Human civilization flourished in times and places where sound money was widely adopted, while unsound money all too frequently coincided with civilizational decline and societal collapse — Saifedean Ammous.
Economic value: benefit provided by a product or service. It is subjective.
The tool that (1) represents and (2) stores economic value that makes possible its (2) transfer, (3) exchange and (4) measurement is called money.
It allows for social coordination.
Historically, money has evolved as stages that coincide with its functions:
Social representation of value: it displays easily verifiable economic value that enables its recognition.
2nd. Store of Value. Medium of Wealth Transfer.
Preservation of economic value/Transportation of economic value across time.
3rd. Medium of Exchange.
Transportation of economic value across space (between people/merchants).
4th. Standard of Value.
Unit of account: it measures economic value. This implies the existence of a price system that facilitates economic (value) calculation.
Monetary properties are the characteristics that provide the ability to fulfill those functions with security:
1. - unforgeable costliness: security against misrepresentation. The costliness in its creation implies scarcity which represents value. Its unforgeability implies recognizability/distinguishability (the ability to be easily verified).
2. Unforgeable costliness and:
- predictable low inflation: security against value dilution caused by a low stock-to-flow ratio.
- storability: security against theft, loss or non-durability.
- portability: security against transfer costs (inversely proportional to the value-to-weight ratio).
3. Unforgeable costliness, predictable low inflation, storability, portability and:
- fungibility & divisibility: it simplifies the exchange process. Fungibility provides privacy for current and past owners, which implies protection and censorship resistance. The greater the info leak, the more vulnerable are the owners. Fungibility also provides security against the margination of specific units of that money, further enhancing its store of value capacity.
- saleability: security against lack of social adoption.
4. Medium of Exchange monetary properties and:
- relatively smooth distribution: security against abrupt changes in value due to a relatively high concentration of it.
Trusted third parties are security holes, so any other feature that reduces dependency on intermediaries is also a monetary property.
A secure money allows for social scalability: the efficiency in social coordination.
Social scalability drives civilization advancement.
Economic scarcity: as an absolute concept, implies that the resource it is not available in limitless supply. It may also refer to the relative availability of it.
Fungibility: ability for different instances of a good to be treated as equivalent in the market, with no regard to who produced them.
Hard money: money in which issuing any new unit of it is very expensive.
Sound money: money which quantity can not be inflated at a high rate.
Medium of exchange: the asset that settles a transaction. "What" a transaction is denominated in. E.g. USD.
Means of payment: the method used to implement a transaction. "How" a transaction is manifested. E.g. credit card payments.
Currency: a generally accepted medium of exchange.
Money is the vehicle that transports value through time and distance.
It makes possible the coordination between people.
It is secure when it is scarce, easily verifiable, sound, ability to be stored and transported, divisible, fungible, widely accepted and distributed.