Lesson 1: What is money?

Preview

Money touches nearly every aspect of our lives, and yet, it is rare for anyone to stop and think about what it is. Before we can understand Bitcoin, we first need to understand money. In this lesson we will explore the functions, types, and characteristics of money. Through this lesson we will develop a common understanding of money that will serve as a foundation for future lessons.

Functions, Types, and Characteristics of Money

Key Takeaways

• Three Functions of Money
  1. Store of Value-Money stores the value of our work and resources through space and time.
  2. Unit of Account – Money is the measuring stick we use to compare the value of things.
  3. Medium of Exchange – Money is the thing we use to trade goods and services.
• Three Types of Money
  1. Commodity – Commodity money is money that has value because of what it is (i.e. Salt, Cows, Silver, Gold)
  2. Representative Money – Representative money is money that stands for something else valuable (i.e. a dollar backed by gold. you could exchange your dollars for Gold).
  3. Fiat Money – Fiat money is money that has value because a government declares it to be money — not because it is backed by anything physical.
• Six Characteristics of Money
  1. Durability – Durability means money must last over time without breaking, rotting, or wearing out.
  2. Portability – Portability means money must be easy to carry and transfer from one person to another.
  3. Divisibility – Divisibility means money can be broken into smaller units without losing value.
  4. Uniformity/Fungibility – Uniformity means every unit of money must be the same as every other unit.
  5. Scarcity – Scarcity means money must be limited in supply.
  6. Acceptability/Verifiable – Acceptability means people are willing to take the money in exchange for goods and services. To be acceptable also implies money is verifieable, meaning you can determine real vs. counterfeit money.

Additional Resources

• What Is Money? – River.com/learn