What is Money?

 What is Money anyway?

Formally defined, money is something that is widely accepted for purchasing goods and services, or repaying debts and taxes. You might think that this is limited to paper bills and minted coins, but the reality is that anything can be money, so long as it fulfills these fundamental use cases: a unit of account, a medium of exchange, and a store of value.

Looking back in history, the items that our ancient ancestors once traded and bartered with were considered their forms of money. This included everything from shells and animals to silver and gold. In modern times, we see a reflection of this in places where government money is of little value, such as in prisons, where cigarettes and instant ramen are well-known units of account.

From the 14th century all the way to the 20th century, cowrie shells were used as currency to barter and trade across Africa and Asia. Durable, divisible, identifiable, and scarce, cowries were the perfect pre-coin era natural currency. Other items like glass beads, stones, and salt were used throughout different cultures as well. Imagine: you might be skipping rocks on the ocean today that were once regarded like the dollars in your bank account. Those ancient currencies are all worthless today because they eventually fell victim to the killer of value: hyperinflation.

Learning from Rai Stones on Yap Island

An intriguing case is the use of Rai stones on Yap Island, part of Micronesia. The Yapese used massive stones, some up to 12 feet in diameter, with a hole in the center as currency due to their rarity and difficulty in acquisition from neighboring islands. Transporting these stones required hundreds of people, making supply inflation nearly impossible.

For centuries, Rai stones functioned as stable money. Positioned centrally for communal access, they were exchanged based on ownership recognition rather than physical possession, considering their impractical size.

However, in 1871, an Irish American named David O'Keefe recognized an opportunity in the Yapese abundant coconut resources. He saw that the Yapese had no interest in foreign money, so he traveled to Palau and acquired Rai stones using modern tools and explosives. Yet, the value of Rai stones depended on a complex formula involving size, history, quality, and the labor's toll in their procurement. O'Keefe's stones, easily obtained and disregarding tradition, weren't readily accepted due to their deviation from the established value system. This deviation mirrors counterfeit currency in ancient times.

Regrettably, not all Yapese comprehended the concepts of scarcity and stable money, accepting these false stones. Consequently, this acceptance led to the decline of Rai stones as a reliable currency.

Modern Hyperinflation

Instances of excessive money printing in countries like Venezuela and Zimbabwe echo historical hyperinflation patterns. Learning from past mistakes, we seek solutions to safeguard against vulnerabilities. In exploring alternatives, Bitcoin emerges.

Bitcoin tackles scarcity and currency debasement concerns. Its fixed supply cap and the case for retaining purchasing power will be discussed further.

Stay tuned for an in-depth exploration of Bitcoin's fixed supply cap and why it promises to maintain its purchasing power unlike any previous form of currency.