Business Principles, Tools, and Techniques in Participating in Various Types...
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Past and future of money and currencies
1. Past and future of money and
currencies
Luca Bertagnolio
E: luca@berta.com
T: @lucaberta
Bitcoin Meetup Geneva - 2014-11-19
2. Money or currency
â I've searched around and there seems to be
quite a lot of confusion on the actual meaning
of these two words
â In a lot of cases they are considered to be
synonym
â Let's consider them synonyms for now
3. The 3 main functions of a currency
â Every currency has 3 main functions:
1.Medium of exchange
2.Unit of account
3.Store of value
âNo currency is perfect on all 3 qualities, each
one has tradeoffs
4. The 4 types of currencies
â Currencies can be categorized by:
â Being commodity based OR fiat
â Being issued privately OR by a government
Commodity
based Fiat
Privately
issued IOUs Bitcoin
Government
issued
Gold standard
notes
Most âmodernâ
currencies
5. Medium of exchange
â Is a more efficient way to exchange products
and services compared to barter
â It is an intermediary between parties in a trade
â A good medium of exchange should satisfy
some specific qualities to be mutually accepted
6. Qualities of a medium of exchange
â Durability: metals/gems vs grain/tobacco
â Transportability: paper vs metals
â Divisibility: metals vs cattle/grains
â Non-counterfaitability: paper vs gold
â Fungibility: shells vs coins vs bullion vs gems
8. Unit of account
â A standard measurement of the value of goods
â Allows for comparison of goods
â Preferably a stable unit of measure, but if an
inflationary currency is used, over time the
value will change
â 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
9. Store of value
â A way to save wealth today, and retrieve it in the future
â Supply and demand are the drivers of the value
â Not only typical of currencies, but of assets in general
â Examples of store of values are:
â Gold, silver, diamonds, art
â Real estate
â Reserve currencies, stocks, bonds
10. The case of the stones of Rai (1/2)
â In the island of Yap in Micronesia, large circular
stones have been used as money
â Since these are large
and heavy, and thus fail
on the transportability
aspect, how could they
be used as money?
11. The case of the stones of Rai (2/2)
â The stones did not need to be moved, but were rather used
as âtokensâ during transactions
â If a stone was to be transferred to someone else, all that was
needed was recording this fact into a âpublic ledgerâ which
was shared verbally between all the participants in this market
â Thus the stones were effectively a store of value, and so
would qualify as money due to the network effect
â This is precisely the reason why Bitcoin can be considered
money too, since the block chain is a public ledger
12. Why does Bitcoin have value?
â Main reasons:
â It's based on a trusted public ledger
â It does not suffer from debasing like fiat currencies
â Supply is fixed and slowly increasing
â Demand is growing rapidly
â There is a powerful network effect and this
creates a market which goes beyond borders,
for the very first time, thanks to the Internet
13. Money or currency, take two
â My view is that the real difference between
currency and money lies in the store of value
â 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
14. Is Bitcoin currency or money?
â Bitcoin is a private currency, but is not backed
by any physical asset, so it is fiat in nature
â 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
â In my view, this qualifies Bitcoin as money
15. Risks of Bitcoin as money
â Bitcoin is very recent, while gold has been around
for thousands of years
â In case of network issues, no new transactions
can be made, but the current blocks remain valid
â 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
â 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
16. Sources of information
â A good amount of information comes from the
University of Nicosia free MOOC on Digital
Currencies, Lesson 1 â(Brief) History of moneyâ
http://digitalcurrency.unic.ac.cy/free-introductory-mooc
â All images come from Wikipedia and are
licensed under Public domain via Wikimedia
Commons
https://commons.wikimedia.org/wiki/Main_Page