Bitcoin 101: What Is Money?
This is the first installment in a Bitcoin 101 Series of short articles that will aim to educate readers about Bitcoin from the ground up.
The goal is to provide a series of concise, contained, digestable articles, able to be read in five minutes, that build upon one another like knowledge-legos and give the reader a more complete understanding of what bitcoin is, how it works, and how studying history shows us that technological paradigm shifts can and do often lead to monetary paradigm shifts.
We start by answering the question "what is money?" and analyzing the technological and social pre-conditions that have led to gold, and then fiat, "winning" the global competition of monetary goods and becoming the pre-eminent monetary mediums of the modern era.
The Series is meant to be approachable for beginners and also to enhance the knowledge and understanding of bitcoin veterans, hopefully framing certain aspects of bitcoin in a new light and setting off some light bulbs for even the OGs. Each installment will strive to clearly answer one, single question (or explain one, single topic), and end with a question that teases the next week’s installment for the reader to consider on their own.
I’m concurrently producing this Series for Onramp, a bitcoin asset management platform built on multi-institutional custody.
Readers can expect a new installment in the Series every Sunday for the foreseeable future.
What Is Money?
Medium of exchange. Unit of account. Store of value.
That’s the textbook definition of what money is. But really, those are the functions money serves once an economic good has emerged as money in a society.
Money is often the most salable good in an economy. The most salable good is the one that almost anyone will accept in exchange for almost anything else.
What are the attributes that tend to make an economic good salable?
All of these goods have been used as money at some point in history. We get the English word salary from the Latin salarium, which referred to a Roman soldier’s allowance to buy salt.
Salt, silver, gold, and bitcoin are all commodity monies. A commodity is an asset without an issuer.
Fiat is credit money. A big, complicated web of IOUs.
Besides being used as money at some point, what do all of these goods have in common?
They are all ledgers. A ledger is a summary of transactions used to keep track of who owns what.1
Whether you’re considering gold, fiat, or bitcoin, money is a ledger.
But in each case, who (or what?) controls the ledger?
Lyn Alden, Broken Money, 1