What do you use every day (a couple of times a day)? What do you need to survive? What is the reason for most crimes in the world? What is the reason why you wake up every day and go to work? What is one of the most important things for humans although no one will admit it loud?
MONEY!
We can’t live without it, but we don’t even understand what it is. We don’t teach our children about the concept, even more, we don’t learn by ourselves. Almost in every country in the world, there are no classes about money, investing, financial systems, taxes etc. We often fail by explaining to curious children what money is when they ask.
Why it is such a taboo?
There is no reason not to talk about money, although we simply don’t.
So, what money is?
“Money is any good that is widely used and accepted in transactions involving the transfer of goods and services from one person to another”.
Economists differentiate among three different types of money: commodity money, fiat money, and bank money. Recently, we experienced digital money as a 4th type, however IMHO we should call digital money “cryptocurrency”. Below explanation why.
Let's start from Commodity money. It is a good whose value serves as the value of money. Gold coins are an example of commodity money. In most countries, commodity money has been replaced with fiat money.
Fiat money is a good, the value of which is less than the value it represents as money. Pound bills are an example of fiat money because their value as slips of printed paper is less than their value as money.
Bank money consists of the book credit that banks extend to their depositors. Transactions made using checks drawn on deposits held at banks involve the use of bank money. We can here say that this model is rather rare these days.
Now let’s move to my favourite part – digital money aka cryptocurrency.
If you will think about any money in the world, most of them are digital. However, still, we have 50% cash among all money on the world (screen below). However, in developed countries, we are talking about ar. 80%. If we will apply that common sense to Fiat Money - Euro, Pound, Dollar are as well as digital money. That is why I will call the last model – Cryptocurrency instead of Digital money.
A cryptocurrency is a currency that uses cryptography for security. Cryptocurrency is difficult to counterfeit because of this security feature. Many cryptocurrencies are decentralized systems based on blockchain technology (but not necessary blockchain, we have already different types of DLTs), a distributed ledger enforced by a disparate network of computers. A defining feature of a cryptocurrency, and arguably its biggest allure, is its organic nature; it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation.
The first blockchain-based cryptocurrency was Bitcoin, which still remains the most popular and most valuable. Today, there are thousands of alternate cryptocurrencies with various functions or specifications. Some of these are clones of Bitcoin while others are forks or new cryptocurrencies that split off from an already existing one.
Still, we treat crypto, not like money, but more investment asset, however, we have to remember that that new model is on the market around 10 years (the first Bitcoin was mined in 2009), which in the financial world is literally nothing. Although crypto is on its early stage, we already saw the incredible impact of it on the whole economy (globally and locally eg. in countries with hyperinflation like Venezuela).
Thanks to DLT we are experiencing now fully decentralized money. Money which is not controlled by any entity, money which is fully controlled by the owner, by YOU. Now we can ask ourselves the question – isn’t it like that now? I own my money, I spend it, I have access to my money, no one controls my money. Are you sure? I explained the difference between the 2 economies in my previous article: Slave–Master relation or Client-Server relation. Which one do you prefer? (LINK)
