Below is a mental process and some tools for having better conversations with your financial and legal advisors and for improving your confidence to ask better questions.
In your quest to better understand money, it makes sense to think of gold and silver as the ultimate hard money before transitioning to the hard money of the immaterial world—Bitcoin.
But before learning about Bitcoin in terms of math, value, physics, and cryptography, learn the difference of money from currency.
Arriving here on your Bitcoin journey-of-discovery, you are aware of at least one of the following:
- You know that value (buying power) of currency decreases as inflation increases.
- You are concerned about maintaining your savings for retirement and estate planning.
- You sense that Bitcoin isn’t merely a “solution in search of a problem”.
- You are determined to safeguard the value of your earnings and savings by looking into the asset, monetary and private property characteristics of Bitcoin.
Differentiating money from currency is a major step. Once you get there, focus on the long term store-of-value factor of money (Step 3) and the lack of this feature in currency. Leading up to this crucial difference, begin with the familiar similarities of currency and money (Steps 1 and 2).
Step 1 Medium of Exchange (currency & money)
Think of the most often used approach to money—buying things!
You exchange what you have for what you want. For your money to work, it must be:
1.1 Widely accepted by those exchanging with you,
1.2 Portable from one place to another,
1.3 Divisible to make change easily,
1.4 Common and Accessible for ease and convenience to quantify and express value from one market to another,
1.5 Relatively Stable from wild price fluctuation, and
1.6 Fungible so that a unit of money in your hand has the same buying power as the same amount in another’s hand.
Step 2 Unit of Account (currency & money)
Imagine how a monetary system wouldn’t work if no two coins were similar in size, shape or purity. Do you notice how consistency plays such an important role?
2.1 A Uniform Unit of Measurement gives consistency in accounting for value. Without a standard weight and measurement of material making coins, money fails to make sense.
2.2 With a Sufficient Granularity of money, a small enough fraction of a monetary unit can express the smallest value being sold.
Step 3 Store of Value (money)
And finally, notice, think and see this factor reserved for true money, alone.
To be a good store of value, money must be:
3.1 Durable—it doesn’t corrode or decay. It keeps its value for a long time over many decades.
3.2 Value Dense, holding high value and desirability without being cumbersome or burdensome to maintain. For example, think of a diamond with its value compacted in its size compared to the same value in a quantity of grain.
3.3 Maintain purchasing power by being scarce or hard to produce (as opposed to arbitrary currency creation). Think of a sum having the ability to purchase both the same quantity and quality of an item in the distant future as it does in the present.
3.4 Liquid: It can be quickly and easily sold, always in demand.
Professional advice and counsel are good and valuable. Nonetheless, avoid being too hasty to discount your own thinking, discernment and good judgement.