What Is Money?
Money, at its most basic level, is a medium to transfer value. We discuss the three main functions of money: Store of Value (SoV), Medium of Exchange (MoE), and Unit of Account (UoA).
Money, at its most basic level, is a medium to transfer value. Money is not just paper in your hand or numbers in your bank account. Historically it served as a basic form of record keeping to keep track of who owns what. It can be used to represent the work required to acquire goods and services. Over the years, the form of money has changed and evolved, but its functionality has largely remained unchanged.
The main functions of money are Store of Value (SoV), Medium of Exchange (MoE), and Unit of Account (UoA):
Store of value: Once the money is demanded by enough people, it will be recognized as a way to store value over time.
For example, gold has been a desirable good for centuries, and as more people agree on its desirable properties, i.e., an increase in demand, its value or purchasing power increases. This is the stage of money bitcoin is at now.
Medium of exchange: Once money is fully established as a store of value, its purchasing power will stabilize, and it becomes more suitable as a medium of exchange. In the earliest days of Bitcoin, many people did understand that bitcoin had not evolved enough to become a medium of exchange, as evident by the infamous story of a man buying pizza in exchange for 10,000 bitcoins, the equivalent of around $470 million today.
Unit of account: The next stage for money is to become a unit of account. When money is widely used as a medium of exchange, goods will be priced in terms of it. In today’s world, the US Dollar is the most common unit of account. Even though goods might be priced in Bitcoin, they are actually priced in the desired dollar amount of bitcoins.
