The Birth of Bitcoin: #1. Money and Its Characteristics

Money can be defined as an accepted medium of exchange for goods, services, and financial assets. A medium of exchange is anything that is used to determine the value of an exchanged good, service, or asset. Money, being a unit of account, offers us a way of comparing prices of goods and services, and, at the same time holding it as a store of value instead of using it right away.

Money should have certain characteristics including but not limited to be:

1. a unit of account- Money is used as a basis to compare the prices of goods and services during the exchange. Consider the economies where money is not used, and the traditional barter system is the method of exchange. And a situation, where you want to buy a loaf of bread in exchange for the wheat you have. Such a system will be highly complex and inefficient in modern economies as it was just too difficult to compare the exchanged goods and services, but at the same time, involves a double coincidence of wants or interests, where you needs to have items that the supplier also desires.
2. Money, therefore, acts as a common base of comparison or a denominator that people used to exchange goods and services.
3. a store of value- Money should hold its value for a long time. If it can’t hold its value, then it implies that you can’t use money in the coming future and you’re required to spend it within a few days. Consider fruits to be money. In that case, you’ll need to exchange fruits within the fruit's shelf life for goods and services, as otherwise, they’ll be rotten and you’ll not be able to reap the benefit of your hard work to earn the fruits as your money.
4. limited supply- Money needs to be scarce. Just think what happens if the money you own can be printed infinitely. The next thing that will be happening will be inflation or hyperinflation, as in accordance with the law of demand and supply, too much money will be chasing too few goods & services. So, to maintain its value as a medium of exchange, money must have a limited supply, and it should not be subjected to fluctuations in value.
5. acceptability- Money, at the very core, should be accepted by the community. An individual needs to be sure of what he is accepting as a medium of exchange for selling his/her/their goods and services can further be taken by other parties without any objections.
6. durability- It should be able to withstand wear and tear for long periods, as it will be transferred from one entity to another entity and then to the other one. Consider soap to be money. Obviously, in a few weeks or months, the soap would be subjected to wear and tear, and at the same time, bad actors can chip out some percent of soap in bulk to manufacture a new soap. And, it will eventually severely impact its value.
7. portability- It needs to be small enough that everyone can carry it with them. Let's say, gold is considered money. You’re looking to import wheat, say fifty thousand tonnes, from another country and it would cost 100 tonnes of gold. Would it be feasible for you to transfer it to the other entity? Simply no. This means that money should have a property to be carried by individuals wherever they travel.
8. and fungibility- Every money issued of a certain denomination should have the same value in the community. It should not be the case, that the $10 bill I own has a different value than someone owning a $10 bill having a different value. Everyone owning an asset of a certain or identical type must exhibit the same value within the community.

Articles coming up the next:

#2. Representative vs Fiat Money

#3. Bretton Woods Agreement

#4. 1971 and the demolition of the Bretton Woods Agreement

#5. Lehmann Brothers Bankruptcy and Birth Of Bitcoin

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