You’ve almost certainly heard about Bitcoin, but do you really have any idea what it is?
Is it a Ponzi scheme? A fraud? A currency for “criminals”?
Or is it the future of Money?
This report aims to answer that question.
Overwhelmingly, the “Millennial” generation seem to ‘get’ Bitcoin, whereas the older “Baby Boomer” generation does not.
This report aims to level the playing field.
This is an introduction to Bitcoin in plain English, to explain to those who don’t “get it” why it will – in the opinion of this author – be one of the most important inventions in history, and create wealth and prosperity far beyond the imagination of most people.
After three years of ongoing research, this author believes that Bitcoin (and potentially a few other Cryptocurrencies) will see the greatest transfer of wealth in human history.
It will also help free humanity from the grip of Government control and give individuals financial sovereignty.
Before understanding why Bitcoin is so revolutionary and why it will likely go down as one of the greatest inventions in human history, it’s essential that you have an understanding of what money actually is.
So, let’s start there…
What is Money?
Did you know that the word Salary is derived from the word “Sal”, which is Latin for Salt?
The reason for this is that salt was at one time used as money.
Salt had – at the time – the required qualities of Sound Money that I’ll present to you in this report.
Qualities that modern Government money does not have, but which Bitcoin does have.
To be Money, a good used must be:
1. Salable. (can also be spelt ‘saleable’)
This means that it’s easy for the holder to ‘sell’ (use as payment) it to someone else at any time in return for goods and services.
To be effective as money, a good must be salable across time, space and scale.
– Salable across time:
This means that the good must hold it’s value over time. It must not corrode or degenerate, and the
supply of the good must not increase drastically, thereby causing the value per unit to decrease. In other words, it must not be easy to inflate the supply.
– Salable across space:
This means that the good should be easy to transfer across space. Paying in cows – for example – would not fit this function as they are large, heavy and extremely difficult to transport.
– Salable across scale:
Sticking with the cow example, cows are not salable across scale unless you chop them up in to steaks (I apologise to the Vegetarians and Vegans reading this!). You cannot sell one cow for one apple, for example, because that is not a fair trade. One cow is worth much more than one apple. To be salable across scale a medium of exchange must be easily divisible into smaller units or multiplied into larger units, depending on the price of what you want to buy or sell.
2. A good store of value.
This means that it should hold its value over time. If you sell something at one point in time, you
want the money you get in return to be worth the same amount in the future. It should also not corrode or rot, which results in a loss of value to the holder as discussed above.
3. A unit of account.
This means that everything should be priced in it. In an economy with no standard unit of account,
goods would have to be priced in each other (1 potato = 2 carrots, 1 chair = 20 bricks, 1 window = 50,000 Blueberries). I think you get the point… By pricing every good in a standardised unit of
account, you can sell what you have in to that currency and buy what you need with that currency.
What is the purpose of Money?
In ancient times, before money existed, people bartered goods.
If you grew carrots and I grew potatoes, we could exchange goods at an agreed exchange rate (say, 2 carrots for one potato).
The problem with this bartering system is that it doesn’t work across scale or space , and often not across time either.
If you produce something expensive like a cow and I produce something relatively cheap like potatoes, the exchange rate may be something like 1500 potatoes for one cow.
What are you supposed to do with 1500 potatoes?
You would have to find other people to barter with, who may not want potatoes.
This is called a lack of “coincidence of wants”. I must want what you have, and you must want what I have (to an equivalent agreed value) in order to agree a trade.
In some very small communities, bartering works to a degree to this day, but it’s a very inefficient system.
If you add scale, it is completely impractical.
If you have 1000 potatoes but you need 1 bottle of medicine, some car tyres and a watch, you would have to find out what the sellers of those goods would accept for their goods, and then acquire
those goods using your potatoes from other people, so that you can then exchange them for what you actually want.
This is called “indirect exchange”.
How many individual transactions would you need to conduct to achieve that end? And how would you find the tens or hundreds of intermediaries who want what you have, and have what you want?
When you add space to the equation, it becomes wholly impossible.
If you want to trade a cow in the US with someone for a car in Japan, how on earth will you each transport the items to each other using the bartering method?
You can’t put them on a ship unless the ship owner happens to want something else both you and your trade partner in Japan have, which is quite unlikely.
For any kind of real trade to happen either locally or at scale across the planet, a medium of exchange must exist.
This is the primary function of Money.
In the next article in this series we will look at the difference between hard money and soft money.
