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The Age of Cryptocurrency
How Bitcoin and Digital Money Are Challenging the Global Economic Order
- Read in 13 minutes
- Audio & text available
- Contains 8 key ideas
The Age of Cryptocurrency gives an overview of the history and nature of Bitcoin. It explores the definition of “money” and explains the dramatic impacts that cryptocurrencies like Bitcoin will have on our economy and the world at large.
Key idea 1 of 8
Money has value when it’s based on a system of trust.
What is money, exactly? It’s not the bills in your wallet. Those bills don’t have any inherent value – they’re just bits of paper. So why can you buy goods and services with them?
For money to have value, there needs to be a shared agreement on its use as a medium of exchange.
In money’s earliest days, gold or silver was often used to make coins. These coins were different from our modern bills, because gold and silver have intrinsic value. However, there was only one reason why these coins functioned as money: the people using them valued gold and silver, and agreed they could be used to buy things.
If you traded with a culture that didn’t value gold or silver, your coins were worthless. Cultures don’t always value the same things.
The Micronesian island of Yap, for example, had a peculiar currency system that puzzled early visitors from Europe. They used huge stone wheels called fei as currency. These stones were so heavy that they often remained with the previous owner after an exchange.
The system worked because the Yapese agreed that the ownership (or partial ownership) of fei could be used to settle debts.
A society needs some kind of trust in its money to have a controlled supply of currency. If just anyone could create new money, money would lose its value. There needs to be a limited amount of it for the system to work.
In the 1920s, the Weimar Republic learned this the hard way. Germany had tremendous debt following the Versailles Treaty and tried to pay it by printing more and more bills. The value of the bills became so low that people began using them as wallpaper because it was cheaper than buying actual wallpaper. This hyperinflation caused the economy to collapse, and people lost their faith in the monetary system.