The characteristics of money

Hello everyone,

I would like to talk about the characteristic of money. Many people use different characteristics they focus on when talking about money. I would like to use the ones that the author Saifedean Ammous wrote in the book "The Bitcoin Standard".

It is a very interesting book to read if you are interested in historical and economic viewpoint on money. Although it is titled "The Bitcoin Standard", the author interestingly talks about the history of money more than the bitcoin itself, at least that was my impression after reading the book a few years back.

If you are new to the cryptoverse, it is definitely a worthwhile read to get a better understanding of money as a whole, different materials that have been used throughout the human history and are still used today. As well as, what role can Bitcoin have in the future.

The most famous example are what we call "precious metals" like gold and silver, however bronze, copper and other "less valuable materials" have been used for coins in various societies. Even today, our coins are made of these "less valuable materials".

Another object we used as money is salt. Interestingly enough that is where the word "salary" comes from. Fun fact 😀

We, humans, have also used tea, tobacco, shells, leather, stones and shells as money. During the WWII, in devastated economies, alcohol was a very valuable item to have and you could have bought many different things with it.

Nowadays, we mostly use paper money and cryptocurrencies. I believe that in the future, the physical form of money will be disappearing as digital currencies (like the ones we hold in our banks), as well as CBDCs and cryptocurrencies will overtake already very digital world we live in.

The characteristics of money

All these types of money we use or have been using posses different characteristics. Some are very durable and won't tear over time, others can be easily destroyed. Some can be easily carried all over the worlds, other are not easily transportable.

The characteristics I think are worthy mentioning and can be found in the book "The Bitcoin standard" are the following:

1. Acceptability - money must be widely accepted as a medium of exchange within a society. People need to have confidence and belief that the money retains its value and can be used to transact with others.

2. Decentralization - means that no single entity controls the issuance, maintenance, or validation of money and the transactions. It's an important characteristic of cryptocurrencies.

3. Divisibility - money can be divided into smaller units while maintaining it's value. It allows that both small and large transactions can take place with the economy. Imagine 1 dollar that can be broken down to quarters (25¢), dimes(10¢), nickels (5¢) and pennies (1¢) or cents.

4. Durability - the ability to be resistant to wear and tear of use and weather conditions over longer periods of time. The paper money breaks relatively easily in comparison to gold bars or coins.

5. Fungibility - each unit of money should be identical (or at least very similar) and interchangeable with any other unit of the same denomination. Imagine dollar coins issued over the last 30 years, they all look very similar (the year on them is different) and yet you can exchange them all at their face value.

6. Portability - means easy to transport and divisible for transactions of different sizes. It is considered that gold and other precious metals have historically been portable and divisible. However, imagine if a billionaire wants to move from one country to another and takes all his wealth in gold, that would innumerable tons that need to be transferred (definitely not the easiest task).

7. Recognizability - means that the money is easily recognizable and distinguishable to prevent fraud. That is why paper money is constantly changing and new security measures are being added to prevent the counterfeit money creation.

8. Scarcity - is very important to maintain its value. If there is too much of it, the purchasing power goes down as inflation raises. Historically, gold has been considered a scarce asset. Bitcoin is even more scarce, as it has a limited supply.

9. Stability of Value - is important for facilitating economic planning, if there is too much fluctuation it can create uncertainty and destabilize an economy.

10. Uniformity - money should have consistent characteristics across different units and denominations. All units of money of the same denomination should be equal in its value and appearance (mostly). It promotes trust and interchangeability.

I have created a table that shows how cash, gold and bitcoin rate in terms of these characteristics (green color with a tick is for the ones I consider that have the characteristic in question and red color with an x is for the ones that I consider that do not). For example out of 3 of them, only Bitcoin is decentralized.

When looking at scarcity, I believe that cash is not scarce (at all, by any measure), just look at any money supply chart. Gold is more scarce because at the end of the day, the supply on Earth is unknown, but limited (unknown as we can always dig a bit deeper). Bitcoin's supply is known and limited making it the most scarce asset among the three.

On the internet you can find similar tables with similar characteristics. I would like to include them in this post, but since they are not free to use I prefer you do a short search and find them. All you need to search for is "characteristic of money comparison of cash, gold and bitcoin" and you will have more images of other people's opinions of how these assets compare against each other. The one I like is the one created by Fidelity. It nicely shows some characteristics and explains them as well.

^{This article is expressly written for the purpose of education. Nothing in it should be considered a financial, investment, tax or legal advice. I am not an adviser of any sort. Please do your own research before you decide what to do with your money.}

^{I would like to THANK YOU for taking the time to read this article and I hope you learned something new. If you want to learn more, please follow me for more content like this one: @cryptodom151}