“Money” is what we use or think we use on a daily basis for the exchange of value or is it? The paper we carry around today or the digital form that transferred from computer to computer to settle international trade by the big banks, are they real money?

Breaking it down…..

To understand what real money is we will need to specify and layout the characteristics of money and currency. We will compare both and find out if there are any differences or if they are both the same.

So….. what are the characteristics of currency

They are as follows

Medium of exchange

A unit of account

Portable

Durable

Divisible

Fungible

Before we consider the characteristics of money, to see what the difference(s) is(are) as against currency. We will need to break down, in simple terms what some of the above characteristics mean.

A medium of exchange: this simply means currency can be used for the exchange of goods and services.

Unit of account: this is a characteristic of anything that can be used to cost or value, goods, services, assets, liabilities, income, and expense. In short, anything that can be used to value any item or activity of economic value can be said to be a unit of account i.e it has the capacity to account for anything/action of economic value.

Portability: should be easy to carry around

Durable: It should be able to last and carry on its function for a long time

Divisible: it should be easily divided into smaller units

Fungible: each one individual unit should be same as the next, each one should be comparable to the next e.g a 1 US dollar bill and another US dollar bill should be the same. One 10 naira bill and the next 10 naira bill should be the exactly the same

So we”ve considered the characteristic of currencies. Now, we will consider those of money

They are as follows

Medium of exchange

A unit of account

Portable

Durable

Divisible

Fungible &

A store of value over a period of time

There you are. You see the last point? That is what separates money from currency- store of value over a period of time.

So, unto the big question….

The question is. Why don’t currencies store value over time? Check out any country on the planet. Check out the data on the country’s currency appreciation or depreciation over the past 20 years and you will see the same pattern for every country- currency depreciation. So, why is this so? Well, the simple answer is the current economic philosophy across all countries. Basically derived from the Keynesian school of thought in economics. This school of thought believes in the debt based economy. The two main thrust that has been used to further this are.

Fractional Reserve Lending: simply put. If you deposited 1000 naira in your local bank, the bank has the legal right to loan out 900naira out of that money without consulting you( they legally only need to hold 10% of the amount you deposited). So, what if I want to withdraw my money you may ask. Well, this is where the magic happens( you won’t believe it) the bank replaces the 900naira they borrowed out with IOUs called bank credits. In short, they just created an extra 900 naira out of the one thousand naira you deposited. Now, there is now 1,900 naira from the original 1000 naira you deposited. Don’t forget, when the bank loans out the 900 naira from your original deposit. The person that collected the 900 naira as loan will also proceed to spend the money into the economy to buy things or exchange it for services. The 900 naira is then again deposited in the bank by the recipient of it ( we will assume the 900naira landed in the hand of a single person for simplicity of argument). His / her bank proceeds to loan out 90% of the deposit i.e of the 900 naira again. So, the original 1000 naira we started with has now magically become 2710 naira because of fractional reserve lending. The process keeps repeating over and over and over again. This is the exact reason why currency does not retain value over time as it is continuously debased be and diluted so it keeps loosing value over time. The purchasing power of the local currency in your country today is not what it was, say fifteen years ago. It has fallen Quantitative Easing: This is simply the ability of a central bank of a country to print money into existence by auctioning out its own security (treasury notes, treasury bill, and treasury bonds) and buying it back itself. That act produces currency. So, if a central bank of a nation, say that of my home country Nigeria auctions out 10 billion naira treasury notes and buys it back by itself. It just magically created and flooded the economy with 10 billion naira. This “money” now appears as debt in the books of the central bank of Nigeria but the money floods the Nigerian economy and debases the values of its currency

Why and how did we get into this mess?

At the close of world war 2 ( 1944 to be precise) there was a meeting in Brentonwood New Hamshire. USA. At this meeting, the emerging world powers crafted a new monetary policy for the world. The US dollar which was back by gold (sound money )was to become the reserve money of the world and every other currency was to be linked to it. In effect, the world was to operate on sound money.

In 1917 however, President Nixon took the US dollars (and by default the other currencies of the world) became free-floating currencies backed by nothing.

The Bitcoin/ Cryptocurrency Redemption

Bitcoin (and other sound cryptocurrencies) are analogous to gold in that they have a limited supply.

By 2140 when the last bitcoin will be mined. There will only be 21 million of them in existence. Consider the price of bitcoin in 2010- it was going for 3btc for 1cents by Dec 2017 1btc cost $19,450. That’s an increase of 2,100,000%. Bitcoin has been a store of value over time. Bitcoin is sound money

Take it from me, this present debt-based financial system is unsustainable. it is already dying.

Smart investors are already positioning themselves for the wealth transfer coming into cryptocurrencies by investing in bitcoin and other cryptocurrencies. As Nigerians, people described as being from a developing economy. This emerging decentralized economy presents us the opportunity to invest in bitcoin and other cryptocurrencies so we can experience the wealth transfer that is coming into bitcoin and other cryptocurrencies. Believe me, we are entering into the era of sound money (deflationary money) and those who invest now will reap financial wealth in the no distant future.

join the conversation in the comments below. do you believe Bitcoin is sound money?

If you would like to know how to begin to get involved and invest in decentralized blockchain startups, bitcoin and other cryptocurrencies click here

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