Bitcoin Standard Ch. 1


Every intro to Bitcoin that I have read or listened to begins with an explanation of what money is. I can guarantee you've spent a whole lot more time thinking about what money can do for you than what money is. And while it seems simple enough, this book explained some things about money that I"d never bothered to think about, and what characteristics are necessary for something to be a good monetary medium. Exchanging goods directly (my apples for your fish) presents three obstacles. In order to be a good monetary medium, an object must help overcome them. 


1. Difference in scale. Imagine you want to sell your house. An interested buyer can offer you wheat. Wheat is great because you don't want to starve, but in order to match the value of your house, they'd have to give you more wheat than you are able to store or know what to do with. You can't just sell some portion of your house for wheat. Your monetary mediums have vastly different scales. Now, if they could offer you a wheat field, that would be a much closer match in scale. In order for something (good, silver, seashells, beads, government currency) to be a good monetary medium, in order to function well as money, that thing must be easily scaled- broken down into smaller units or grouped into larger units. 

2. Difference in time frame. If you're an apple farmer, your apples have value, people don't like to be hungry. But they won't be a good medium of exchange for many things. Let's say you want to but a horse. Your apples will start to go bad before you can accumulate enough of them to buy a horse. A simplistic example, but the idea is that a good monetary medium doesn't decay, it is resistant to tarnishing and rot. Successful economies that drive human progress are dependent on the ability to accrue wealth that lasts long enough to make larger purchases, to invest in more than just that day's needs. 

3. Difference in location. Let's say you have many horses. You want to use them to buy a house that is far away. Now you have to deal with moving all those horses all that distance, hoping they aren't too worse for wear after the journey and that you don't lose any along the way. Or perhaps you grow enormous, lovely pumpkins- have you ever tried moving an enormous pumpkin? My mom sent a huge one home with me for Halloween and I had to ask the neighbor to help me get it out of the car. Not a good monetary medium. A good monetary medium will be easily portable. 

After a good has overcome these three obstacles, it can be considered as a practical or useful monetary medium. But in order to be sound money, it needs to be salable. Salability means "the ease with which a good can be sold on the market whenever its holder desires, with the least loss in its price." there are a couple of factors that determine a good's salability. First, the more people accept it as payment, the easier it will be to sell it exchange it. The "least loss of value" comes from a monetary medium with a good stock to flow ratio. The stock is how much of the good is available and the flow is how much new product can be created at a time. When something is a good monetary medium, people will use it as a store of value, which removes it from circulation. This increases demand and therefore value, which prompts more to be produced. More being produced will lessen the value. So, if you store your value or your wealth in something that is easily produced, you might lose value through inflation (or, to yuse a more modern vernacular, money printer go brrrrr...). I know how Bitcoin ticks some of these boxes and I'm excited to learn more!

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