Money vs. Crypto: The Differences You Thought You Knew

Money is a dismal, and daunting topic for those who decide to pursue it. Whether it be the pursuit of knowledge, or the pursuit of building cash balances. Some say that Money is a medium of exchange, unit of account, or a store of value. But, to understand what constitutes money, we must first understand what money is and where it came from.

Being that there are a multitude of economic schools of thought, and only a short amount of time, we will examine the definition of money as it pertains to the Austrian School. The reason in choosing the Austrians is not only due to the author being completely bias, but it is the only school that can effectively tie the definition of money to the dynamics of any market while following the laws of Praxeology and Human Action.

Ludwig von Mises expounds beautifully upon the thought of what defines money. The Misesian Regression Theorem in short states that within any unhampered market, money began as a useful commodity. Even before widespread acceptance, Gold had the ability to serve many facets and needs within a market. This explains the evolution from barter to voluntary exchanges between parties facilitated by the medium of exchange. This commodity, that was widely accepted, stamped out the cumbersome act of barter. All the while, the wasted energy that was spent pillaging, was now being funneled into what some may call early capitalism by way of entrepreneurship.

The genesis of money incentivized the act of obtaining wealth by peacefully providing for your fellow man, not warring with him. In the end, all parties involved became prosperous. Some argue that the spawn of Governments, Industrialization, or Modern Technology and Science are what sprung the advanced societies on which we have today. But, Austrians such as myself, point to the evolution of money that facilitated voluntary peaceful human interaction. Without it, major advancements accomplished by humans would not have been possible.

What makes a commodity money?

The factors in which constitute money are few, but necessary. They are as follows,

• Marketability
• Homogeneity
• Durability
• Divisibility
• Portablilty
• Intrinsic/Market Value

Admittedly, when having conversations with friends, family, and acquaintances, getting to this part is always my favorite. Let’s examine Gold for instance, as it has stood the test of time for being humanities best, and oldest money. The marketability and recognition of Gold is unmatched by any other commodity. Instinctually, upon the sight of it, you know exactly what Gold looks like and can identify it easily. Another great property of Gold is that it is homogeneous in nature. Gold that is mined in the United States will be accepted at the same rate and speed as gold that mined in Russia, Italy, Brazil, etc. The durability aspect for Gold comes from its natural properties. Being a precious metal, it can stand the test of time, as well as circulation across multiple generations or even millennia. Smaller transactions were paid to merchants as crumbs, scraps, even dust early on in its market life cycle. But, once technology advanced, so did the divisibility of Gold chunks. Eventually being minted into coins, circulation and widespread acceptance were achievable. Gold met the portability aspect on a mass scale once coinage was accomplished. Whether travelling across a city, or across the desert, Gold coins could now be carried without wasting energy or space lugging around bars or chunks of Gold. These smaller denominations of coins made it simple for everyday transactions and improved the lives of many. The intrinsic or market value is listed last, but I believe it to be the most important. The value in Gold rests in its ability to have served first as a useful commodity within an unimpeded market. The abilities in which Gold have, and the needs it serves not only make it the oldest money, but some would consider the best.

So, what’s the deal with Fiat?

Fiats worth as far as being money is a very weak and feeble attempt. Though fiat may check off a few boxes from our list (Marketability, Homogeneity, Divisibility, Portability) it is still truly, not money. As stated above, for any good or asset to be considered money, it must have intrinsic value. You may say to yourself “My US dollar is backed by Gold, it has value.” No, it is not. Fiat is simply paper tickets that are essentially issued and assigned a value with arbitrary and often malicious intent. There are two reasons why fiat is widely accepted.

• Consumer Confidence
• Legal Tender Laws

Ever since you were a small child, holding any denomination of fiat came with the opportunity and ability to purchase goods within a market. The problem is, most people don’t understand that this is only possible due to the coercive and compulsory nature that fuels any fiat market that is rooted in fractional reserve banking. Legal tender laws state that the paper tickets of a certain geographical location must be accepted as payment in transaction or in a settlement of debt. If the vendor or creditor were to refuse such paper tickets as payment, they are held liable but not limited to, fines or imprisonment. Fiat currency will never be money, because of its lack of value, compulsory nature and violent regulation.

What’s the deal with Crypto?

After stating that I myself am a proponent for all things crypto, I usually get the response “Well, cryptocurrency isn’t really money”. That’s funny, because I disagree completely. For the sake of simplification, lets examine Bitcoin. The oldest, and most widely accepted coin in the crypto space. The recognition and marketability of Bitcoin, (even for those in our lives who don’t participate in this space) can ultimately identify it whether it be on a piece of clothing, outside a vendor’s place of business on a “payments accepted here” sign, or just mentioned in a friendly conversation. Homogeneity is upheld by the fact a single Bitcoin mined in the basement of a residence in Texas, holds the same market value of one Bitcoin that was mined in a warehouse within a commercial district in China. The durability of Bitcoin is inherent within the bitcoin network and ecosystem. Blockchain, the structure in which Bitcoin runs on, is a publicly immutable ledger that is resistant to hacks making the copying and or rerouting of the coins impossible. The divisibility of a Bitcoin is measured all the way down to one hundred millionth, or eight decimal places. Measured in Satoshi’s, the smallest denomination of one Bitcoin is 0.00000001 BTC= 1 Satoshi. This makes everyday transactions possible for any lifestyle.

The portability of a Bitcoin is unlimited. Not only can you store Bitcoin within a wallet on any mobile device, you can upload or send Bitcoin to any computer, mobile phone, device anywhere in the world, in a matter of minutes. This covers a lot of ground in a relatively short amount of time. Finally, we reach intrinsic or market value. Any currency, or asset within the crypto market can ultimately be “cashed in” or traded for Bitcoin. Not only that, when speaking of one’s wealth, or buying/selling price it is always measured in Satoshis (smallest denomination of Bitcoin). We could conclude that Bitcoin is the premier commodity within a new, digital ecosystem. Being the one medium of exchange that is widely, and universally accepted. Once all the boxes have been checked, we begin to realize that Bitcoin is the Gold that powers the digital future. Much like how Gold helped society evolve from barter and pillaging, Bitcoin may help us evolve from fiat and fractional reserve banking.

So, what can we conclude from this realization? We must conclude that like Gold, Bitcoin is a commodity, but within the digital market and blockchain ecosystem. Fiat unlike real money, only derives its value from compulsion and coercion, and not from a commodity based intrinsic or market value. So, with that being said I must ask the reader, “When are you going to start obtaining real money”?

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