, is that they are elements that could be linked to pyramid fraud systems and some are ridicule saying that illegal activities are carried out with them, when the illegal activities are carried out with any currency. And there is security talk, when with a regulated currency, it is as insecure as being stolen, defrauded and even hacked into electronic banking or credit or debit cards.

It is very likely that the Bitcoin or Ethereum exuberant value, end up adjusting to the downside. But certain virtues that these cryptocurrencies have, could make them survive a potential bearish scenario, and adjust them to the market and its needs. Its value is high by speculation, but that does not mean that it will necessarily disappear. To speculate with them is valid and consequently with the financial axiom that, the higher the profitability sought, the greater the risk to run. But, in the end, cryptocurrencies tend to meet the 3 basic characteristics of money, and in their case, they may have come to stay, at least for a while.