A Trusting Agreement: Money
We all know that our money, at least in the United States, is worth…well what it’s worth. We rely on the Federal Reserve to do its job by deciding the value of each unit of money and we all agree on that. What we do decide, as the people using this money, is how much our goods and services are worth using money as a base. The trade of goods since the time of bartering has always been about exchanges of similar value and money has not changed that but only become an intermediate for such exchanges. Other cultures’ forms of money may seem ridiculous because of the differences in values and the way it is handled but the concept of money is the same across all forms of curreny in all cultures.
The island of Yap has a form of currency made of stones that can be so large, they are traded only through the simple agreement of exchange and trust of ownership. This type of exchange is no different from a gold exchange between the French and the United States where the only change that was made was the label on a drawer of gold and the agreement of ownership of that gold. Not only do these very large exchanges rely on trust but our everyday exchanges as well. We trust that the cashier at Wawa values a bag of chips at a dollar and he trusts that we will give a dollar for those chips. The trust we have in money is what makes it valuable, not what the money is made out of. But because many people see it as the other way around, they find trading stones for homes but it is no more ridiculous than changing numbers in bank accounts with pieces of paper.
We trust in our government to give value for the money in our pockets and our bank accounts but Bitcoin, the solely electronic form of money, is only based on the trust of the other Bitcoin users. Those exchanging the Bitcoin agree on the value of it and the value of the goods being traded and agree to trade Bitcoin for goods. That being the only point of reference for the value of Bitcoin, this newborn form of money has had its value has had its value up and down like it is still learning to be money. Why would we trust the dollar bills in our pockets if one day it can buy a bag of chips, the next day a cow, and the following day only a grain of rice? For Bitcoin to grow up and stand on its own, it needs more people to trust in its value and agree to use and accept it, like any other form of money. With the creation of bitcoin, we have witnessed the birth of a new form of money and we are able to analyze it every step of the way giving us a better understanding of the concept of money.
Money exists because each form has enough people that trust it and agree to use it. No matter the material or purpose, the concept of money is universal. We trust that our money has value and agree on how much things are worth and that is how we conduct business.