The cryptocurrency market’s wild ride seems to be sparking a wealth of articles arguing that digital currencies are headed to zero valuation, while others believe they aren’t really currencies at all, but rather commodities like gold. I couldn’t disagree – or agree – more.

 The fact is, it’s complicated. Cryptocurrencies challenge conventional wisdom.

I believe that cryptocurrencies are hybrid instruments, created for a digital world. As such, they can act as currencies and commodities at the same time.

This kind of duality is nothing new. Since the time of Sir Isaac Newton, the proper way to classify things as elemental as light and electrons has been a topic of great debate. He was in the camp that light is made of particles, while the opposing camp theorized that electromagnetism relies on light as a wave. Ultimately, both were proven to be right.

Cryptocurrencies share this same duality: They can be currency and commodity. But perhaps most importantly for the average person, they are also complex networking protocols that allow us to transfer money anywhere in the world, in near-real time. To force cryptocurrencies into an existing category or asset class is to sideline the full potential they offer. This complexity is why regulators in different countries still disagree on how to classify cryptos.

Jesse Lund (Photo: IBM)

If an asset or a commodity can be digitized, it can be easily traded globally, enhancing liquidity and value. At IBM, our blockchain strategy has focused on process transformation and the trust aspects of shared data on a blockchain network. We increasingly see benefits to a future where all assets, including financial assets of all classes, will ultimately live as digital tokens on openly accessible and interoperable networks. At this point in the market’s maturity, to try to force cryptocurrencies into an either/or category is to sideline more than half the potential value that they represent.

The suggestion that Bitcoin is the new gold positions it not as something you’d use for daily transactions, but more as something appropriate for storing value. I see merit in this position, but also several common misconceptions that bear a closer look.

One misconception is that cryptocurrencies are inefficient, slow and laborious. Compared to what? The real benchmark we should be using to evaluate the efficiency of cryptocurrencies is the international wire transfer system, also known as correspondent banking. Cryptocurrencies can take 10 minutes to complete an international settlement between counterparties, and the fee is not unreasonable. That’s why a growing number of banks are exploring blockchain solutions to transform their international payments operations.

Another misconception is that the end of cryptomining will result in a sizable increase in transaction fees. I believe the opposite is true, and the end of cryptomining can’t come soon enough. The economics of cryptocurrency network operations are much different now, and more complicated, than they will be when mining stops. At that point, the profit motive of mining will go away and the number of nodes on the network will shrink.

This leaner group of transaction processors will likely agree on fees that are predictable and equitable, with a profit motive that seeks simply to sustain the network rather than to win the prize for the next block in the chain. A revised and more predictable crypto fee schedule will in turn force traditional payment processors to rethink their fees. Remember, a blockchain-based cryptocurrency is a democratic payment network that votes on its own future — including fees.

The final misconception is that cryptocurrencies bear more resemblance to gold and therefore are not good payment vehicles at all.  But I believe cryptocurrencies were conceived for the very purpose of payments and can serve equally well as a transfer of value, like currency, as they can a store of value, like gold. They just need to be applied in the right context. The transformational potential that cryptocurrencies offer today’s payment networks is why corporate treasuries, bankers and central bankers are watching this movement so closely and beginning to explore ways to apply blockchain to their own currencies and payment systems.

One instance of this is Sveriges Riksbank, the central bank of Sweden. It’s the world’s oldest central bank and the third-oldest bank still in operation. Riksbank is in the midst of evaluating the introduction of an official digital alternative to cash: a state-backed cryptocurrency that replaces legal tender, called an e-Krona. The vision is to create a government-guaranteed means of payment without credit risk that is available to the public in digital form. Although Riksbank’s vision on cryptocurrencies may be the most provocative among all the central banks, it won’t be alone in pursuing this strategy.

Like electricity and its ability to be both wave and particle, cryptocurrencies can be two things at once. So are cryptocurrencies the new gold standard for digital payments? Or are they digital gold? The answer is yes: They’re both.

Jesse Lund global head of blockchain market development, digital currency strategy, solutions engineering and client engagement for banking and financial services. He wrote this commentary for SiliconANGLE.

Image: TheDigitalArtist/Pixabay