What is Money?

And why Bitcoin is the best form of it

If you ask an Economist or Google “what is Money?” you will be probably given this answer: “a medium of exchange, a unit of account and a store of value”

dictionary definition of money

Although the answer is academically correct it doesn’t really tell us much.

Looking at history we see that many items have performed the function of Money: seashells, stones, salt, glass beads, cigarettes and most notably metals, with the king being Gold.

So what is Money?

Money is a technology to move value across Space, Time & Scale.

How can something move value across Space?

Before we answer that, let’s first see what is Value.

Value is, simply put, stored energy.

When you go to work you exchange your energy (physical & cerebral) for Money that are later exchanged for goods & services that also requires energy to be produced (a car, a haircut, a pair of shoes..)

Alright, back to what is needed to move energy (value) across Space:

Obviously it needs to be Portable: a bar of gold cannot be moved easily (think of transportation & security costs) on the other hand govt Money are extremely portable as you can send them digitally anywhere.

However govt Money have an even bigger problem than Gold; they’re not Permissionless: the bank, the payment processor (Visa, Paypal, etc) and the government can stop any transfer for whatever reason they deem fit.

Lastly it needs to be Liquid (have buyers in all locations): if you were a Syrian refugee there would be little to no value to your govt Money in any other country.

Ok that’s interesting, what about moving value across Time?

To start it needs to be Durable: its physical properties cannot be altered by the passing of time. Very few items possess this property which is one of the main reasons why Gold became money and why there are companies today whose sole job is to retrieve Gold coins in sunk vessels that have been the bottom of the ocean for centuries.

Secondly it needs to be Scarce: difficult or impossible to produce. Things that are not scarce, either by nature or by design, will be inflated away and lose most of their value. Imagine what would happen to the price of Gold if there was an asteroid full of Gold that would increase the supply by 1000 times.. spoiler alert: there is

More importantly it needs to be Unseizable: Money that can be taken away by force will, in the long run, be seized either by the govt, an invading country or by criminals.

Finally, how can something move value across Scale?

This one is easy, it just needs to be Divisible & Fungibile.

To be Divisibile is the capacity for something to be broken up in small quantities & be reassembled easily, think of melting Gold jewelry to make new Gold coins.

Fungibility means that there can be no differences amongst the items used as Money, and that one unit of such Money is able to replace or be replaced by another identical unit; mutually interchangeable. A Picasso painting is not fungibile while a commercial printing of a Picasso painting is very fungibile.

Now that we have understood the properties of Money let’s see why Bitcoin is the best form we ever had.

Portability: according to Einstein nothing can move faster than light, Bitcoin is transferred digitally at (near) the speed of light.

Permissionless: Bitcoin lives on a decentralized database called blockchain with no central party or authority. Even if you wanted to you couldn’t find anybody to ask permission to.

Liquidity: Bitcoin is traded 365/24/7 in almost every country on earth.

Unseizability: Bitcoin can be stored in somebody’s mind by memorizing the seed phrase. Unless govts develop mind reading technology it is practically impossible to seize it.

Durability: Bitcoin is software and software cannot decay or be damaged as it has no physical properties.

Scarcity: Bitcoin is the first asset in humankind with a mathematically fixed supply (21M) … there are no asteroids full of Bitcoin out there.

Divisibility: Bitcoin is currently divisibile in 100,0000,000 parts, called Satoshi, however there are no mathematical limits to how many times it can be subdivided.

Fungibility: Unlike Gold or paper money, Bitcoin cannot be counterfeited nor does it have any physical appearances, conferring it perfect fungibility.

To recap: Money is a technology to move value (energy) across Time, Space & Scale, in order to achieve so it needs to have one or more of these properties: Portability, Permissionless, Liquidity, Unseizability, Durability, Scarcity, Divisibility and Fungibility.

To this date no technology has perfected all of those properties better than Bitcoin.

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Italian born, US stationed. #bitcoin