Before we dive into Bitcoin, we've gotta take a step back and look at Money itself.
How was money invented?
Let’s begin by rolling back the clock a few thousands years or so.
Imagine that you're a baker in an ancient village. How do you buy goods and services, like pointy sticks for hunting, or that cool new wheel thing? Since money doesn’t exist yet, you’ll probably trade bread or cookies in return for the goods you want to buy… but what if the only wheel maker in your village doesn’t want your stinking bread?
Then you’re out of luck. Having to barter each time you want to buy something is slow, inefficient, and annoying. This is one of the reasons why we started using money. But, what is money, exactly?
Money is just a tool used to exchange value. Money standardizes value, such that you don’t have to figure out how many loaves of bread a wheel is worth, you can just know a wheel is worth, like, 10 seashells.
Anything can act as money, like bits of metal, seashells, or pieces of paper. Anything can be used as money as long as we all agree that it has value.
This is an important point: value is a shared belief. So if we all believe something has value, then it does. But beliefs can change, and money has changed a lot over time.
How money has changed over time
As you know if you’ve ever been to a Natural History Museum, for a while we used gold coins as money. There’s a fixed amount of gold that exists–it’s scarce. We can’t just say “Abracadabra!” and make more gold appear, which is good! Scarcity limits the supply of money, giving it intrinsic value.
But a few thousand years of carrying clunky gold coins around, and it was time for something a little more portable, so we created paper money, which is what we use today.
The money we use is technically called Fiat Money. Here’s what that means.
How today’s money works
Fiat Money is government issued and not backed by any scarce assets, like gold.
Fiat money is not scarce.
Remember how we couldn’t just say "Abracadabra!” and make more gold, because gold is scarce? Well, fiat money is not scarce, so governments can say “Abracadabra!” and make more fiat money whenever they want, and they do! When governments print new money, it’s called inflation.
Governments print paper money whenever they want, and when debts start to pile up, the printing press becomes more and more appealing. When governments way overprint fiat money, it's called hyperinflation, and when that happens, the supply of money rapidly increases, making the value of money drop drastically. That’s bad news, for a number of reasons. In the immortal words of beloved Yogi Berra - "Sometimes a nickel ain't worth a dime anymore!".
Okay so inflation is one issue. But what are some other concerns about our fiat money system? ~What could possibly go wrong?~
Here’s what! Our monetary systems are controlled by "too big to fail" companies like banks and credit card operators. These Giants keep our money safe (at least safer than under our mattresses), but using them comes at a price: banks and credit card companies charge high fees, up to 3% per transaction, and often take days to process payments fully.
More seriously, think about the security you lose when you give up control of your own money. When you put your money in a bank, the bank controls your money, not you. What would you do if your bank went well… bankrupt? All your money goes poof. That’s happened before, and it could happen again.
“But wait! What are we doing to fix our money?! Is there a better system? How can I use it?” Well, yeah. That’s like, what this website is about… and stuff…
Where Crypto Comes In
The money we use today works, for the most part. It’s not the most efficient, there’s fraud, and payments can be slow, but it functions. Still, we can do better. Thanks to the Internet, we live in a world where sharing information is fast, easy, global, and personal. Shouldn’t sending money work the same way?
That's where cryptocurrency comes in. It allows you to transfer money to people easily, quickly, and globally. Take the quiz below, and read on for more!
TLDR
How was money invented?
Barter systems were inefficient, and required trust on an individual level
Money was introduced as a universally valuable good to made trade easier
How has money changed over time?
Durable coins replaced shells and livestock, and portable paper money replaced coins
Anything can be used as money, since value is a shared belief
How does today’s money work?
Today’s money is made of paper and unlinked from any scarce asset, so governments can print as much as they want
Our monetary systems are controlled by giant banks and credit card companies, who charge a hefty price for their services
Where does cryptocurrency fit in?
It’s fast, global, and cheap to use for sending money anywhere
It isn’t controlled by an bank, government, company, or central authority, but rather by the community that uses it