A currency is a medium of exchange, some way to represent value, which may be used as part of a transaction. This definition provides a general framework to build on top of in order to understand money. It is clear that anything can be a currency with this being the standard at which a currency is held. Your couch, pet, thoughts, time, effort, computer, etc. can be used as currencies. Many of the people reading this likely have some form of job, yet you have also likely never noticed that what you are paid for is your time, you exchange your time for some other form of value, a fiat currency.
A fiat is an arbitrary decree, and so a fiat currency is one which holds value due to some decree that it holds value. It is under this agreement which the majority of the world’s economies exist. If everything is a currency, what is the need for fiat currency one might ask? Taxes. A country which has denominated its debts in fiat currencies wouldn’t be allowed to repay those debts in an equivalent supply of washing machines or microchips. Instead, countries go into debt with one another through the issuance of treasury bonds. A bond is an agreement from some sovereign entity saying ‘you pay me X now and in some set amount of time I will pay you back X plus Y interest’, where ‘X’ is some amount denominated in fiat currency and ‘Y’ is some interest rate. But where does that extra fiat currency come from?
Supposedly, the bond is purchased and that fiat currency goes towards improving the economy through stimulus packages, direct investment in infrastructure, etc. and the extra GDP made from these investments goes towards paying back the bond holders by the expiration of their bonds. What really happens is the central bank of whatever country issuing the bond prints the currency needed to pay back the bond upon expiration, and the Ponzi scheme continues. Currently, in the United States the main purchaser of those bonds, which are just public government debt, is the federal reserve, the central bank of the US. That means the fed is the main purchaser and therefore the main receiver of payouts, but they are the ones creating the fiat currency for the payouts as well. It is a closed loop systems, and it is one of the greatest schemes mankind has ever been manipulated by. Now what does this have to do with money?
Money has seven properties, five of which are shared also by currencies and fiat currencies alike. The two which set it apart are intrinsic value and limited supply. Under the circumstances, the US dollar, and every other form of fiat currency as it is defined to exist cannot be money. They hold value only due to an arbitrary decree, the government issuing the fiat currency may at any time change the value of that currency, this has been done many times in the past, even during a gold standard. The famous example is executive order 6102 by which the US government under FDR declared it illegal to own gold as a private citizen and forced everyone to turn their gold in because those ‘hoarding’ their gold, savers, were stalling the growth of the economy during recovery from the depression. All of that was a lie as four years later FDR pegged the price to 35 dollars an ounce, a then 75% increase in the price from the price it was confiscated form citizens at, resulting in a huge profit made by the US government which was used to create the Exchange Stabilization Fund, used primarily for ‘foreign exchange intervention’. This was outright theft from the citizens of the US and shows how easily a government can change the rules and values of its currencies to fit their goals.
The other limitation restricting fiat currencies from acting as true forms of money is their truly unlimited supply. In the past when fiat currencies needed to be physical because of a lack of technology, and recently a lack of trust in that technology, there were legitimate constraints on the amount fo fiat currency a central bank could print before they ran out of natural resources. It would have been a large amount, but still finite. Now, as there is more fiat currency that exists digitally than there is physical fiat currency, the tide has changed, and the feasible amount of fiat which can exist is now truly unbounded. One can always add another zero to the end of the list of digits on a screen.
There have been only two forms of money in the past, gold and silver, however today one could make the case that ether and bitcoin should be considered as such as well. Each are able to check off al seven requirements to be money: portable, fungible, divisible, durable, have a history of acceptance, intrinsic value, and limited supply. Being digital they automatically receive the portable, fungible, and divisible qualities and due to their extremely well designed code-bases and cryptography they are also durable. It has been 12 years since the genesis block of the bitcoin blockchain was mined and ether’s was nearly six years ago and in the time passed both have become globally recognized and accepted. The intrinsic value they provide is an open, peer-to-peer currency which can be transacted nearly instantly, in a highly secure fashion and for little to no fees.
However, ether does not have a limited supply, but it doesn’t have an unlimited one either. Ethereum regularly burns tokens, reducing the overall supply and keeping a cap on inflation. So, does money need a finite supply, or simply one that isn’t technically infinite? I would say the latter because it is the infinite possible amount which erodes fiat currency’s future potential.
Some word the intrinsic value quality in another way, instead they say it must be a store of value, and this is a bit tricky to decipher if bitcoin or ether exist as money or not. Gold has been around for centuries and has had almost no change in value. One ounce of gold today is worth 1900 dollars, which is around the price of a designer suit (800-1000 dollars), designer shoes (400-500), and a quality leather belt (200-300). One ounce of gold in Egypt bought you a new, finely crafted toga, a pair of sandals, and a leather belt. On May 22, 2010 a man paid 10,000 bitcoins for a large pizza. Today, ten and a half years later 10,000 bitcoins can buy you more than one private island. That is not nearly as stable as old, but technically every bitcoin spent on that pizza has held its value and is worth at least two cents each to this day.
This makes the distinction between intrinsic value and store of value very important, and I believe intrinsic value is the common property shared between gold and silver and bitcoin and ether. All four provide value in and of themselves, regardless of the view the world has of them. Long before bitcoin was valued at near 30,000 dollars it provided the same service it does with that valuation., the same goes for ether. Therefore it is obvious to see that these coins denominated in fiat currencies do not represent their values, instead their value exists in their ability to provide freedom to all those who use them.