"In my youth," said the sage, as he shook his gray locks, "I kept all my limbs very supple, By the use of this ointment, five shillings the box— Allow me to sell you a couple."
What is money? We use it every day, yet this question is surprisingly difficult to answer. We are dependent on it in ways big and small, and if we have too little of it our lives become very difficult. Yet, we seldom think about the thing which supposedly makes the world go round. Bitcoin forced me to answer this question over and over again: What the hell is money?
In our “modern” world, most people will probably think of pieces of paper when they talk about money, even though most of our money is just a number in a bank account. We are already using zeros and ones as our money, so how is Bitcoin different? Bitcoin is different because at its core it is a very different type of money than the money we currently use. To understand this, we will have to take a closer look at what money is, how it came to be, and why gold and silver was used for most of commercial history.
“In this sense, it’s more typical of a precious metal. Instead of the supply changing to keep the value the same, the supply is predetermined and the value changes.” Satoshi Nakamoto
Seashells, gold, silver, paper, bitcoin. In the end, money is whatever people use as money, no matter its shape and form, or lack thereof.
Money, as an invention, is ingenious. A world without money is insanely complicated: How many fish will buy me new shoes? How many cows will buy me a house? What if I don’t need anything right now but I need to get rid of my soon-to-be rotten apples? You don’t need a lot of imagination to realize that a barter economy is maddeningly inefficient.
The great thing about money is that it can be exchanged for anything else — that’s quite the invention! As Nick Szabo brilliantly summarizes in Shelling Out: The Origins of Money, we humans have used all kinds of things as money: beads made of rare materials like ivory, shells, or special bones, various kinds of jewelry, and later on rare metals like silver and gold.
Being the lazy creatures we are, we don’t think too much about things which just work. Money, for most of us, works just fine. Like with our cars or our computers, most of us are only forced to think about the inner workings of these things if they break down. People who saw their life-savings vanish because of hyperinflation know the value of hard money, just like people who saw their friends and family vanish because of the atrocities of Nazi Germany or Soviet Russia know the value of privacy.
The thing about money is that it is all-encompassing. Money is half of every transaction, which imbues the ones who are in charge with creating money with enormous power.
“Given that money is one half of every commercial transaction and that whole civilizations literally rise and fall based on the quality of their money, we are talking about an awesome power, one that flies under the cover of night. It is the power to weave illusions that appear real as long as they last. That is the very core of the Fed’s power.” Ron Paul
Bitcoin peacefully removes this power, since it does away with money creation and it does so without the use of force.
Money went through multiple iterations. Most iterations were good. They improved our money in one way or another. Very recently, however, the inner workings of our money got corrupted. Today, almost all of our money is simply created out of thin air by the powers that be. To understand how this came to be I had to learn about the history and subsequent downfall of money.
If it will take a series of catastrophes or simply a monumental educational effort to correct this corruption remains to be seen. I pray to the gods of sound money that it will be the latter.
Bitcoin taught me what money is.
Down the Rabbit Hole
- End the Fed by Ron Paul
- Shelling Out: The Origins of Money by Nick Szabo
- Money, blockchains, and social scalability by Nick Szabo