It’s what is known as “legal tender” – coins or banknotes that must be accepted if offered as payment.
Meaning the dollars, or euros or any other currency for that matter have value because the government orders it to. Fiat Moneyįiat is a Latin word that means “by decree”. Even though there is no actual commodity backing paper money, people trusted the government and that’s how fiat money was created. So people continued to trade with receipts that are backed by nothing but the government’s promise.Īnd why did it continue to work? Well, because of trust. Basically we all said “let’s just forget about gold and trade paper instead”. Now, to explain the path that led us away from the gold standard is extremely complex, but suffice to say that governments told their people that the government itself would be liable for the value of that paper money. However as time progressed, and due to macroeconomic changes, this bond between the paper receipt and the gold it stands for was broken. And if you wanted your gold back, you simply took $1000 in bills back to the bank to redeem them for the actual form of money, in this case that gold bar, whenever you needed…Īnd so, paper began its use as money as an instrument of practicality and convenience. Not only were these pieces of paper much easier to carry, but you could spend a dollar on a cup of coffee and not have to cut your gold bar into a thousand pieces. Here’s how it worked: a bank or government would offer to take possession of your bar of gold let’s say worth $1000, and in return, that bank would give you receipt certificates, which we call bills, amounting to $1000. Over time, people found it too cumbersome to walk around the world carrying bars of gold or other forms of money, so paper money was invented. However something happened along the way and we’ve changed our trust model from trusting someTHING to trusting in someONE. Up until a hundred years ago or so we always trusted in someTHING to represent money. However, in order for something to represent value, people have to trust that it is indeed valuable and will stay valuable long enough for them to redeem that value in the future. Salt, wheat, shells and of course gold have all been used as a medium of exchange. Throughout history, value has taken many forms and people used a lot of different materials to represent money. I can then use that money to get something of value from someone else in the future. If I do some work for you, you give me money in exchange for the value I gave you. What is money exactly?Īt its core, money represents value. Why does Bitcoin Have Value and How is it Determined?īefore we talk about Bitcoin I need to take a moment and talk about money.If you want a more detailed explanation about Bitcoin keep on reading, here’s what I’ll cover: As bitcoin gains more popularity, more and more places accept it as a payment method. Bitcoin gives you complete control over your money, unlike other assets you own which are regulated by banks and governments. All Bitcoin transactions are documented on a virtual ledger called the blockchain, which is accessible for everyone to see. Don’t like to read? Watch our video guide instead!īitcoin is the first decentralized digital currency. Want to know all there is to know about Bitcoin? Here at 99Bitcoins we translate Bitcoin into plain English so even if you have no technical background you’ll be able to understand everything! In today’s post I’m going to give you a simple, plain English explanation about what Bitcoin is and why it’s so revolutionary. What is Bitcoin? A Complete Beginner’s Guide
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