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The Spirit of Money

Energy Creature seeks novel Host

Money is not what you think it is. Money is not the coin in your wallet or the numbers on your banking app. Those may be its shapes now.
No, money is a shapeshifter. As a hermit crab looks for a new shell when it’s broken, money will look for a new home if its current one is shattered. One can see this across history, under certain circumstances, as money showed itself as boulders, cigarettes or cows.
Money is a kind of alien energy-being that needs a host where it can perform its functions for humans. If necessary, it splits across multiple hosts to improve its services to us. Where does this creature live now? Where was it staying before? And most importantly, where will it reside in the future?

Monetary functions and properties

The money spirit is a creation of the purchasing behavior of humans. Archaeological research has so far shown that the Neanderthals did not use money. Homo Sapiens was therefore the first primate to use it and possibly acquired it as an competitive advantage over its competitors.¹ The use of money has many advantages. It performs the following functions:

Store of Value (SoV)
Just as fat is an energy storage for your body, money is storing your time worked. A good savings tool enables you to exchange your worked time at a later date for a product/service. It’s important that in the future your hours worked are still worth the same.
Suppose you were to use bananas as an SoV, you would soon discover that it is not the ideal savings mechanism. Within a month, all your bananas will have rotten away and all your saved time will be lost.

As a workaholic you also have to be able to store your bananas somewhere. One will have to invest extra in a shed/cooling just to be able to store it. Consequently another problem is created, because what if that shed burns down or gets robbed? Your bananas will require extra security measures.

Finally, what if K. Rool Corporate suddenly starts planting banana plantations to make new money. Due to the increased supply, your bananas will become worthless. Good money is therefore scarce and inflation resistant. Inflation resistance or the difficulty to increase production keeps a resource scarce.
Summing up, a good SoV is durable, value-compact, unconfiscatable and scarce.

Banana Money: Does it work?

Medium of Exchange (MoE)
The second function of money is that it’s a medium of exchange. An efficient economy requires trade, otherwise we have to do every task ourselves instead of specializing and improving a specific skill.
Without money there is barter. Suppose I have bananas and need apples. Cranky Kong wants bananas and has apples. We can both trade as there’s a coincidence of wants. However, there’s a problem when Cranky has no apples but accepts bananas or has apples but does not accept bananas.
Barter is also not scalable. The coincidence of wants problem in an economy increases quadratically with the amount of products/services. With 5 goods in a micro-economy, 5² = 25 prices have to be used. Money solves this, so anyone can always liquidate to the medium of exchange.

Back to the banana example, but now as an MoE. Firstly, bananas are not easily portable. If I want to buy a Tesla from Funky’s Banana Car Company, I have to rent a truck and dump the banana cash in front of his store.
In addition, Funky should also check every banana whether it meets the standards. Maybe I have bananas that are too small or some of them have dents, breaks or rotten spots. These bananas cannot be used by Funky to exchange for other things and are therefore not salable. At best, we have genetically engineered bananas that would all be uniform. This makes any banana exchangeable for any other, i.e. fungible. We should perhaps have the bananas verified, approved and stamped by a banana appraiser first. Such a qualification would have made banana money easily recognizable and reliable. Obviously this banana system is horrendously inefficient.
Finally the medium of exchange must be easily divisible. At Candy’s Candy Store you want to buy a roll of peppermint. The price is 1.42 banana. You then have to cut the banana very specifically, so that you can match the exact price. Candy may only accept whole bananas, leaving you overpaid on this exchange.

In summary, a proper medium of exchange is therefore fungible, divisible, recognizable, salable and portable.

Unit of Account (UoA)
Being able to determine value is a human necessity and therefore the third function of money is being a unit of account. It requires money to be relatively stable in value.
For example, hyperinflation occurs in a banana republic as a result of a banana tanker washing up on the beach. Yesterday’s banana is worth much more now than today’s. If Dixie Kong has a debt of 1 banana, it will be easy to pay off her debt as the economy is now ‘flooded’ with bananas. This is not beneficial to the creditor.
The UoA is a like a pair of glasses through which one interprets value. Ideally, one’s money is scarce, so one has clearest perception of what is happening in the economy.

Different times, different money

Now we understand monetary functions, let’s see what guises money has taken on in the past. Different economic conditions lead to money seeking different hosts to perform its services.

Primitive Money: Shells, Stones and Glass Beads
The first forms of money were often scarce objects that could be found in the environment. Some Indian tribes used beads made from the venus shell called wampum or by New Dutch settlers called Sewant.² Finding and crafting wampum required a lot of work enabling its scarcity. In addition, it was also a good MoE, easily transportable, divisible, etc.
Because the settlers had superior technology for harvesting and manufacturing more wampum with less work, this money lost value through inflation and gradually disappeared as money. Beaver hides would then become a more reliable money.

Wampum: Native American money

A similar fate awaited the glass bead economy of West Africa. Glass was scarce in these countries and therefore became money. However, Europeans were able to industrially produce glass beads and dump them on the African markets to buy up all the wealth rendering the beads completely worthless.

