This Is How Money Works

in LeoFinance4 years ago (edited)

Hey there. Do you Understand the Concept of Money?

Money

Source: Pixabay | Photographer: Arulonline


In this post here, I talked about porting over to the hive blockchain and starting a new series to add value to hive. The series is focused on understanding the nitty gritty of the blockchain and how it works.

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Welcome to first episode of the “Understanding the Blockchain” series. Now before we dive head on into understanding how the blockchain works, it would be wise to understand how money works first.

We can all agree that cryptocurrencies are digital currencies and as such, makes them a kind of money.

How then does money work?
What is the history and origin of money as we know it today?

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So we’ll be talking about money in general, the different classification, how they work and what makes it valuable. This will help us understand the concept of bitcoin and cryptocurrencies, why it was created and where it fits in, and why it is valuable.

First of all, how about we define money. According to Merriam-Webster dictionary, money is defined as

“something generally accepted as a medium of exchange, a measure of value, or a means of payment.”

We can see from the definition that bitcoin can of course be all three (3) of these things:

  1. A medium of exchange
  2. A measure of value, and of course
  3. A means of payment


Types of Money

We also need to learn and understand about the different categories of money. This at the end of the day will help us understand where bitcoin and other cryptocurrencies fit into.

  1. Commodity Money
  2. Representative Money
  3. Fiat Money

    1. Haven explore the concept of money, the different categories and how they work, we’ll be talking about the origin of bitcoin in the next episode and see where it fits in to all these. We’ll see that bitcoin doesn’t fit into any of these categories perfectly and we’ll talk about why.

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      As you clarify, the supposed value of fiat money comes only from that value which we the users permit it. Once more and more people start to question or doubt the "value" of the dollar, the price will decline.

      Exactly!
      An this means that a little shift in the economy, wrong news or even one bad policy or a corrupt government can start a cascade that may lead to a decline or even total crash of a currency.
      It happened with the Venezuelan Bolivar in 2018.

      Thank you for this piece @gamsam, it's really educative

      Thank you for stopping by @avosep