Why Understanding Cryptocurrencies Helps You Understand What Money Is
Even if you are not thinking about buying cryptocurrencies
When talking about cryptocurrencies, many people don’t even want to start the conversation, because they think it’s a very futuristic subject, far outside of day-to-day reality.
But understanding how cryptocurrencies work is a big step towards understanding the very nature of money, and thus knowing how to better manage what you earn.
By the way, have you ever stopped to think about what money is? Where does it come from? Where does it go?
In this article I want to address all this in detail, analyzing especially:
1 - The origin of money as a private instrument
2 - When the government took possession of money
3 - How cryptocurrencies help you understand what money is
4 - Changing your mindset about money
If you want to change your mindset about money, even if you don’t think about buying cryptocurrencies, keep reading this article as there are many interesting ideas for us to discuss.
The origin of money as a private instrument
Everyone deals with money almost every day, but almost no one pauses to reflect on what exactly money is.
If you go researching about how money came about, you will probably find a classical explanation like that of Adam Smith in The Wealth of Nations.
This classic explanation says that money arose as a means to facilitate an exchange.
Before money, if you were a milk producer and wanted to obtain a loaf of bread, you had to produce some surplus milk, find a bread producer who also had an excess product, and thus negotiate an exchange.
Since this was not very practical, the story goes that gradually people adopted some good that was accepted by all as a means of exchange.
Because of its durability, portability, and practicality, metals such as silver and other metals ended up becoming the most accepted means of exchange.
This origin of money is well known and also goes some way to explaining cryptocurrencies.
Suddenly, some people decided that pure digital information could be a medium of exchange to buy and sell anything. Just as it was once done with salt, silver, and gold.
When the government took possession of the money
There are other explanations for the origin of money, but they all point to one common characteristic: money emerged as a private, private instrument created by people to facilitate the exchange of goods.
But soon the government took possession of this idea. Even in ancient Greece, the custom arose of engraving coins with a mark of the person who produced them, to guarantee their nominal value.
This engraving was done in a decentralized way until the emergence of the countries as we know them today. This is when money became fully controlled by the government.
For a while, money had a physical counterpart to its value, which was the gold reserves a country had. But that gold standard was abandoned in 1973 and today there is no correspondence between the amount of money a government prints and any ballast of wealth it has.
In other words, nowadays it is the government that decides when it prints more money, devaluing the amounts you have and increasing the prices of goods in the market.
This power sometimes leads to some abuses, which end up generating economic crises, such as the great crisis of 2008. And it was precisely in this crisis that the first and most famous of cryptocurrencies, Bitcoin, emerged.
How cryptocurrencies help us understand what money is
Would you pull your investments out of your pocket to buy a virtual currency that nobody knows who created and that is not controlled by any government?
During the 2008 crisis, someone by the name of Satoshi Nakamoto published an article on the Internet explaining in detail how a private, encrypted virtual currency called Bitcoin works.
This article solved a problem that always arose when someone tried to create a virtual currency: copying the information.
Think of it this way:
If I have a file on my computer and email that file to you, we both have the same file. This made it impractical to choose a digital file to serve as a currency.
Bitcoin solved this problem by creating a decentralized public record of all file exchanges ever made in the system and thus became viable as the first of the cryptocurrencies.
Since then, the virtual currency market has only grown and is already moving billions of dollars, completely outside the official financial system.
It is as if it were a return to the private world of the original idea of money as a means of exchange elected by private individuals without further interference from governments.
Changing Your Mindset About Money and Cryptocurrencies
There are a lot of technical details and advantages and disadvantages about using cryptocurrencies, but this is not the point we want to address here.
What we want to do is to get you to reflect and change your mindset about money.
Cryptocurrencies can help you better understand what money is, understood as a means of exchange. And it can help you realize that anything you create that is scarce and desired can have value.
Imagine for example children having a competition at school to see which coin would have the highest adoption according to popularity: Jaden Coin or Samantha Coin.
In other words, you have the power to create a cryptocurrency and seek to gain the trust of enthusiastic people who recognize the value of this initiative.
But when you think about value even more broadly, you don’t even have to limit yourself to the world of cryptocurrency algorithms to produce something of value and receive money for it.
The knowledge you already have today on any subject can very well be systematized and turned into digital files to be put up for sale on the Internet and thus generate extra income for you.
The same can be done with services that you can offer, such as teaching something, doing some distance work, or simply giving advice and guiding people who know less than you do about any subject.
By changing your mindset about what money is and what people value, you can change your social class and live a life of greater abundance without depending on a change of job, career, or winning the lottery.