Dinosaur Derivatives and Other Trades

7 What is Money?Cyber Cash

“Bitcoin may be the most dangerous technological project since the internet itself.”

—internet entrepreneur and blogger in Forbes magazine, Jason Calacanis (1970–)

I think we all recognize that we live in a world where most money sits in an account on a computer screen. What we call money is a product of so many electronic impulses.

Needless to say, it was not always so. Starting millennia ago, money appeared in its original form as gold coins of real value. Later, money then became bearer notes backed by gold and then mere bearer notes themselves with no intrinsic value. In time, money became legally authorized mechanisms to exchange value, but not convertible into anything else—so called “fiat money” (see John Maynard Keynes, N. Gregory Mankiw et al).¹ Money in fact can take any format so long as trust in its exchangeability is established (and we touched on this in Chapter 1). As Niall Ferguson tells us, “…money is a matter of belief, even faith: belief in the person paying us; belief in the person issuing the money he uses or the institution that honors his cheques or transfers. Money is not metal. It is trust inscribed.”² In fact the “fiat” nature of money was recognized by Chinese society even in medieval days. Nearly 1,000 years ago the Chinese ...