This is one article in a collection of 52 articles published weekly throughout 2023 on the basics of Bitcoin. The series is intended for people unfamiliar with Bitcoin or people wishing to enhance their understanding of the fundamentals that underpin the technology. Please contact us, if you have any questions or comments.
Before diving into the details of Bitcoin it is important to explore and think about one overarching question - what is money? Oddly, few people have actually ever really thought about this topic as money has been prevalent in our society for so long it is taken for granted. Give any person in the United States a $100 bill and that person will be confident that he/she can go to any store and buy something of value with the sheet of paper. Prior to the invention of money, individuals were forced to barter goods and services in exchange for every single good or service that was exchanged. This was a terribly inefficient process and without question crippled the growth potential for humanity. Money ended the need to barter for every single transaction. It is not hyperbole to say the invention of money was one of the most important discoveries in human history. But what exactly is money?
Money is a belief system with three main functions. Money functions as:
- A unit of account - This feature allows the currency to value goods and services, record debts and liabilities, and make calculations based on a standard numerical unit of measurement.
- A store of value - This feature means the currency can be saved, retrieved, and exchanged at a later time.
- A medium of exchange - This feature means the currency is widely accepted and therefore can be used as an instrument to facilitate the sale, purchase, and trade of goods between various parties.
In the early days of money, gold, silver, and other scarce metals were minted by the ruling power into coins which served as the instrument of money. However, fiat currency is the primary money used in societies today. While the US dollar is strong and historically reliable, it has been unpegged from gold since 1971. Aside from being backed by the most powerful military in the world, the dollar is solely backed by trust. To a large extent the lack of an asset backing the US dollar has not been problematic to date. However, for fiat currencies that are not the global reserve currency like the US dollar, the situation is frequently more bleak. Countries such as Zimbabwe, Venezuela, and Argentina have all suffered from hyperinflation which has a demoralizing impact on the country’s population.
Thinking about what money is should be a fundamental question everyone should explore as it impacts everyone. While the fiat system has worked for a certain segment of the population, it does not work for a portion of the world’s population, particularly the poorest people on earth. In light of the massive amount of money printing that has gone on since COVID, the current fiat system could be under great stress moving forward. Therefore, it is worthwhile to think of any improvements that could be made to the monetary system that could benefit the entire world population instead of just the global elite.