The inhabitants of the island of Yap showed that lesser divisible objects can also become money, so-called Rai stones. These were colossal stones with a hole in them. Islanders could each own different parts on different stones. For transacting, the whole island would have to come together to verify and approve the exchange. In this manner, ownership could never be tampered with and allow infinite divisibility.
The scarcity principle also applied to the Rai stones as they were not to be found on Yap. Only by taking a dangerous trip to a nearby island (read: do work) could more money be created. This system eventually also broke down by westerners who could easily transport new stones to the island by having better boat technology.³

Gold standard
Markets naturally find the best money, therefore gold and silver coins would eventually win over primitive money. Precious metals are harder to produce and thus more inflation resistant. Gold was the scarcest and would therefore fulfill the saving function. Silver complemented gold in divisibility and functioned as the main medium of exchange, as the yellow metal was too value-compact for small transactions.
An upgrade to the gold standard would be paper gold and silver certificates. This enabled safe storage at the bank and the paper provided improved transportability and divisibility. This system works as long as the convertibility of these certificates is guaranteed and no more certificates come into circulation than there are metal deposits at the bank. History shows that no paper money system could uphold convertibility and inflation would always ensue. In the worst case scenario, fiat would completely disintegrate due to hyperinflation.

Hyperinflation: Weimar Germany
When the value of unbacked government money (fiat) is severely eroded, people turn to alternatives. This happens when a currency undergoes hyperinflation as happened in the Weimar Republic (1922–1923). The exponential expansion of the money supply was a result of the inability to repay the damages to the Allies as a result of the First World War. The only way the government could still finance the damage payments was by printing new money, resulting in the paper money rapidly being depreciated.
During hyperinflation, the savings function moves to other currencies, gold, cars, houses or the stock market. When fiat is no longer money, everything else becomes money.⁴

Prison money
During World War II, we would see other forms of money. In German prisons cigarettes sometimes became money. Smokes are a deflationary money, as they are smoked and new supply is low. They are becoming increasingly scarce, and adopt the saving function.
In addition, a pack of ciggies can be divided into smaller fungible units, the cigarette itself, and are easy to transport and therefore ideal as a medium of exchange.
The cigarette as money only works in closed environments. As soon as you get out of jail, the value of a smoke falls back to its intrinsic value, that of a stimulant as it’s no longer scarce in the outside world where tobacco is abundant.

Now: Real Estate, Legos and Pokémon cards
The current monetary system has been decoupled from gold since 1971 and therefore unable to hold its value. This devaluation is accelerating. Other assets are taking over its savings function. Just take a look at the housing market and stock markets. It’s getting so crazy that children’s toys like Pokémon cards and Legos are becoming savings vehicles. People are desperately looking for ways to protect their purchasing power.

The erosion of saving in currency is a major issue. As a result, the real estate market has become overpriced so that it is becoming increasingly difficult and expensive to find a place to live. If a large part of the paycheck is spent on housing, a population becomes poorer and the gap between rich and poor widens. Ideally, one should have a money that has no intrinsic value, so it cannot disrupt other markets.

Pokémon cards: A savings alternative (credits: PieChartPirate)

Cyber cash
The best money so far was gold. Paper money was an upgrade for easy transactions. Due to digitization, the exchange function has further improved. However, the savings function has been completely eroded by government policy.
Bitcoin fixes this. The network is decentralized, nobody can change the rules of the system. This guarantees a maximum issue of 21 million coins and solves the inflation problem forever.
In addition, Bitcoin does not disrupt any other market. It is the first money designed in history and built to absorb all monetary energy. The monetary premium on houses and stocks could flow completely to the orange coin and help these markets recover. After all, these assets are also not suitable as a MoE and therefore ultimately unsuitable as money.

The Spirit of Money

The monetary energy spirit took on different guises over the centuries. Money is an invisible organism always seeking the best hosts to perform its saving and exchange functions. Most confuse money with fiat. The French still say silver (argent) for money. Germans say Geld (gold). Humanity will say Bitcoin in the future, as Bitcoin is a house optimized for money. Absolutely scarce, transportable at the speed of light, infinitely value-compact, unstealable, verifiable, fungible, infinitely divisible and no intrinsic value.⁵

Money: An energy organism

The money spirit is flowing into Bitcoin as more people adopt it and the technology improves. As of 2021 it is still mainly a store of value, but the emerging Lightning Network is improving the medium of exchange function.⁶ The creature will be so comfortable on the internet providing anonymous, censorless, global exchanges of value at the speed of light through Bitcoin… it might never leave.


  1. Shelling Out — Nick Szabo (2002)
  2. Wampum — Wikipedia
  3. The Bitcoin Standard — Saifedean Ammous
  4. Hyperinflation in Weimar Germany — Wikipedia
  5. Bitcoin has no intrinsic value — Keiser Report
  6. Lightning Network — Wikipedia

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Bitcoin Graffiti

Bitcoiner, Entrepreneur and Software Developer. Also your occasional graffiti artist on-chain and meatspace.