This Week's Topic - What is "money" and how does Bitcoin fit the bill?
If you ask five random people, "what is money?", how many do you think would be able to give you a legit answer that explains what "money" actually is?
The short answer is that money is a medium of exchange used to buy and sell goods and services. Back in the day, money was seashells, glass beads, Rai Stones, salt, or even livestock. Eventually, it evolved to mediums like copper, silver and gold. Now, most forms of money are government issued currencies (or fiat), like the US dollar.
Until 1971, the US dollar was backed by gold(this was called the gold standard). This means that if I had $10 on my US paper currency bill, I could walk up to the bank and exchange that for the same value in gold.
One of the main reasons the US moved way from the gold standard is because tying the dollar to gold restricted the Federal Reserve's ability to adjust the supply of money in response to economic conditions. The U.S. wanted greater flexibility to combat inflation or deflation as needed without being constrained by gold reserves. AKA... the government wanted control of the money supply and backing the dollar by gold did not allow them to do that. This change moved the US into using Fiat money that was centralized (controlled by a single, central authority).
Since the government can continue printing more and more money, the value of our beloved dollar has become weaker and weaker. So, where does Bitcoin fit into all of this?
Bitcoin has a limited supply of 21 million. Because there will only ever be 21 million Bitcoin, it will retain its value over time, similar to gold. Do you know what does NOT have a limited supply? The US dollar. This is why as more and more are printed, the value goes down. Once the last Bitcoin is mined in 2140, that is it! No more will ever be created.
Bitcoin is also the opposite of centralized money; it is decentralized. This means that NO ONE can control the value (the market takes care of that) and NO ONE can create more Bitcoin. This is very different from the money we are using today.
We could stay on this topic and dive deeper into so many things, and we will in future issues. However, we will leave you with this thought. Just as we outgrew and evolved passed using shells, beads and cows as forms of money, do you think we have outgrown the dollar and are in need for something better?
Key Terms from Today's Newsletter
Spot Bitcoin ETF - A fund that people can utilize to invest in Bitcoin without having to use crypto exchanges or store it themselves. A traditional custodian, like Blackrock, would be the holder and seller of the Bitcoin you purchase. At this point, no EFTs in the US have been approved.
Bitcoin Mining - Bitcoin mining verifies transactions and adds them to the blockchain. It is also how new Bitcoins are created, or introduced into circulation. Remember, there will only ever be 21 million Bitcoin!
Fiat - Our current, government-created money system that is not backed by anything. Our paper money used to be backed by the gold reserves in banks, but now it is just printed willy nilly and loses value every day.
Centralized Money - Money controlled by a central authority (like governments and central banks). Example... the US dollar.
Decentralized Money - Money NOT controlled by a central authority. Example... Bitcoin.
The Gold Standard - When EVERY US DOLLAR was backed by gold and could be exchanged at the bank for equal value.