Why Money Matters
Most people use money every day without thinking about what it actually is. We tap a card, see a number change on a screen, and walk out with a coffee. But money is one of humanity’s most important inventions — and understanding how it works makes Bitcoin much easier to grasp.
Money is any tool that lets people store and exchange value. That is it. It does not have to be paper. It does not have to be coins. It just has to do the job.
What Makes Good Money?
Not everything works well as money. Over thousands of years, people have figured out what properties matter most:
- Scarce — Hard to create more of it. If anyone could make it, it would be worthless.
- Durable — It should not rot, break, or fade.
- Portable — Easy to carry and send.
- Divisible — You can break it into smaller amounts for everyday purchases.
- Fungible — One unit is the same as another. Your dollar is worth the same as mine.
- Verifiable — You can confirm it is real, not counterfeit.
Gold scored well on most of these for centuries. Paper money made transactions faster and easier, but introduced a serious tradeoff: trust in the people who print it.
A Brief History
Humans started with barter — trading goods directly. If you had wheat and needed shoes, you had to find a shoemaker who wanted wheat. This “double coincidence of wants” made trade slow and limited.
Commodity money solved this. Shells, salt, and eventually metal coins became shared standards of value. Around 600 BCE, the kingdom of Lydia minted some of the earliest gold coins — standardized, portable, and hard to fake.
Paper money came next, first in China around the 11th century. Instead of carrying heavy metal, people carried notes that represented a claim on gold or silver. This worked as long as the issuer kept enough reserves. When they did not, the notes lost value.
Today most money is digital — numbers on bank servers. You rarely touch physical cash. But the fundamental question remains the same: who controls the supply, and can you trust them?
When Money Breaks
All modern currencies are fiat money — issued by governments, backed by nothing physical, valuable because the government says so. This system works most of the time. But it has a built-in weakness: the people who control the money supply can always create more of it.
This is inflation. When a government prints more money, each unit buys a little less than before. The US dollar has lost over 96% of its purchasing power since the Federal Reserve was created in 1913. A dollar back then bought what costs roughly 32 dollars today.
Most years, inflation is slow enough that people barely notice. But in some countries, it spirals out of control. When that happens, people’s savings can lose half their value in months. They rush to spend or convert their money before it loses more — which only makes inflation worse.
This is the core problem Bitcoin was designed to solve. A money with a fixed supply that no one can inflate. To see how, read What is Bitcoin?.
What’s Next
Money is just a technology — and like all technologies, it evolves. From shells to gold to paper to digital numbers on a screen, each step solved old problems and created new ones.
Bitcoin is the next step. It combines the scarcity of gold with the speed of digital payments and removes the need to trust any government or company. To learn why this matters, read Why Does Bitcoin Have Value?.