A short thread on Understanding Money ๐ต
What it is, why it exists and how you can create your own ...
#banking #fintech
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We are all familiar with the Rupee / Dollar / Euro / other forms of paper money.
But did you know paper money was first recognized as legal tender only in 1833? Less than 200 years ago.
Banknotes existed before that but could only be used in limited places.
Money has existed in various form since the beginning of civilization. Cowries, seashells, gold, and other precious metals have been used as money in the past
But if anything can be money, what actually IS money?
Money is a medium of exchange, a simplified way for us to keep track of promises and repay each other for services rendered.
Whenever you give someone a good/service, they pay you with "money"
Whenever someone else solves a problem for you, you've got to pay them "money".
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For the longest time, people only traded with neighbors and thus, money wasn't really needed.
I could give you (my neighbor) a loaf of bread today and take equivalent amount of wheat after harvesting season.
Given mutual trust, Barter / Debt systems worked.
With the creation of marketplaces however, the circle of trading increased. Visiting soldiers and merchants weren't sold goods on credit.
Thus, the usage of 'money' to pay for goods became popular.
Soon even trades with neighbors were being done in coin, not credit. <history/>
Okay, so you now understand:
1) Money is a medium of exchange i.e. holds limited value in and off itself.
2) Primary reason for the existence of money is to enable trade between untrusting parties
In the modern age, INR, USD, Euro, gold coins, paper notes, bitcoin, gift vouchers - all are different representations of money.
So if money is simply a medium, can anyone create their own form of money?
Of course! And as stated, its been done many times in the past.
How do you create your own money? Quite simple really.
Take a paper note, stamp your face on it, give it a value and convince your friends to use it while paying each other.
The more friends you convince, the stronger(popular) your currency becomes!
You can also create colored coins (ERC20 tokens) and make your cool new currency decentralized!
Uniswap, Tether, Binance are tokens issued by companies that essentially represent *money*
Their market cap indicates the total capital flowing through their system.
Okay, so you now understand:
1) Money is a medium of exchange i.e. holds limited value in and off itself
2) Money can be issued by anyone
3) More trades happening => Stronger currency
Why will your currency get adopted though?
Merchants who accept your money will only do so if it increases their business and is cost-effective.
Customers will choose to spend with your currency because it's more convenient, secure, and beneficial than alternatives.
Be forewarned though, if your currency becomes popular, you will soon be noticed by authorities.
And have to comply with the Payment and Settlement systems guidelines of your jurisdiction.
This is the list of currently approved systems in India: m.rbi.org.in/scripts/publicationsview.aspx?id=12043
If your money gets adopted, you get to extract value whenever people buy into or withdraw out of your system.
Needless to say, moolah will rain.
VISA, Sodexo, Amex, Alipay, and PayPal are some examples of successful (traditional) Payment Systems around the world.