What Is Money? What Is Cryptocurrency?

In this post, we're going to go into the question of, What is money? Really, if we go back to our definition here, we've now moved on to Bitcoin with a small “B”, which is the currency that runs on the Bitcoin network and the first part of my definition here is that, a Bitcoin is a unit of digital currency. So let's take a look at that.

We call Bitcoin a cryptocurrency this is a new set of phrases people start to throw around and there's now a lot of different crypto currencies. The “Crypto” part is the cryptography which is encryption. So logically a crypto currency must be a currency that's encrypted and only the owner of each bit of currency has the key to unlock it. Bitcoin is also called a digital currency but the thing about making something digital is to immediately make it easy to copy. You can copy it with almost no cost.

If you think about piracy, you can think about the disruption that digital music caused before we had “Digital” music. The only way to copy music was to physically take a plastic CD and copy it in a physical sense and because there's a manufacturing cost there, that sort of discouraged piracy. You can still probably copy at home but it made it more difficult. And so when music became digital all of a sudden it made it free to copy and that caused a lot of problems. All digital goods have this problem of piracy and being easy to copy. The internet is great as it is because it's digital because everything's moved online and it is easy to copy everything. Everything's being moved into the digital world makes this problem bigger and bigger for all kinds of different industries.

So you might ask the question that, Can I just copy my bitcoins and make myself an instant millionaire? Well NO! Because there has to be consensus on the network about how much is in your Bitcoin wallet. So when you make a transaction that money has moved out of your wallet into someone else's and then everyone “knows” about it and that's determined by all the transactions that have ever been made. Because when you make a Bitcoin transaction the network knows that looking at where that Bitcoin came from. It came into your wallet at some point but it came from the person that paid it to you and they got it from someone else, who got it from someone else, who got it from someone else

Every single transaction is trapped. You can’t just magically create bitcoins in your wallet. You have to prove that those bitcoins were sent to you by someone in the past. That's all available on the blockchain and everyone already agrees on that. So you can't manipulate it.

Now going on to the currency more generally, at the most basic level, the currency is the thing that we use to buy stuff. So if that's true, Can I just use air as money? Well no, you can't. And why not? Well, because money is too easy to get hold of on your own! If I offer you some air in exchange for your car, you'll say no, Because I can get some air for free just by doing this right? So it's not worth anything to you. In addition to that, no one else is willing to accept air as payment. So even if you took the air then you have to turn right and be able to offer that to someone else and they’ll say the same thing. That they’re able to can get some very easily for free. So why should they accept it as payment? It has no value!

Now that is a very, very, very important point. Money is whatever someone is willing to accept as payment. So keep that in your mind. If I offered you a blank piece of paper as payment and you accepted that blank piece of paper as payment, its currency! As simple as that.

So here's a question, Are these money? American dollars? British pounds? European euros? or Japanese yen? or Indian rupees? The answer is yes and no! Reason why the answer is yes and no is because in one country, yes and in another country, no. So each of those countries accept their methods of payment. But why don't others? As I mentioned, money has value because we can spend it. And in any given country, what is the ultimate place where money is spent? Where's the one place you have no choice over where you spend your money and the form that it takes? That is The Government.

The government collect taxes and they get to decide what currency you have to pay your taxes in. Because every country has a government. That government says the national currency. In the United Kingdom, its British pounds and you will pay your taxes in British pounds. So the governments in each country kind of have a stranglehold on what could be used as currency. They'll allow people to trade in anything. At the end of the day when it comes to paying the government taxes you have to have some national currency.

So question is, Could I accept dollars as payment? Well me as an British citizen, yes, I could. But I'll have to compare some of it to the currency that I use. When it came time to pay taxes or I'd have to find someone else in my country that will accept dollars as payment. And if I couldn't find anybody I'd have to change the money back into my currency because pretty much everybody in my country accepts our currency as payment which is how come it continues to be used. And I'd also have to tell the government how much I’d earned in dollars so that they could charge me the right amount of tax on my earnings.

So here's another question. How does the government decide what to use as money or currency? Well, They ask these questions. There's actually five criteria for a good currency. The current has to be portable. Because you have to be able to give it to someone else when you spend it with them. It has to be durable. If I have some sort of currency like a US Dollar note, if I put it in my wallet and then come back the next day I want to make sure it hasn't disintegrated. Because otherwise I've lost my money. So there's a confidence thing, has to be durable. It has to be recognizable. In the United Kingdom, if I go to a coffee shop and I present a five-pound note, that person needs to be able to recognize and be confident that it is in fact a five pound note. Now a great fraud could potentially create a counterfeit which would look like a five-pound note and if it was a good copy and you gave that to someone they would believe that it is a 5 pound note and accept it as payment. So there’s a problem there. Another thing is this what's called fungible. Fungible means that one unit of currency is exactly the same as the next one. So if I've got two brand new five pound notes, one was yours and one was mine and we put them on the table and we mix them up and then we lost track of who's with which five-pound note, wouldn't really matter. Each one of us just takes one of the five-pound notes and we've both still got five pounds. We don't really care which one is whose because we know that if we give it to someone else they've both got five pounds worth of value. And finally scarce. This is interesting! This is why we couldn't use air as currency because it fails the test. Air is so abundant, it's so easy to get hold of. It has no value. So when we get onto more of the economic stuff about the economy and how the economy works you'll see that scarcity. The rarer something is generally the more value it has.

So in summary money is whatever someone is going to accept as payment, we went through that. The more people accept the thing as payment the stronger the currency is. If you're the only person in the world that will accept my blank piece of paper as currency then it’s a very weak currency. So with Bitcoin the more people adopt Bitcoin, the more people begin to use it, the more people begin accepting as payment and the stronger it gets. It all boils down to people who use the currency having confidence in it. So that's like trust and do I trust that that currency you're giving me has value and can I spend it with someone else and that it has value and those five characteristics we went through. Those are the things that make sure people that will trust it and they will last and be spendable in the future. So durability and all that kind of thing recognizable these are all the things that maintain trust in the currency and get everyone to continue using it. And finally the government in each country typically sets the laws on what can be used as currency and then they collect taxes in that currency which is typically why the same currency continues to be used in that country. Because at the end of the day everyone has to pay tax.

So that's an overview of what money really is. Or actually that was currency! What currency really is. There is a difference between money and currency but that is a topic for another post! We're going to get back to some of these concept here but we just layered the first layer of understanding here. So make sure to follow and keep getting Updated!!!

That's all for this post so until then, it's me AntiMatter, saying bye for now!

Peace!