What is Money?

Reason to Use Bitcoin 8: Money is one of society's most remarkable yet poorly understood inventions

What is money? Lots of people have confidently told me that “money is the root of all evil” yet when I ask them what money is, they can’t seem to come up with an answer. Why is it that so many people seem to think that money is innately evil? Why doesn’t anyone understand what money is or how it works? Money is one of society’s most remarkable yet poorly understood inventions and without it we could not enjoy the pleasures of living in a modern society. In order to better understand what money is, I would like to ask you a question. If money is the root of all evil, then what is the root of all money?

What is money? Is it these pieces of paper that we use to buy things? or is it something more than that?

Money is a Tool

Money is a piece of technology that we use to weigh and measure goods and services against each other. In short, money is a tool for exchange and organization. Without money, we simply could not organize and solve problems of large scale. Unfortunately, too many people view money as the end rather than the means which is one of the reasons money gets a bad reputation.

Ok, so we know that money is a tool but what does this tool do and what allows it to work?

Money is anything that does three things. Money is a store of value, a medium of exchange and a unit of account. Anything that performs these three functions is, by definition, money. This means that no matter what you use to do these three things, you are using money.

Money is a Store of Value

Money needs to be storable. One of the first forms of money was salt because everyone wanted it to season their food. Once it was so widely desired, people who had salt would use some for seasoning their food and they would store the rest so they could trade it with others. In this sense, salt was a store of value. One of bitcoin’s primary functions is as a safe haven asset to store value.

Money is a Medium of Exchange

Money needs to be exchangeable with other parties. After salt became sought after by everyone in a society, it was easy to trade with others for goods and services. Bitcoin is not yet accepted directly by most as a means of exchange but many payment processors are enabling it to be used as one. Some platforms exclusively use bitcoin as the payment mechanism because they understand its utility as a means of exchange.

Money is a Unit of Account

Money needs to be used as a unit of account. Since everyone was using salt to store value and exchanging it with other people in their society, salt could also be used as a unit of account. In ancient markets, simple scales were used to account for different amounts of salt. Trading things measured out in salt was what would allow for people to account for certain things. Trade can easily be accounted for using Bitcoin since each bitcoin can seamlessly be divided into 100 million units.

In order for money to be able to successfully do these three things, it needs to have 6 characteristics; durability, portability, divisibility, uniformity, scarcity and acceptability. The more of these qualities that something has, the better that something functions as money. Salt does not possess these qualities (durability & scarcity) and so it was gradually replaced by better forms of money like gold. Bitcoin possesses all of these characteristics to an even greater extent than gold.

Bitcoin is a Far Greater Tool Than Money

The first application that brought the internet into mainstream use was the invention of e.mail. For the first time in history, people could send mail to each other electronically and this was groundbreaking technology at the time. But as we all know, the value of the internet is so much more than email.

Bitcoin is no different. Its first application is being recognized as a form of money but it will not be long before people around the world realize that it is capable of doing so much more than just buying things. Bitcoin is a distributed network that can send, receive and store information and it does this better, faster and with a lower cost than any existing system. Since modern money has become information, this has immense implications for the future of trade, all forms of record keeping and information exchange.

Bitcoin Is Competitive Money

When you go to the store, you have all sorts of choices on what products you can buy. You can decide what type of car to drive, or what dry cleaner to use and what cell service provider will drop your calls but what about money? Do we have the freedom to chose what money we use? The short answer is no, we don’t.

So I would like to bring this back to my original question, What is the root of all money?

Up until the invention of bitcoin, the control of all money supplies has been in the hands of a small group of elites and central bankers but now that bitcoin and cryptocurrencies are here, that control is shifting from central banks to the people.

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What do you think is at the root of all money? Let us know with a comment below or a tweet at @BitcoinReasons

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