What is Money? Functions of Money Explained | Bitpanda Academy Lesson 1

Money. Well, what does this really mean? In this video I'll be taking a look at the history of money and this new money alternative that many people are calling one of the biggest financial innovations since the Internet. I'm Jessica Walker and welcome to Bitpanda Academy, where you can learn all things Bitcoin and blockchain and cryptocurrency and also some general advice when it comes to stock investing also. So before we take a look into the world of cryptocurrency, stocks and other asset classes, let's take a step back and learn some of the basics about the concept of money. Money is an asset class that can be used as a medium of exchange. But before money people actually use barter systems. Barter actually dates all the way back to 6000 B.C. where people would exchange goods or things. And some research actually suggests that money was developed to combat the issue of debt by barter. So first, we need to address what is money. Well, people have been exchanging things with each other since the dawn of humankind using barter systems. People would exchange items that they would equate to having equal intrinsic value as an I give you X and you give me Y.

Now, this system works quite well for exchanges between two people, but usually it's too complex as soon as more people, more goods and longer distances are involved. Also a barter system may also reach its limits when only two people involved in this exchange. Let's say you have a large amount of berries and you want someone to exchange them for some gold. Well, if both parties want any other items offered by the person, that's the deal. But if not, things can actually get pretty complicated. So why do we need money? Well, if we kept the barter system we would have started to encounter problems. One of those problems would have been efficiency. Human history has seen a lot of manifestations of the idea of exchanging one commodity for another. A nimal hides, salt, seashells, gemstones, grains and even precious metals. The list really goes on and on, and all of them have been used to exchange one valuable item for another. But it doesn't really work in today's world. If I want the latest iPhone, but you'd like a round of drinks at the bar and we aren't willing to trade.

To tackle this problem, p eople invented money. Now, at this point, we're not talking about coins or paper money as we know it, but anything that was considered to have a store of value in which all parties involved in the exchange agree that they can be exchanged for another item also thought to be valuable. So you see, money is this useful tool that can be used to exchange value between two people. If we break it down, money can best be described as a medium of exchange. In this quick fire round I run through the characteristics of money.

I'd like you to actually think of one medium of exchange. It could be gold, the euro or even Bitcoin, and just see how many of these characteristics you can identify. First up: medium of exchange for commercial transactions involving goods, services and labour. Secondly, it has to have a store of value. Money has to be used as a store of value until it's needed. That means it also needs to be trust that money will retain its value. Third, it has to be easily moved around and exchange with other currencies. For instance, one country in the Pacific Ocean actually used to use limestones as official currency before they started using the US dollar. Now, one of these issues would actually be that the stone would often weigh more than a car making moving them around really challenging. Now, money is immutable and durability is really important. Thanks to the stateness of money, it can be used until new supply is printed to replace the old supply. Divisibility is also really important. Money has to be divisible. It's available in smaller increments for the exchange of things varying in value. Imagine if you wanted to buy one small pack of gum, but you could only use a 50 euro note.

It would definitely complicate the transaction. It has to be a verifiable. Counterfeit money is probably as old as money itself. In order to accept and trust money, it has to be impossible to forge and easily identified as being legitimate. Counterfeit money also needs the reduction of buying power of real money. Next step is fungibility. Individual units of money have to be essentially interchangeable, meaning that two equal units have to be equivalent or indistinguishable. The most popular example of this is actually something that can be traded for money that's non fungible and it's a collectable, like a piece of art, for example. So seashells, gemstones or even gold actually hold no intrinsic value. Over the course of thousands of years, people have been able to use items as a means of exchange. One key element here is trust. They have to maintain their value because people put trust into them.

So in some way, money has to hold value, it has to be easy to move around and not hold the risk of getting destroyed easily, and it also needs to hold trust. If people were to lose their trust in even one of these factors, the value is bound to change dramatically. In Venezuela, digital currencies like Bitcoin and Ethereum are actually being used to protect people against Venezuelan inflation. So you see modern day alternative to traditional solutions are becoming more common. And here at Bitpanda and we aim to bring you as much information as possible so you can remain informed and educated. Well, we hope you found this video helpful and we hope you learnt something along the way. If you did, make sure to give this video a big like and subscribe to the channel so you don't miss any more content like this.
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