Goats & gold: how cryptocurrency is money

By Spitkitten | cryptokitten | 12 Aug 2020

This post isn't for you.

It's for your mom, or maybe your mother-in-law, who worries, loudly, at family gatherings, that you're getting scammed or in with gangsters.

Or, maybe your Uncle Dennis, the one who isn't really an uncle, but a life-long friend of your dad's, the one that has the lake house with the cool little dock. He thinks all crypto is Bitcoin and Bitcoin is bullshit, because, well, Warren Buffet.

Or, whoever that person is, in your life, who has no idea how crypto, much less *money* works. They act like they do, but they really don't. 

So, this post isn't for you, but it is a gift to you, to print out (leaving this intro out, of course) and leave somewhere for them -- or, to simply save you the emotional labor of having to construct an explanation on the basics of basics.

Or, maybe, it is for you. I didn't quite grok this until, embarrassingly recently. So, no judgement.


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"What makes money, and, therefore, cryptocurrency have value?"

I have heard, comment after comment, that because cryptocurrencies are, literally, digital -- with no physical representation like fiat (bills, coins) and no gold or precious metal stores guaranteeing them -- that they then must be make-believe, worth nothing.

People, people. At this point, honestly, coins and bills are as make-believe as crypto -- insofar as the concept of "store of value" is a made-up, arbitrary idea. 

It's this very idea that makes *anything* money.

Anything can have value -- as long as someone else agrees that it does. A cookie could, technically, for as long as the cookie lasts, be currency, if: I have a cookie, you want the cookie, and are willing to give me something I want in exchange for the cookie. 

There's nothing backing the value of the cookie. Just the agreement and the trade.

Now, cookies are lousy money, because, over time, the cookie gets stale -- therefore depreciating in its value, or losing value altogether.

I can have a stale-ass cookie. Three days earlier, you would have given me a piggy back ride for my fresh cookie. But three days later, what you and I can agree on to trade this way less desirable cookie for is...less. If anything. 💩

This is, pretty much, why we don't use cookies as money. Its value is relative...to freshness.

Historically, we gravitated towards assigning value to items that, usually, held their value better or longer than cookies. 

Like goats. 

Or gold (you remember "gold standard," yah?). 

Or some other item that we all agreed (or rather, the peeps in power) held value and, of which, we do not have an infinite supply. These items, say, the goats or gold, then became, through the magic of agreement, a commodity.

Because, say, goats can have a great goat baby year or a goat dry spell, the number of goats increases or decreases...but is never 0 and never infinity (same with gold. You get the gist. I'll not go deep here, since now we are in econ 101 inflation/deflation).

But let's be practical. To carry an adequate amount of most commodities (goats or gold) to trade, daily, for items we need and want, is absurd. Them things are heavy.

So, practicality births "fiat" -- bills and coins, easy to carry, fungible (interchangeable: a dollar is a dollar is a dollar) representations that have symbolic value worth a predetermined amount of goat or gold = its "store of value." 

Cool? Cool.

Here's the thing, though. Fiat has not been backed by anything but government handshakes for awhile now (in the US, since 1971!). There's no goat. No gold (the cake is a lie). 

In all but rare cases, cash is only valuable because governments say it is.

So, what makes cryptocurrency any different...or, really, the same?

It functions, 75% of the time, the same way. 

Most crypto has a set limit of number of that token/currency -- never 0, never infinity. For example -- unless something changes -- Bitcoin is capped at 21 million. That's all that there can be. Now, the agreed on value is in flux, with speculative interest, hype, and hipness playing ridiculous factors, but ultimately, it hits the same basic notes as "money." It is a medium of exchange by a fungible dingiemajig,which just happens to be a string of numbers and letters, rather than a coin or a bill.

As long as someone else agrees it has value, and we can relate and adjust that value to both perception and its scarcity, trading it for something else...then, bro. Is money.

In some cases, cryptocurrency tokens are actually backed by a physical asset, sometimes even unique and singular (see non-fungible token here). Sometimes, that non-fungible token IS THE ACTUAL money -- think art, collectibles, rare or one of a king items that hold similar value/appeal as investments in the non-crypto world.

There are gambles...similar and different to the gambles of investing fiat. Stuff goes belly up. Crashes. And so on. Cryptocurrency makes this extra spicy because any schmoo with a bit of time can create their own. And they do. 

Part of what solidifies a store of value for crypto is trust and verification (again, now I'm dribbling into blockchain so I'll step lightly), so no one should just bull blind straight into the crypto china shop. You need to do a bit of reading on the tech and projects behind the crypto -- which is extra spicy, because now is where crypto starts to look like investment in companies, services, and businesses...which it is, except* that it's not totally about anything aside from whether the thing is attractive enough to gain wide adoption.

Utility is what crypto enthusiasts and investors are betting on. As more merchants and services offer the ability to pay with and accept crypto, which is already happening, the utility grows. 

We can spend it. Like goats and gold.

It's money.

* a bad project may not be bad. It's just not solving a problem or unique enough to fill a need, which means it'll die and its token will = less than the symbolic goat's shit.

How did I do? Did I miss something? Clear as puddin'? Mom still worried? Let me know below!


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