Money is one of humanity's most important inventions, yet most people have never deeply considered what makes something 'money' or why money exists at all.
Money serves three primary functions: a medium of exchange, a unit of account, and a store of value. Each function is crucial for a functioning economy.
Before money, humans relied on barter systems. Barter requires a 'double coincidence of wants' - both parties must want what the other offers. This severely limits economic activity.
Good money exhibits specific properties: divisibility, portability, durability, recognizability, and scarcity. Throughout history, various items have served as money based on these properties.
The evolution of money shows a clear progression: from commodity money (cattle, shells) to precious metals (gold, silver) to paper money (IOUs backed by gold) to fiat money (government decree).
Each transition solved certain problems but introduced new ones. Understanding this progression is crucial to understanding why Bitcoin represents the next evolutionary step.
Think about a recent purchase you made. Walk through how barter would have worked for this transaction and identify at least 3 problems you would have encountered.