"Early banks issued credit in the form of private notes. This created both good and bad inflation. Credit grew with local economies, but sometimes outpaced it in the hands of an improvident bank. State-run central banks took over this function, in part, because it was a good privilege to have as a sovereign. It was also good for markets to have a sound but growing source of money."
"Money does three things. It serves as a unit of account; you can quote prices for common goods in dollars, as can all the other people in America. It serves as a store of value, as with the dollars in your bank account. And it serves as a medium of exchange; your grocery store takes dollars—and so do you, from your employer"
...and then goes into the value proposition of Bitcoin...
"Bitcoin, like gold and silver, is finite, making it a good store of value. And it exchanges well—magnificently, in fact, far better than gold. The way that the bitcoin protocol uses distributed computing power to verify transactions at a distance is an innovation that has been wanting since the first bills of exchange were offered in the long-distance Mediterranean sea trade."
"Bitcoin is a store of value and a medium of exchange. It’s like really awesome gold. It’s not, however, a unit of account. Your mother cannot quote you the price of eggs in bitcoin. This is not just a question of waiting long enough for your mom to get around to using bitcoin. The state has tremendous power over the unit of account. It pays government contracts in the unit of its choosing. It collects taxes in that unit, too. The psychological weight of this power can last for centuries. Medieval Europe still accounted for its variety of coins in Roman units. Modern Europe uses the metric system because Napoleon wanted it so. It’s not clear why any state would choose to give this up."
It's a great article that reminds us all of what the basic tenants of money that create value are.
More at Businessweek.com
RSS Feed
Twitter
Facebook