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A Maxi Debate: What is Bitcoin and What is Money?

•, By Mish

What is Money?

Money is a commodity whose primary purpose is a medium of exchange.

For centuries, gold was money. It had other uses, but it was widely accepted universally as a medium of exchange. In places where gold is not available, other substitutes came into play. In prisons, cigarettes can serve as money.

Gold has industrial uses, dental uses, and art uses, but primarily it was used as a medium of exchange.

Fiat currencies have no use other than as a medium of exchange unless one counts currency speculation or gambling as a use.

Attributes of Money

Money is a unit of account, a store of value, and a medium of exchange. We can argue how much the dollar acts as a store of value, but all fiat currencies lose value over time.

In the case of the US dollar, the rate of loss is slow. Wages tend to rise over time as an offset.

The dollar is the most widely circulated, readily accepted money on the planet. Notably, central banks hold dollars and gold, not silver, not copper, not Bitcoin.

Properties of Good Money

Good money is scarce, easily divisible, easy to transport, difficult to counterfeit, and durable.