Sound money is any form of globally recognized currency that can function as a stable and reliable store of value. Even under this simplistic definition, it becomes difficult to continue recognizing mainstream currencies as sound, due to manipulations by central banks and similar bureaucracies.

Cryptocurrency is sometimes proposed as a sound alternative, but can we really consider cryptocurrency to be sound money?

The Dynamics of Cryptocurrency

First, we must understand what cryptocurrency is -- and what it isn’t. Cryptocurrency is any form of digital currency that relies on the blockchain, or similar technology, to facilitate transactions. The blockchain is a technology that relies on an interconnected network of nodes to preserve and update a shared ledger through consensus.

Each user in the network functions as a node, processing a kind of vote to legitimize transactions and update records. Because this process involves the processing of cryptographic hashes, it's anonymous and secure -- or at least more anonymous and more secure than something like a credit-card transaction.

Unfortunately, we can't say much else about what cryptocurrency is because there are so many different kinds of cryptocurrency. Each cryptocurrency has its own model for how transactions are processed, how new currency is created, and other variables.

Still, we can take what we know about cryptocurrency, in general, to evaluate whether it's possible for a coin to be considered sound money.

Reasons for Skepticism

There are some reasons for skepticism, and we'll address those first.

Reasons for Validation

Now let's take a look at the reasons why we can validate cryptocurrency as sound, or potentially sound money.

It's hard to say exactly what's in store for the future of cryptocurrency. With so many technological innovators, it's feasible that we may see the emergence of a cryptocurrency that overcomes all the current limitations of this digital money.

Even now, there's a very compelling argument to be made that cryptocurrency, when executed correctly, is sound money -- or at the very least, it's more sound than the fiat currency we currently use on a daily basis.

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