Money
Money is an agreed-upon form of payment used to exchange goods and services between parties wishing to transact with each other across an economic unit.
Functions of Money include:
- Medium of Exchange
- Store of Value
- Unit of Account
Different types of money include:
- Commodity Money
- Fiat Money
Commodity monies are backed by assets with tangible value. An example being the gold standard adhered to by many countries in the early twentieth century. Currency issued under the gold standard reflected claims on the reserves of the gold countries held to support the issuance of their currencies.
In the later part of the twentieth-century countries increasingly shifted to fiat monetary systems. Declaring government-issued currency legal tender that must be accepted as a form of payment within the country’s boundaries.
Under fiat systems, countries still hold reserves to increase confidence in their ability to meet their obligations. But, currencies are not fully backed by reserves and the currency cannot be redeemed for assets held in reserve. Like they can be in commodity systems like the gold standard.
Cryptocurrency’s, like Bitcoin, emerged in the early 21st century as digital assets with a limited supply. Attempting to provide some of the advantages of commodity money through scarcity and trustless exchange. Without the disadvantages of needing to store and transport large quantities of physical assets.
Further Reading Money
Money, Blockchains, and Social Scalability