What is money?
In my last post, we asked the question: Should I invest in Bitcoin? We left the answer open to you, the reader.
This post, we will ask the thought provoking question that Bitcoin forces us to ask:
What is money?
Before continuing to read, please pause for a moment to answer this question. Can you come up with more than one answer?
Money is something that is very difficult to define. I’ve asked several people this question and also pondered it for some time. Economics class tells us that a money has 3 properties: medium of exchange, store of value, and a unit of account.
The best answers I can come up with to answer this “what is money” question, are as follows:
- Money is a tool
We use money on a daily basis to purchase goods and services. We can solve some problems by spending money. We make ourselves comfortable with money.
2) Money is freedom
We can use money to buy things that we could never otherwise have. We can use money to buy a car, without much knowledge of how to build a car. We can use money to take an airplane to the other side of the world. We can use money to pay for a vacation. If we stash away enough money, we never HAVE to work again. Most people call this retirement.
3) Money is stored time
Most of us trade our time for money. We then store and build this money, so that we can later use it. Even the people who have passive income streams, needed to work hard and put in time to develop those streams. Money allows us to buy back our time; we can trade it for services and activities we’d rather not do. Think oil changes and car washes for a vehicle, mowing our grass, or hiring an employee to outsource work so that we have more free time.
4) Money is a solution to the barter economy
When humans used to barter, the person you traded with had to have the good you wanted, in a relatively equal value. If I have apples and want to trade for oranges, bartering might work just fine. If I have apples and want to trade for a horse, the horse owner would have to accept a ridiculous amount of apples. Probably so many apples that some would rot before he could eat or trade them away. Our money today (fiat currencies like US Dollars), bridges this gap. I can sell apples for dollars, then trade dollars for a horse. I can also sell apples for dollars, and use dollars to buy oranges if the person growing oranges doesn’t want my apples.
5) Money is a belief system
Money only has value, because people agree it has value. The reason that we trade our goods and services for dollars, is because we believe that other people will do the same. I believe that I can take my hard earned dollars and buy whatever I want with them. It is much more efficient when we can all agree on something having value. Think if we had a different currency for every state in the USA. We’d pay exchange rates and find it difficult to transact with people whenever we traveled. Not to mention, the hassle when we’d make online purchases.
What does this have to do with Bitcoin? Is Bitcoin money?
It appears bitcoin can be used as money and can fit the criteria of all of the above classifications of money. People are already believing in it, just not many. We are born into a country and society that tells us which money to use. We now have a choice. We can use our government’s political currency, or we can use another government’s political currency, or we can opt for something else. The mere existence of this choice offers us more freedom.
When should you buy Bitcoin?
This is a very common question. People who have determined that bitcoin is valuable want to know exactly when to buy. Just like timing the stock market or housing market, it is extremely difficult to answer this “When” question. If you believe that Bitcoin has the traits of money that you find important, then you might want some. If you believe that more people will come to the same conclusion and value Bitcoin as money, you might want some. As more and more people have this belief, the demand will increase. Because the supply of Bitcoin is scheduled and fixed at 21 Million. The price will increase when the demand increases.
As the Chinese proverb goes:
“The best time to plant a tree was 20 years ago. The second best time is now.”
