#0003 - Bitcoin...What Is It? - Medium of Exchange

Here at The Nyc & Griff Show we like to talk about money, economics, business, investments...Bitcoin. Hoping to answer some questions and learn along the way.

Bitcoin - An economy by the people, for the people. Store of value, medium of exchange, unit of account, and property...what isn't it?

Medium of Exchange - An intermediary instrument or system used to facilitate the sale, purchase, or trade of goods between parties.

The properties of a medium of Exchange:

First, it must be readily acceptable. If this first property is not met you run into the same issue as in the barter system where someone else doesn’t want what you’ve got to offer.

Second, it must be easily divisible. This property must be true so that we can divide, add, and/or subtract an amount of the MoE in order to make large and small transactions.

Third, a MoE should be easily and efficiently moved around the economy. To make this make sense let’s look at something that wouldn’t pass this test. Let’s use table chairs as a MoE. Technically, we could do this if it were accepted by others and one chair was worth a small amount so that they could be used in large quantities to make large purchases. Where a table chair as a MoE wouldn’t make that cut is the third property, being efficient. Long story short, a MoE has to be efficiently moved around through transactions.

Fourth, it must be difficult to counterfeit. Another way people refer to this is the hardness of a money. The harder a money is the more difficult it is too counterfeit. If a MoE isn’t hard or difficult to counterfeit it would create uncertainty in the market. People would be cautious to accept payment as it may be “fake money” worth nothing. This one is pretty straight forward.

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