This Week's Topic - Hard Money vs. Easy Money
First, a short review from last week.
Remember, money is a medium of exchange used to buy and sell goods and services. Money has evolved from shells and glass beads, to copper, silver and gold, to eventually our Fiat money system used today.
There are two terms that are often used to explain different forms of money. The first is "easy money" and the second is "hard money". For today's issue, we will analyze some of the characteristics of the U.S dollar (easy money) and Bitcoin (hard money). We will compare both forms by discussing the supply, the store of value and government control.
1) Supply
U.S. Dollar: The U.S. dollar doesn't have a set limit. The Federal Reserve can add more dollars to the economy whenever they decide to, so there's no maximum amount of dollars that can exist.
Bitcoin: The supply of Bitcoin is capped at 21 million, which means only 21 million Bitcoins will ever exist.
2) Store of Value
U.S. Dollar: The dollar is the main currency used and trusted worldwide. But its value can drop over time because of rising prices (inflation).
Bitcoin: People see Bitcoin like gold, as something that keeps its value. Since there's a limited amount of Bitcoin, it can protect against rising prices, especially when regular money loses value.
3) Government Control
U.S. Dollar(centralized): The U.S. government oversees the dollar, with the Federal Reserve in charge of key decisions like setting interest rates. The government can also make rules that affect how the dollar is used and its worth.
Bitcoin(decentralized): Bitcoin works on a system where no single group or government controls it. No one can single-handedly decide how many Bitcoins are made or how they work.
To summarize, both Bitcoin and the U.S. dollar are used as forms of money. Obviously, the dollar is more well known and used by basically everyone, while Bitcoin adoption is very new and slowly gaining momentum. However, Bitcoin and our Fiat currency work in very different ways and are affected by different things, especially in how they are made, kept valuable, and controlled.
Key Terms from Today's Newsletter
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.
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