Cryptocurrency: The Coin of the Future?

• Pages: 2-3
• Date: 01 July 2021
• Author: John M. McNichols
• Subject Matter: Civil Law

Published in Litigation News Volume 46, Number 4, Summer 20 21. © 2021 by the American Bar A ssociation. Repro duced with permissi on. All rights reser ved. This informati on or any portion the reof may not be copie d or disseminated in any

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By John M. McN ichols, Litigatio n News Associate Editor

Cryptocurrency: The Coin of

the Future?

What Is Cryptocurrency?

At its core, crypto currency is just software . But unlike other

forms of software , cryptocurrency does no t enable a human

user to perform anot her function, such as word processi ng

or preparing spreadshe ets. Rather, it exists as a medium of

exchange, i.e., an ite m of value that can be passed from one

user to another without ba rtering over in-kind consideration .

Although cry ptocurrency software ne cessarily enables the track-

ing of transact ions, it goes further and act ually creates th e item

of value to be exchanged, na mely digital “coins” that—in the

case of private crypto currencies like Bitcoin— are untethered to

any particu lar value in sovereign currency or othe r commodity.

The coins have no physical ex istence and can only be exchanged

electronica lly, but unlike elect ronic transactions in sovereign

currency, no bank or ot her intermediary needs to be i nvolved,

so no debits are made again st one party’s checking account or

credits added to anothe r’s.

The “crypto” in cry ptocurrency comes from the fact t hat

cryptographic s oftware take s the place of a bank to enable

two parties who do not t rust (or even know) each other nev-

ertheless to have con dence in their t ransaction. Although

no physical record of a crypto currency transaction ex ists,

the virtu al change-of-hands is tracked in a le dger, preventing

users from spendi ng the same coin twice. For private cry pto-

currencies , the ledger is open-sou rce and distributed across

the entire network of u sers, and thus not subjec t to the con-

trol of any one person or entit y. In this regard, cr yptocur-

rency differs m arkedly from sovereign currency, which— as

in the case of Chi na’s digital yuan —is under the control of a

central banking system.

© Getty Image s

riginally con ceived as a medium for dai ly con-

sumer transac tions without the need for banks,

credit cards, or pap er money, “cryptocur-

rencies” have proven remarkably succes s-

ful over their short l ifespan. Bitcoin, the most

widely known cry ptocurrency, launched i n 2009 at less than

$0.01 per unit. Four ye ars later, its price per u nit crossed

the $1,000 thr eshold, and by end of 2020, it had reache d

$24,000.

Other virt ual currencies, such as Et herium and Litecoin,

have charted sim ilar trajectories. Sovereign govern ments,

which historica lly have monopolized the creation and dis-

tribution of money, have taken notice and b egun developing

their own vir tual currencies to compete. C hina, for example,

recently began te sting the “digital yuan,” a fully ele ctronic

form of money under the control of it s People’s Bank.

Part of cryptoc urrencies’ astonishing accele ration in recent

years stems from a ch anged appreciation of their value poten-

tial. Consist ent with the initial conception of vi rtual currency

as a medium of exchange, e arly analyses of cryptocur rencies’

price focused on t heir utility for daily transac tions. Most

recently, institutiona l investors have also come to appreci-

ate cryptocu rrencies as a store of value and a potential hedge

against in ation. This took on heightened impor tance during

the COVID -19 pandemic as increa sed government spending

sparked new concerns about t he erosion of value of sovereign

currency. Countrie s like Venezuela, which has seen hyper-

ination of its cu rrency, have unsurprisingly witnes sed huge

increases in t he acquisition and use of cryptocur rency by

their citizens.

2 | S ECTION OF LITIGATION

TECHNOLOGY