Money Is the Ultimate Form Of Agreement
Intrigued by the comments following the last SMT announcement, I felt compelled to look out an article I wrote a few years back, about money. After digging a bit through the archives of my blog (yes, mind you, I do have a blog outside my presence here on Steemit, and I have it for almost 10 years) I finally found it.
Here's how it starts:
Ever wondered what money is? I know I did and not only once. The shortest answer I get when I ask around is: “pieces of metal or paper which can be exchanged for goods”. People don’t seem to have any difficulty whatsoever when giving me this answer. They even smile, like it’s the simplest thing in the world.
Well, while still being true, I don’t think this is even remotely complete. I mean, yes, you can use money for that. But what’s the thing that differentiates the small paper rectangle of a one dollar bill from a white, empty paper rectangle of the same shape? What makes money worthy, precious?
The answer, as simple as it is, bewildered me: it’s the agreement. Exactly. An agreement that you made inside your own mind. It’s a thing that can’t even be seen. That’s why we had to create material proofs of it. Coins and notes, precisely.
It’s Inside Your Mind
At the superficial level, it’s true: money is just a piece of paper. It even behaves like a piece of paper, it can get wet, you can write on it, you can set it on fire. But still, you can exchange that piece of paper against some goods. And here’s the place where things are getting trickier: that value doesn’t come from the paper. It comes from your mind. Specifically, from your agreement to evaluate that bill to a certain value. You agree that one dollar bill is equal to something called “one dollar”.
The piece of paper is just a carrier. The value is always inside your mind. It’s in the agreement you made when you identified that piece of paper with an abstract notion called “one dollar”.
And The Minds Of Others Too
But it gets even trickier: in order for your “one dollar” to be sustainable, it’s absolutely compulsory that a whole bunch of other people will do the same. Namely, the people with whom you interact. It’s crucial that when I say: “one dollar” you and I will get the same value.
From that point on, I take a different turn, talking about something a bit more ethereal. If you want to follow that train of thoughts, follow this link.
But if you want to stay on the money side of the conversation, stick around, I'm not finished here.
So, what's the fuss with all those tokens that will suddenly grow like mushrooms after the rain? I don't get the worry and the gloominess.
Folks, money isn't money unless we agree it's money.
So, even if thousands of people will start using the token generation mechanism and we'll end up with thousands of strings and numbers in a database, that doesn't necessarily and immutably make those strings and numbers money.
What makes them money is interaction and agreement. The more we agree, the bigger their value.
That's why STEEM is trading at $1.4 right now: because some people agree to buy that collection of strings and numbers stored in a generic database, called "STEEM", for $1.4 a unit. The value is that agreement.
The problem is that we forgot this simple agreement.
And we forgot it for a very sad reason: the agreement was hijacked and enforced by mechanisms which we cannot control anymore. The whole banking and economical system of the last decades (or, to be more precise, of the last two centuries) is out of agreement. We're not part of it anymore, it's decided somewhere else, and, more often than not, we're just forced to accept that decision.
A government prints some pieces of paper and forces me to valuate those pieces of paper for a certain amount. I have a really hard time agreeing with that.
The blockchain, as imperfect as it is, streamlines this agreement and makes it believable again, beyond outdated social structures or greedy enterprises built on lack of ethics and organized theft. It's not perfect, I know it.
But it's better than what we have right now.
I'm a serial entrepreneur, blogger and ultrarunner. You can find me mainly on my blog at Dragos Roua where I write about productivity, business, relationships and running. Here on Steemit you may stay updated by following me @dragosroua.
https://steemit.com/~witnesses
If you're new to Steemit, you may find these articles relevant (that's also part of my witness activity to support new members of the platform):
It’s not easy to get out of the concept of paper money, though we do know that money is something create out of thin air anyway. However, money is the most direct and clear form to make a transaction.
precisely
I loathe fiat currency, I have since I was a kid....but didn't know why. I don't like being forced into anything! When I was in my late forties I found out about the Federal Reserve banks take over of our agreements regarding currency and our economy....that's why I like non inflationary currencies and cryptocurrency like bitcoin!
I hear you :)
1000% :)
I have been thinking about this a bit since getting involved with crypto and trying to explain to other people where does it come from...
But in the end the simple explenation is just that something has a value because the majority says thats what something is worth...
Fiat currency is worse, thats just value attributed to a currency backed by a huge amount of debt
At least cryptocurrency is honest and so will al these new coins be... Honest...
its more then what we have now
Exactly.
If crypto can make even a small dent in corruption, the benefits will be unbelievable, because people are inherently tempted by it and removing that temptation would be revolutionary.
thanks for your post!
