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What is sound Money?
Mr. GoBrr
March 09, 2024 • Reading Time:5 minutes
“Sound money allows people to think about the long term and to save and invest more for the future.
Saving and investing for the long run are the key to capital accumulation and the advance of human civilization.”
Today is Saturday, and as usual, I want to share with you a special letter with a new idea.
Last ideas I shared with you are:
Last time, I told you about the functions of money:
Medium of exchange
A unit of account
Store of value
Today, I want you to discover what is sound money.
What are the characteristics of sound money?
The idea of "sound money" comes from old economic ideas.
“Sound money” means a system where money gets its worth from commodities like gold or silver.
The term "sound" in "sound money" actually originates from the old practice of testing the quality of coins.
People used to check the sound by tapping or dropping them.
Coins made of gold or silver make a special ringing when hit, different from coins made from other metals.
If the sound of a ringing coin is similar to that of a genuine gold coin, it must be a real gold coin.
This concept evolved into an idiomatic expression which implies stability and trustworthiness.
"Sound" describes something as "reliable", "solid" or “solid”.
When you hear someone saying, "this thing is sound," it implies they want to convey that it is solid, reliable, or strong.
For money to be considered sound, it must possess the following characteristics:
Durability
Portability
Divisibility
Uniformity
Limited Supply
Acceptability
Let's explore each of these characteristics:
1. Durability
Durability refers to the ability of money to withstand wear and tear, maintaining its value and functionality.
This is one of the reasons why gold has achieved the status of sound money.
It is the most durable (sound) commodity in the world.
In the technology era, durable money is the type that retains its purchasing power and validity over time.
2. Portability
Portability means how easily money can be carried around, which is important for quick and easy buying and selling transactions.
3. Divisibility
Divisibility means you can break money down into smaller parts but it's still worth the same. It lets you pay the exact price for things.
A 20-dollar bill can be exchanged for other denominations, say a 10, a 5, four 1s, and 4 quarters.
4. Fungibility
Fungibility means you can swap money units with others that are the same value, and there's no difference between them.
A 1 dollar bill has the same value as any other 1 dollar bill.
5. The scarcity of money (Limited Supply)
Scarcity means making sure there isn't too much money around.
This helps to avoid prices going up too fast (inflation) and maintains the money's worth.
A characteristic that we don't see with government (FIAT) money.
6. Acceptability
The general acceptance of money as a means of payment is linked to the trust that people have in it, facilitating the exchange of goods and services.
People use money to buy things because they trust its value.
This trust makes trading goods and services easier.
Is Bitcoin sound money?
Bitcoin meets all these criteria and is often referred to as Sound Money.
Here's how it embodies these qualities:
1. Durability
Since its inception in 2009, Bitcoin has significantly increased in value and proved to be an asset that appreciates over time. It’s a good store of value.
2. Portability
Bitcoin is information. If you know just one piece of information - the secret key - that's enough. It is the most portable form of money.
3. Divisibility
1 BTC can be divided into 100,000,000 sub-units called "Satoshis".
1 Satoshi is equal to 0.00000001 BTC.
It is the most divisible form of money.
4. Fungibility:
1 satoshi = 1 satoshi, 1 BTC = 1 BTC.
5. Limited Supply
Bitcoin has a maximum supply of 21 million coins.
This means no central bank or government can print more Bitcoin uncontrollably, preventing inflation.
Bitcoin is the most scarce form of money.
6. Acceptability
Bitcoin is continually being adopted.
There is already a state that has declared it "legal tender".
As more people understand that it's a pure form of sound money, its adoption and acceptability will continue to increase.
That's all for today.
I hope this idea of "Sound Money" has helped you better understand money.
Mr. Go Brr
P.S. Bellow you can find some links to learn more about “What is Money”:
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