Who needs cryptocurrencies?

A currency can be anything. In primitive societies it can be cowrie shells, in prison it can be cigarettes.

What matters it that other people will accept it at a known value.

In the west we use pounds, dollars, euros etc. We can easily buy stuff with cash, a credit or debit card or check / online transfer.
The transaction cost is small. In fact when I spend using my Chase Visa card I get frequent flier miles; although I do need to pay $150 a year for the privilege.

A cryptocurrency has two main characteristics:

It relies on a so-called “trustless” system of blockchain where there is no central bank such as Barclays Bank, Wells Fargo (etc) or even PayPal. Instead ledgers are kept on multiple computers around the world which must match, otherwise the transaction is seen to be fraudulent.

It “floats” against other currencies being worth, in fiat currencies, what someone is willing to pay for it.

So why would anyone need a currency that is outside the realm of our usual fiat currencies?

  1. For illegal activities that cannot be conducted face to face with cash. Such as drug dealers, ransomware blackmail etc.
  2. To evade taxes. Imagine one owned a restaurant and had bought jewelry for cash over the years. Now you want to sell it. You could sell it to a jeweller but would get a low price. Or one could sell it on the internet and accept cryptocurrency that one hopefully could use to buy something else. Hiding the transaction from the tax authorities is more important than the fees charged.

Or one could simply perform services and be paid in cryptocurrency to evade reporting the income.

  1. You live in a country with rigid exchange controls: such as Cuba, China etc. You hope therefore to get money out of the country.

There’s a lot to be said for reducing transaction costs associated with transferring money. But I don’t think the current cryptocurrencies achieve this.