The innovation of cryptocurrency all began when the financial institution can no longer control the monetary policy regarding printing more money adding to the fiat already in circulation. This has caused global inflation which has affected many countries and have had great effect on the economy.
But first we need to understand what Money is and how it affects the economy.
THE CONCEPT OF MONEY
During the stone age, the method of exchange of goods and services was practiced in a simple way called 'Barter'.
Barter, was a method used during those century's to trade goods and services. This was the only way goods and services can be exchanged.
Humans during this period traded goods for goods. For example, if Grace has a per of shoe with an impulsive value, John also has a jean with same value. Grace and John might decide to have an exchange between themselves, this is what we refer to as Barter.
In economics, trading what the other person want that you have is known as coincidence of wants.
Money can be categorize into four (4) main types, namely:
1. Commodity Money
2. Representative Money
3. The Fiat Money
4. Digital Cash
- Commodity Money
Physical materials are what we describe as commodity kind of money. These physical raw materials are very useful and they also have an intrinsic value in the financial market.
Examples of Commodity Money
1. Gold
2. Silver
3. Diamond
4. Cowry
5. Wheat etc.
All of these are used as means of money for payment of goods and services. Unlike the Barter method of trade, where you will have to trade goods for goods.
Up till today, there are some part of the world where Gold, Silver and other precious metals are being used for everyday trade most especially in local markets.
Gold is considered as a big store of value for most countries in the world.
However, commodities is Still playing a big role in the financial market which also has replaced the economic market of Barter.
- Representative Money
The improvement of money from Barter to commodity, had to improve as time goes on which also brought another method of trading goods and services.
People no longer carry huge bags of coins, gold or silver from one place to another for trade. Rather, people can now make use of a method of trade that only require them to provide a certified ownership through a certificate.
Representative money involves a central issuer producing certificate that can be redeemed for a particular amount of commodity.
These gave access to traders to now carry pieces of paper that proves their ownership. With these representative method of money, you can now trade any item of your choice.
Representative money are mostly issued by governments because its value is mostly backed by Gold and it has some substantial benefit for trade.
- The Fiat Money
The death of the representative method of money came after the introduction of Fiat.
Fiat money is a type of money issued by the government. The fiat money is also described as paper money. Examples are the dollar notes, naira notes etc.
The value of this money are highly dependent on the policies of the government (Central Bank).
Most Fiat currency, are designed to have all the most value assets of a country on it.
Many objections have been raised by experts in the financial market, who made some serious arguments about the fiat money. One of those argument is the ability of government having control over the fiat money and its policies.
- They argued about supply chain of fiat money.
- Managing the financial crises.
- Controlling the money market with regards to interest rates.
Some of this polices have caused massive economic meltdown in so many countries.
Because of these, the innovation for digital kind of money was introduced.
- Digital Cash
The digital money is what many refer to as Bitcoin.
This is because Bitcoin is now been seen as a form of money. Bitcoin characteristics makes it standout from the other form of money.
Its portability, fungibility and reliability gives it the vital characteristics that makes it the medium of exchange today.
Bitcoin right now has gain a massive present in the financial market.
One of the things to know, is that Bitcoin has a limited fixed amount in circulation and a total that will ever exist in the world.
Because of these, the purchasing power overtime has massively continued to increase in value and in dominance over the financial market unlike the inflationary monies like the Naira notes, US dollars of which, they can be devalued by the government.
Bitcoin can be considered as part of the commodity money. Bitcoin is not under any control of any agency or government. It is fully decentralized, and its value comes from the validation of traders and investors in the cryptocurrency global market.
As we evolve, digital money (Bitcoin) might devalue the use of fiat around the world once adopted into the real local financial market.
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