Money, In Brief
by Deana Burke
January 8, 2020
1. MONEY. We use it every day. It’s been around in various forms for roughly 4,000 years. Slang terms for money rival only slang terms for sex by volume.
2. The simplest definition for money is that it’s a ‘unit of exchange.’ In America, these exchange units are called dollars, and they’re printed by the Federal Reserve.
The value of the dollar is determined by the demand for it, through foreign exchange trades, foreign exchange reserves and the value of treasury notes.
The dollar is relatively stable and has an anticipated inflation rate, which is when the value of a currency declines over time.
3. The dollar is backed by the “full faith and credit” of the U.S. Government. It used to be the case that dollars were redeemable for gold, however the gold standard ended, officially, in 1971. So today, your dollar isn’t redeemable for gold or silver, but it is “backed” by the power of all the goods and services in our economy, i.e. our GDP.
4. This is where money gets magical. We all have to believe in its value in order for it to possess that value.
Nothing is ‘inherently’ valuable.
It is because we say it is. Gold is valuable because we believe in it’s value. The dollar is valuable because we believe in its value. Money, in all forms, is a product of our collective human imagination.
5. Throughout history, we’ve assigned value to many different types of things that were useful in the context of the time. Fruit, cowry shells, feathers, and of course, gold and other metals have all been used in trade.
6. Over time, we decided that good money usually has the following characteristics.
- Durable - can move hands many times without being worn out.
- Portable - it’s convenient to carry.
- Divisible - can be divided up into smaller units.
- Distinguishable - it’s easy to recognize and difficult to fake.
- Acceptable - can be used to exchange for goods/services in all locations.
- Scarce - there is a fixed or controlled amount of the currency.
7. Bitcoin is a new type of digital money that came into existence in 2009. Bitcoin is a consensus network that relies on a distributed ledger to keep track of all the transactions. Bitcoin is trustless and decentralized, meaning it runs on network notes all over the globe, with no government or corporation at the helm. Bitcoin contains elements of all of the characteristics of ‘good money’ listed above. Its scarcity, in particular, is one of the reasons many people find it such an attractive container for value, as there will ever only be 21 million Bitcoin in existence. This makes it a deflationary currency, rather than an inflationary currency, like the dollar.
As we enter the digital age, many people think a money designed for transacting online may become a dominant one.
8. This month we’ll explore how Bitcoin has captured the imagination of Silicon Valley and Wall Street. We’ll talk about its promises, its threats, and the many issues surrounding its use. We’ll look at interesting projects using crypto technology, and the perspectives of the old guard.