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Home » To Understand Bitcoin, We First Need To Know What Money Is
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To Understand Bitcoin, We First Need To Know What Money Is

Abdulmujeeb OwolabiBy Abdulmujeeb OwolabiUpdated:February 17, 2022No Comments6 Mins Read
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Recently, a well-known financial Twitter (or #FinTwit) person said that “bitcoin is a pretty bad form of money.” This person was on the TV show Real Vision. When Fidelity Digital Assets came out with a report called “Bitcoin First: Why investors need to separate bitcoin from other digital assets,” they said that “Bitcoin is best thought of as a monetary good.” Bitcoin is likely to be the most important monetary good, and another digital asset isn’t likely to replace bitcoin in that role. Financial experts can come to very different conclusions about the same thing. People don’t understand what money is.

To Understand Bitcoin, We First Need To Know What Money Is

What is money, really?

Money is a thing. How do I like to ask clients? A financial advisor rarely asks this question of themselves. There is no right or wrong answer, and there is no right or wrong answer. The best way to understand bitcoin is to learn about money history and how digital networks work. For the first part of this series, we’re going to break down what money is.

From seashells and wampum to gold and silver to paper receipts backed by physical metals to government-issued fully fiat currencies, we’ve gone through a lot of changes in the way we use money over the years. Saifedean Ammous, an economist, wrote in his book “The Bitcoin Standard” that “the better the money is at holding its value, the more it encourages people to hold off on buying things now and invest their money in the future, which leads to better living standards.” As long as we’ve been alive, we’ve only known about a fiat system. It’s hard to understand anything else.

Money is what we get in return for the money we make for society. In place of a scale, we have a scale in that dollars are our unit of account and measure of how much something costs. When we have money, we can become an expert on a subject or pay someone else for their expertise. Money makes it possible to trade. Read more; How to Invest in the Metaverse

Money’s five critical traits

To make money work, it doesn’t need to grow in size. It needs to have five important characteristics: divisibility, scarcity, portability, recognizability, and durability. Gold has been used as money for a long time. An ounce of gold in Roman times bought a tailored tunic, a fitted suit in the 1970s, and a wide range of fine custom suits in the 1980s and today. Gold, which is rare, durable, and easy to recognize, is terrible at being split up and moved around. Gold receipts and paper money solved this problem and let global trade grow.

Fiat money is very good at dealing with divisibility, portability, and recognition. There are problems with scarcity and durability, which again don’t make money the best way to spend it. As with any money, there must be a demand for it in order for it to work. When I wrote a newsletter article about bitcoin and inflation, I shared data that showed how much people were interested in bitcoin. NYDIG recently said that Bitcoin will process $3.0 trillion worth of payments in 2021, which is more than American Express ($1.28 trillion) and Discover ($504 billion).

How bitcoin functions as money

The stages of monetization for any object have always been the same. The object is a collectible, a store of value, a medium of exchange, and a unit of account. Before fiat money, part of what made something valuable was how hard it was to get or how long it took to make. Read also; Introduction to Cryptocurrency

Bitcoin solves this value proposition by its mining process, called proof-of-work, and the difficulty adjustment, which lets the mining network change how much computing power is needed to solve for the next block. These two things work together to make this value proposition work. In order to help keep the supply schedule as consistent as possible, the difficulty level can be changed. Every 10 minutes, a new block will be added. It’s an effective, but simple, way to solve a very difficult computer science problem for networks that share information.

To Understand Bitcoin, We First Need To Know What Money Is

There is a lot of work and money involved in mining Bitcoin, but the process of verifying transactions by nodes on the network all over the world is simple and almost free. People who use Bitcoin can get to a final settlement in a digital world quickly, using the mainchain or the Lightning network, depending on what they need. In order to figure out how fast something is, you need to include “final” settlement. For example, credit card transactions aren’t done until 24 hours later.

The future of money

Money is what allows people and businesses to work and grow. In order for trade and economies to run more smoothly, money that has all five of the main characteristics needed to be money needs to be both divisible, scarce, portable, recognizable, and durable. Imagine for a moment that we’re playing Monopoly, and I’m the banker. In each round, instead of following the rules that were set up at the start of the game, I make a new tweak or change. How do you plan for your turn? When will the next roll come?

The way people and businesses make money decisions isn’t any different. To make things easier for everyone, we all use the same measuring tool. This makes it easier for us to have a more productive society and economy. A family could run on savings, not credit, and make quick and cheap payments with bitcoin. This is what I think is possible because bitcoin as money lets families run on savings, not credit. By making money and living within your means, your purchasing power can go up by saving, not down like it does now.

Bitcoin is worth almost $1 trillion today in a world that is many times bigger than that. As Bitcoin turns 13 in 2022, what might a world where bitcoin is used as money be like? In the second part of this series, we’ll look at that world and figure out what it’s all about.

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Abdulmujeeb Owolabi
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Abdulmujeeb Owolabi writes SEO articles for businesses that want to see their Google search rankings surge. With his 5 years of SEO expertise in writing tech, crypto, and finance blogs, you can reach him on Owolabi@techloaded247.com His articles focused on balancing information with SEO needs–but never at the expense of providing an entertaining read.

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