It made me though about cryptocurrencies, they have a guarantee, the value is an agreement between people who invest and trust in those new money, and no political or govern interests.
Yes, blockchain is far better than what we have now. The realization that money is what we agree it to be strikes me every time Bitcoin "crushes"... what that simply means is that some people agree to sell their Bitcoins at a lower price than others because they don't value it the same. And what surprised me is that there is always someone willing to buy. No "crush" happens unless a lower price is established and that can only happen if somebody else buys.
It's all food for thought for sure, but I know that Fiat money is flawed and a better solution is emerging.
i also think STEEM is going to be deemed a whole lot more valuable from this point forward because of SMTs. Exciting times for sure
Money is an item that holds value in exchange for goods and services.
Gold and Silver became the defacto method of exchange because it was easier to lug them around than cows. Also, they were divisible. But, on top of the obvious beauty of the metal, gold and silver have multiple uses. Not only can they made into impractical things, like jewelry, they can be made into practical items like eating utensils and current conductors.
Gold has many uses and will never be worth zero.
Dollars and other paper currencies used to be backed by gold and silver, which made them just as valuable. They used to call them silver certificates and label them as such. But, since we have gone off of the gold and silver standard, the paper bills are worth no more than the 0s and 1s on the computer.
You're extracting conclusions from a way too small period of time. Before gold and silver we had salt (and in some parts of the globe, salt is still the de facto currency). Before that we had good and services. There was always some form of agreement, adapted to the current context of those implementing the agreement
The bottom line is that value comes from the mind and it arises only when there is an agreement. There's no "extrinsic" value of money.
As hard as that may be to digest.
Tulips, seashells, etc....
Gold and silver outlasts those. When everything crashes down, gold and silver will come back as the method of trade.
I will bet on salt, though.
If humanity really shits itself to the point of using material representations of money again, the situation will be so dire that salt will be really more in demand than gold or silver.
Just my 2 (virtual) cents.
I buy salt and sugar in bulk...hahaha
that's THE way!
Haha, it's epigenetic!
Most people won't know that's what they need to survive. ;)
Outstanding post and narrative. Thank you for sharing!
Suppose you attached an SMT to your blog, and you started paying commentators with your tokens. By what processes might the receivers of these tokens be able to use them to acquire goods and services? In case the first few SMT projects get into trouble in connection with managing these processes, the leaders of the SMT project should plan to make a deep investment in helping those first few projects to be successes and not failures with regard to the said processes.
Not far from the issues underlying the foregoing remarks, issues brought up very nicely in your post, is the need to get down to basics on what we mean by “value”. Let us say that by the “exchange value” of an asset (at a given moment of time and in a particular market), I mean the number of units of exchange that are given up by a person to acquire the asset from another person.
In the flood of articles yesterday and this morning concerning the SMT announcement, I perceive that most of the references to value are references to exchange value.
If this perception is correct, then perhaps it would be good to think about the following question. If you need to keep paying more and more contributors to your blog for their contributions with your SMTs, must you not continually expand its supply? The more your SMT recipients try to sell their received tokens the greater will be the downward pressure on the price coming from your inflation of the supply.
That pressure will be counteracted only if there is an overwhelming (relative to the amount of pressure) expansion in the volume of demand among those who want to buy the token. What forces are going to create such a sufficiently great demand force regarding your particular SMT?
Moreover, for the price curve to remain on an upward incline in the face of the continual inflation, this overwhelming volume of demand has to remain in force more or less indefinitely.
Could it be that a well-grounded hope for improved valuation of a new SMT coin will have to use a broader concept of value than exchange value? What do I mean by a broader concept? Here are a couple of examples of what I mean. The Steem coin has a utility value that promises, as far as I can see, to have a long and bright future. Second, when the King starts to crack down on the cryptocurrencies that are deemed to unduly threaten the Kingdom’s tax revenues and proper collective management of the Kingdom’s money supply, Steem, in my opinion, will be one of the cryptocurrencies not targeted for destruction by the King.
That’s why I expect to sleep soundly every night over my investment in Steam Power; a fact that brings up a third kind of value that is not exchange value.
A few of your concerns may be solved by a more complete understanding of the SMT generation mechanisms. I am in the process of publishing an article on this topic.
Thanks, and I think we would all benefit from your next contribution. I wish to note that I do not have any concerns about the future exchange values of to-be-issued SMTs. The history of the exchange values of currencies brings us all the lessons we need to learn on this matter, in my opinion.
I do not plan to issue any SMTs, and I would hope that the future issuers will be very careful about encouraging expectations about exchange value increases in specific SMTs arising simply from the process of how they are generated.