This is my first post on Steem and I already love it. I'm going to discuss some brief thoughts on money, cryptocurrencies, value and how these relate to one another. This post will serve as a basic introduction to a historical idea of money and how crypto relates to it (or becomes it) for those who might not be very familiar with these ideas. Hope you enjoy.
Money and Value
As with many of you I'm sure, I have spent countless hours since the events of 2008 studying money, the western financial system, and economic action. This study led me to discovery of many things about money and value that I was never told in any school or formal educational setting. These discoveries led me to a search for knowledge of and appreciation for all things crypto.
Crypto has started become what traditional currency once was (or what we were told it was). From as earlier as I can remember, everyone told me that dollars were money. Through the decade and a half since the year 2000, almost everything that has happened in the financial world has shifted views worldwide away from the view that only dollars are money.
For the first time in history, there are now decentralized forms of currency and autonomous networks for the instant transfer of them. Coincidentally, or perhaps not, these decentralized cryptos developed in response to warnings of a failing modern financial system. Not only this, they developed through a true free market based on competition for the best crypto, in spite of, and in stark contrast to, the official financial system which has never been more manipulated.
Money has some historically agreed upon characteristics which generally are:
1) Portability- Able to be easily transported or carried around.
2) Durable- Not easily destroyed.
3) Divisible- Able to be evenly divided.
4) Rare- Rare enough so that a large amount wouldn't be required for simple transactions.
5) Fungible- Each unit is interchangeable with any other equivalent unit.
6) Identifiable- Easy to tell what it is.
7) A Store of Value- It must retain value over time.
Not everyone would agree with all of these but I believe they are a fair list based upon general historical principles of money.
We should discuss value briefly. All value really is, is how much you are willing to pay for something else. When stored, value represents your time and effort. When you work, or spend time doing a job, you are typically rewarded in some form of value. Traditionally, that is fiat currency. This fiat currency represents your stored time and effort. It also represents how much stuff you can buy with it. If the value stored in the currency fluctuates too much, it is not a good store of value. However, if the currency over time will buy more and more stuff, despite some value fluctuations, it may be a better store of value than a more stable currency that generally holds stable, but buys you less and less value over time. I think you see where I'm going with this.
Crypto
Prior to the internet it could not have been conceived that cryptocurrencies (which do not even physically exist) based upon a distributed blockchain ledger could have functioned as money. Things look a bit different now, however. Crypto is extremely portable since you really don't need to carry anything, as durable as the internet and your security over your private keys, perfectly divisible, rare for cryptos which are limited in supply, completely fungible, and easily identifiable. As we look at the above seven characteristics, the only one that has been problematic for crypto (and for which bitcoin has been most criticized as a money) is number 7. With bitcoin as well as each new cryptocurrency comes massive price fluctuations when measured against traditional fiat currencies..... so far.
However, as various cryptos become more widespread and more commonly used, this seventh characteristic will become less and less of a problem. Higher market caps, more widespread usage, and technological developments for crypto will only make the best of them more valuable and more stable a store of value. Add to this the facts that 1) traditional fiat currencies are more unstable than ever in recent history and 2) most traditional fiat is held in banks with not so stable balance sheets, crypto looks better every day as a potential store of value.
In future posts I will discuss judging value, basic investing wisdom for younger people without lots of currency, diversification, and ways to think about money. I will also be posting about Steem as potential money in the future. Please feel free to share your thoughts on crypto in general, crypto as money, Steem as money in the future, or anything else.
Excellent read!
theres so much potential in Cryptos.. I have been trading it for a year an turned $300 into $50,000+ .. and now we have steemit.. this will be huge!!!
Wow, you turned 300 into 50K? In a year? I need to be reading your posts! Congrats.