Unit 1 - Currency

Cryptography

the study of encryption

Currency

this is the money part of the word cryptocurrency

Coincidence of wants

unlikely case that two people each have something that the other wants at the right time and place to make exchange

Most important functions of money

Money is a store of value, unit of account, medium of exchange

Money is a store of value

Money holds its value over reasonable time frames, money is a superior way of storing value compared to otherssuch as goods or services, which can depreciate.

Money is a unit of account

Money represents a yardstick that we can use to compare values of different things

Money is a medium of exchange

Has to widely accepted as a method of payment

Physical Properties of Money

The characteristics that make money effective, including durability, portability, divisibility, uniformity, limited supply and acceptability

Physical Money

Cash is an anonymous bear asset

Anonymous —> holds no record

bear asset —> in your hand

Digital Money

third parties are involved, it asks for your information, keeps a record of your transactions example: credit card

Different forms of Money

-Barter: the exchange of goods and services for other goods and services

-Commodity Money: exchange of valuable things -Representative money: the money is a claim on the valuable thing -Fiat Currency: the money is completely separate from any valuable thing

Characteristics of good commodity money

Intrinsic value, should be scarce, should not be perishable, and can be traded in standardized units

Representative Money

derives its value because it is a claim on some other itemof intrinsic value, such as gold or silver.

Fiat Currency —> 3 reasons why it has value

1) declared legal tender meaning that it must be accepted in that legal jurisdiction as valid payment. 2) Govt. only accept their own fiat for tax payment.

3) Represents a claim on underlying wealth of the nation (this point is the most important)

Gold Money Standard

Currency value determined by gold

1934: The Gold Reserve Act

FRD decided that circulation of gold coins is no longer necessary and criminalizes the possession of gold

He starts off the “New Deal” including starting social security

1944: Bretton Woods

Permits limited possession of gold

1973: President Nixon does what?

Abandons the Gold Standard

Fiat Money

people have the freed to buy and sell however they wish

Govt. stays out of the way

Responsibly managed Fiat Money is like?

Representative Money

Brief History of Money - Fiat Money (1000 AD)

Represents a social contract between govt. and people