Catching Up to Crypto

CHAPTER 2Digital Money Tree: eCash, E‐Gold, and eBay

Money is such a permanent fixture in our world and in our personal lives, but very few people actually understand how it works, and most people would struggle to even come up with a definition for “money.”

Broken down into its simplest terms, money is a representation of value, time, effort, and scarcity. Economists usually point to three principles that separate money from other commodities. In order to be classified as money, a commodity must operate as (1) a medium of exchange, (2) a store of value, and (3) a unit of account. An asset such as money is considered a medium of exchange when it is commonly used and accepted as payment in the economy. Money also serves as a store of value, which means that it can retain its value over time, allowing savers to store their purchasing power for a later date. As for the third principle, units of account are used to measure the prices of goods and to calculate wealth. These assets are divisible into smaller units and they are always fungible, which means that they can be evenly exchanged for other identical assets of the same type and size. For example, one pound of gold will always be considered of equal value as another pound of gold, one dollar will always equal one dollar, and one Bitcoin will always equal one Bitcoin.

That's the technical rundown of how the experts define money, which gives a good overhead view of how it operates on a mechanical level, but it goes much deeper ...