On Money and Cryptocurrency

Money is the representation of “value”, all visible and invisible value in a country or state. In ages past, when there was no money, people traded for things. The issue was that the items had to equal the same and often, my 10 seashells didn’t exactly add up to your rabbit leg. So coinage and paper money was invented. The money itself has value in that it stores value and can be used to exchange things without physically moving them, for example you can buy the title to an Easter Island head which can be traded later by and with money.

The issue with money, is, who gets to issue it? In the early United States, private banks could issue money. Then it was centralized to mitigate bank runs, where private banks issued too much money, and people tried to withdraw all of their money at once. The money was still tied to gold until 1971, when American gold supplies were threatened by a bank run due to France and other countries seeing an arbitrage opportunity.

Money, when issued over the amount of value present in a society, constitutes a bet on the future, a loan from the future, as one hopes that the money today invested, would return more tomorrow. Over-issuing of money is a borrowing of money from the future. When the future becomes today and the loan is recalled, a function based on the whole economy is called which either satisfies the loan (there is more value today due to smart investing and other factors) or doesn’t (there is less value today) which triggers recession.

Money, when issued by central banks is controlled by a cabal of figures which may or may not have the state and peoples’ interest in mind.

Money, when issued by cryptocurrency protocols such as bitcoin, could be a return to a gold standard, as supply is limited. There is also control of money, which returns to the individual. A person memorizing a 24 word passphrase can carry their bitcoin or other cryptocurrency anywhere in the world and spend it regardless of state sanctions on them, or political prosecutions against them.

The limits of a constrained supply are that money will eventually concentrate with successive generations and may not be as productive, as money free from tethering, as borrowing money from the future, could make tremendous advancements with values vastly exceeding the amount stored today. For example from 1971 onwards, the economic output of the world exploded, into internet, cryptocurrencies, space travel, tech giants, Apple, and more. If the dollar was tethered to gold, a limited supply, these companies may not have had the necessary investment or loans to develop. Of course, the opposite is true: if the money printed was not invested wisely, the entire society could have just as easily imploded and vanished from the face of the Earth. We were in a sense, very lucky.

In a wider scope, one may say that money represents all tangible and intangible “value” in a society. What constitutes “value”? Individuals’ subjective notions of the entire world, when interacting with each other, construct supply and demand curves, or the meeting of subjective value with underlying reality. The underlying “real prices”of each and every thing, themselves change with time and are intertwined with subjective preferences. This means any formula would be extremely complicated or impossible, (which is why communist bureaucratic price-fixing failed, killing millions) and the only way to find prices efficiently is with real world empirical data, meaning let markets decide.

An efficient market reveals the true state of value, and in essence the true state of the world, which we call “price”.