Past and future of money and

currencies
Luca Bertagnolio
E: luca@berta.com
T: @lucaberta
Bitcoin Meetup Geneva - 2014-11-19

Money or currency

I've searched around and there seems to be

quite a lot of confusion on the actual meaning
of these two words
In a lot of cases they are considered to be
synonym
Let's consider them synonyms for now

The 3 main functions of a currency

Every currency has 3 main functions:

1.Medium of exchange
2.Unit of account
3.Store of value

No currency is perfect on all 3 qualities, each

one has tradeoffs

The 4 types of currencies

Currencies can be categorized by:

Being commodity based OR fiat

Being issued privately OR by a government

Commodity
based

Fiat

Privately
issued

IOUs

Bitcoin

Government
issued

Gold standard
notes

Most modern
currencies

Medium of exchange

Is a more efficient way to exchange products

and services compared to barter
It is an intermediary between parties in a trade
A good medium of exchange should satisfy
some specific qualities to be mutually accepted

Qualities of a medium of exchange

Durability: metals/gems vs grain/tobacco

Transportability: paper vs metals

Divisibility: metals vs cattle/grains

Non-counterfaitability: paper vs gold

Fungibility: shells vs coins vs bullion vs gems

Primitive mediums of exchange

Unit of account

A standard measurement of the value of goods

Allows for comparison of goods

Preferably a stable unit of measure, but if an

inflationary currency is used, over time the
value will change
Can be the same as the medium of exchange,
but there are cases in which prices are set in
one currency, and settled with another one

Store of value

A way to save wealth today, and retrieve it in the

future

Supply and demand are the drivers of the value

Not only typical of currencies, but of assets in general

Examples of store of values are:

Gold, silver, diamonds, art

Real estate

Reserve currencies, stocks, bonds

The case of the stones of Rai (1/2)

In the island of Yap in Micronesia, large circular

stones have been used as money
Since these are large
and heavy, and thus fail
on the transportability
aspect, how could they
be used as money?

The case of the stones of Rai (2/2)

The stones did not need to be moved, but were

rather used as tokens during transactions
If a stone was to be transferred to someone else, all
that was needed was recording this fact into a public
ledger which was shared verbally between all the
participants in this market
Thus the stones were effectively a store of value, and
so would qualify as money due to the network effect
This is precisely the reason why Bitcoin can be
considered money too, since the block chain is a
public ledger

Why does Bitcoin have value?

Main reasons:

It's based on a trusted public ledger

It does not suffer from debasing like fiat currencies

Supply is fixed and slowly increasing

Demand is growing rapidly

There is a powerful network effect and this

creates a market which goes beyond borders,
for the very first time, thanks to the Internet

Money or currency, take two

My view is that the real difference between

currency and money lies in the store of value
Most modern fiat currencies would not qualify
as money, since they are a terrible store of
value given how the rate of inflation and money
printing is affecting the supply

Is Bitcoin currency or money?

Bitcoin is a private currency, but is not backed

by any physical asset, so it is fiat in nature
But since it is not coined by a government, and
its supply is limited to 21 million BTCs, it can be
a solid long term store of value unlike common
fiat currencies
In my view, this qualifies Bitcoin as money

Risks of Bitcoin as money

Bitcoin is very recent, while gold has been around

for thousands of years
In case of network issues, no new transactions can
be made, but the current blocks remain valid
The Bitcoin network could be infiltrated and
disturbed by those who don't like to see it succeed,
and this would drive the value down
The worst case would be an attack from a crypto
standpoint, but the Bitcoin code is always being
studied to improve it and avoid such issues

Sources of information

A good amount of information comes from the

University of Nicosia free MOOC on Digital
Currencies, Lesson 1 (Brief) History of money

http://digitalcurrency.unic.ac.cy/free-introductory-mooc

All images come from Wikipedia and are

licensed under Public domain via Wikimedia
Commons

https://commons.wikimedia.org/wiki/Main_Page