MAS-Chains: The Value in a New Economy (Part #1) - What is Currency?

Part #1 - What is Currency?

Introduction

I like to think I am not alone in saying that most people I talk to about MAS-chains and cryptocurrency in general don't take well to the concept of "fake money", as they like to call it. While I absolutely love to constantly debate the how tokens backed by MAS-based chains hold value just as the U.S. dollar holds value, I figured I should create a series of posts discussing the matter. It is my hope that these posts will provide all of you a resource to show your friends, family, and any other non-believers to help educate them on how MAS-chains and their related currencies are valuable. As always, debating is promoted, but please keep it civil! If you have any questions or thoughts on this subject matter, please don't hesitate to comment below in the comment section - I am not an economist, thus I welcome professional viewpoints. Additionally, if you want to have this discussion with the Morte et Tributa community, you can join the MET Discord.

These posts will cover the following topics:

1. A Brief History of Money - Covered in Part #1
2. The 3 Functions of Money - Covered in Part #1
3. The Value of Fiat Currency
4. Factors Affecting Currencies' Exchange Rates
5. The Federal Reserve
6. The Value of MAS-Chains

Key Vocabulary

First, before we begin - it may be helpful to define some key vocabulary, which follow:

1. Bartering - The act of trading one good or service for another.
2. Commodity Currency - A commodity that has been established as a medium of exchange. Some examples of this include gold, beaver pelts, wheat, etc. These are commodities that have such universal value that it is widely accepted from goods and/or services.
3. Gold Standard - A monetary system in which currency is backed by a fixed amount of gold. The currency, at any point in time, is redeemable for the underlying gold. Thus, if supply of the currency increases, the amount of gold it is redeemable for decreases. The U.S. began using the Gold Standard in 1879, initiated its removal in 1933, and ultimately severed all ties to gold by 1971.
4. Legal Tender - Currency deemed as acceptable for the payment of debts in an economy/country. This currency must be accepted as valid payment for any legally enforceable debts.
5. Fiat Currency - Currency that is deemed legal tender and is not backed by any physical commodity with intrinsic value. Instead, the currency is backed by faith in the government and the economy.
6. Time Value of Money - A concept which states that money held in the present day is worth more than the identical sum of money held in the future due to its earning capacity, provided they money can earn interest.
7. Scarcity - The gap between a limited amount of resources and theoretically limitless demand. Scarcity is required for currency to have value.
8. Exchange Rates - The amount required of one currency to purchase one unit of another currency. (i.e. it costs .87 EUROS to purchase 1 U.S. Dollar).
9. Gross Domestic Product (GDP) - The total value of goods and services provided by a country in a one-year time frame.
10. Principle - The total amount of the initial investment or loan. (i.e. if you receive a loan of $1,000,000 and ultimately pay it off with $1,800,000, only $1,000,000 is attributable to the principle).
11. Interest - The amount paid above and beyond the initial investment or loan. (i.e. if you receive a loan of $1,000,000 and ultimately pay it off with $1,800,000, only $800,000 is attributable to the interest).
12. Network Effect - The correlation between value of a good or service and number of participants that participate in the good or service; as participation increases so does the value. A great example is the internet and Facebook. With few or no participants in these services, they would be worth nothing. However, as more people start to use the service the value of the service exponentially increases.

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A Brief History of Money

Fiat currency - it is used everyday by people all around the world. You purchase your groceries with it, your clothes, your entertainment, and some even kill for it - but why? What exactly is money anyways?

Money has not always held the same form that it does today. Prior to Fiat Currency, and before any other established currencies, people used to Barter. Bartering required person #1 to find person #2 who had a good/service that person #1 wanted. Additionally, person #2 had to want the good/service that person #1 was offering. As you can probably tell, this was very inefficient. This inefficiency led to societies establishing Commodity Currencies. Examples of commodity currencies consisted of things such as precious metals (gold, silver, etc.) and other commodities that were widely accepted as valuable, transportable, and easily stored. Now, you may be thinking to yourself, "Well @MET, the U.S. dollar is backed by gold - silly!". However, I am sorry to inform you that you are sadly mistaken, because the Gold Standard ended in 1971. The ending of the Gold Standard gave rise to our present-day currency: Fiat Currency. Fiat Currency derives its value simply from and is backed by faith in the government/economy.

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The Functions of Money

There are three fundamental functions of money:

1. Medium of Exchange - Think back to the previously mentioned Bartering example. Imagine having to carry on life constantly searching for someone who has what you need and, moreover, needs what you have. This is where medium of exchange comes into play. Money acts as a medium of exchange in that it is determined to have a universally accepted value and as such, is more widely accepted in any value exchanging relationship. No more trading turkeys for toilets!
2. Store Value - This simply means that when you have money, it keeps value. Now if you ask me, this is a little misleading - due to the constant printing of money, currencies are subjected to inflation - ultimately resulting in lower buying power long-term. Thus, while a dollar will always be worth a dollar, a dollar today is worth much more than a dollar 30 years from now - this is what we call the Time Value of Money - but, I digress. Think, while the gallon of milk a farmer's cow can produce for Barter will expire - the value of money will not. Money is representation of value added activity. If you provide a valuable good/service you are given money that shows you provided value.
3. Unit of Account - You see examples of this every time you go to the store and look at price tags. All this means is that it allows for goods/service to be valued easily using the currency. You would simply say, "I paid X dollars for my television" not, "I paid a bike and two chickens for my television".

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Conclusion

This concludes MAS-Chains - The Value in a New Economy (Part #1). Hopefully, after reading this you have gained better understanding of the basics of currency and its evolution into the currency we use today: Fiat Currency. It is my belief that an understanding of the fundamentals of currency is paramount in not only understanding how MAS-chains provide value, but also in fighting for monetary freedom. If you enjoyed this post, be sure to stay tuned for Part #2 where I will discuss Fiat Currency.

As always, have a wonderful day and, if you would like to learn more about Morte et Tributa (MET), continue to read below!

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About the Author

I hold a Master’s degree in Accounting with a concentration in Information Management. This degree has given me years of exposure to topics, as it relates to the USA, such as: financial reporting, financial statement audits, information systems audits, tax regulation, business law, and overall general business knowledge. Shortly after obtaining my degree I worked for a large public accounting firm for about a year, focusing on IT audits, only deciding to leave to put more focus on cryptocurrency.

While I am not technically a Certified Public Accountant (CPA), I have met the educational requirements and passed all four sections of the CPA on the first try; the only requirement left is to obtain the required experience hours, which I am extremely close to. All of this being said, I can safely say that I am well versed in business knowledge and am more than capable of learning business related concepts.

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