On Money

What is Money?

Money is all about power -CSW

Money is a function of our time. It is our time on earth, our sweat and a record of our efforts. Money is a call option on all of society at that point of time. Money is information. It enables you to have information. It is information on where you can invest and where there is opportunity. It is not that you can save for today but that you can create more for you tomorrow.

Money is not wealth

We misunderstand money because of one main misconception- we equate wealth to money. Wealth is the sum of all things and services that we can buy with money. The fields, the buildings, the computers, the IT repair guy all of this adds to wealth. Money is used to measure wealth.

The Origin of Money

Suppose a wine-dealer wants a quantity of bread from a baker : but the baker wants only one-half the equivalent quantity of wine from the wine-dealer, or perhaps even none at all. The wine-dealer takes the bread from the baker and gives him in exchange as much wine as he wants, and makes up the balance by giving an amount of this generally exchangeable merchandise : or if he wants no wine at all, the wine-dealer gives him the full Value or equivalent of the bread in this merchandise.

Money is a record keeping mechanism

Starting in the Late Bronze and Early Iron Ages, communities created silos that were excavated into the floors of houses not only for the storage of grain in a single year but to save across one year to the next. Storages started to increase in size as towns and villages became larger. The resulting larger granaries served a communal and administrative purpose, and the farmers would be given a tally related to the weight of grain deposited.

Commodity Money

Instead of actually exchanging grains, the farmers decide to use their granary receipts to exchange items. Initially let’s say that the farmers were recording their right on just a piece of paper from the granary. But the farmers realize that the granary owner can cheat them by just issuing more paper than the grains in his warehouse. He actually doesn’t have that much grain stored but society perceives it as that much grain stored. To prevent this, society would rather record the right in a way that is difficult to counterfeit. Throughout history, we have found that commodity money fulfilled this function well because it was a scarce good. Gold has a cost to be obtained and that is why it has value recorded on it. Something that is hard to obtain stores value better and other properties such as durability help society store value in it.

Money must stand the test of time and the elements. It must not fade, corrode, or change through time. — Aristotle

In a low trust society where the merchant cannot trust the granary owner, metallic credit is used. When there is an advance in civilization, there is also a shift in the form of credit that is used.

Fiat Money

Fiat Money is a currency without intrinsic value that has been made legal tender by a government decree. Fiat Money is backed by the government that issued it and has been adopted by society because it is more efficient than using gold for exchanges.

The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. — Satoshi

Collaborative Money

Bitcoin is collaborative money. It is a tamper proof way to record data. In a society that has trust in the legal system, in the system of rights, Bitcoin functions as a better money. The rights are written into every bit, and they cannot be tracked.

Libertarians who have preferred gold to Bitcoin have failed to appreciate the value of money as a form of cooperation. Bitcoin is better cooperation in part because it’s stupid to steal it. Bitcoin is not like gold. Gold is a form of money suitable for a primitive and violent society.- Daniel Krawisz

Bitcoin is the only scarce good that has truly existed. Bitcoin opens up the ledger in such a way that the entire world can record and trace every exchange.

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