Crypto Foundations · What Money and Crypto Actually Are
What Problem Does Money Solve?
What You'll Learn
- Why humans needed money in the first place
- The three jobs any form of money has to do
- Why those same three jobs matter when judging a cryptocurrency
The Big Idea
I want you to forget, for a moment, that you already know what money is. Money is not a government invention. It is a tool that people created because it solves a very old, very practical problem: getting what you want from someone who does not want what you have.
Let's Break It Down
Let me show you the problem first. Imagine you raise chickens, and you want a new pair of shoes. You walk over to the shoemaker. But the shoemaker does not want eggs — she wants firewood instead. And you do not have any firewood to give her.
This situation has a name: economists call it the double coincidence of wants. For a direct trade to work, both people have to want exactly what the other person is offering, at exactly the same time. If you think about it, that is actually quite rare. It makes trading slow, and it makes trading frustrating.
Money fixes this problem in a simple way. It gives everyone something they can accept, even if they do not want it for themselves right now — because they know someone else will happily take it from them later. Once a society agrees on this, money starts doing three specific jobs at the same time.
First, it works as a medium of exchange — something people will trade for, again and again. Second, it works as a store of value — something that holds its worth, so you can save it for later instead of spending it today. Third, it works as a unit of account — a shared way to price things, so a chicken and a pair of shoes can both be compared using the same numbers.
Here is where this becomes important: none of this actually requires a government. Long before modern paper currency existed, communities used shells, salt, beads and even livestock as money. Why did these things work? Simply because enough people agreed to accept them. It was not a law that made them valuable — it was shared trust that they would still be accepted, and still be valuable, tomorrow.
Real Example
Let me show you a real historical example. On the small Pacific island of Yap, people once used giant carved stone discs called Rai stones as money — and some of these stones were genuinely too large and heavy to move at all. So how did people actually use them to pay for things? Ownership simply changed hands by public agreement. Everyone on the island kept track, in their shared memory, of who owned which stone. The stone itself barely mattered. What made it function as money was the shared agreement about who owned it. I want you to notice something here: this is remarkably close to how a cryptocurrency ledger works, which you will learn about very soon.
Why It Matters
You may be wondering why a lesson about ancient money belongs in a crypto course. Here is my answer: every later lesson in this course comes back to these same three jobs. When someone asks, "Is this cryptocurrency actually money?" — they are really asking whether it works as a medium of exchange, whether it holds its value, and whether it can be used to price things. These are the same three questions people have been asking about money for thousands of years.
Common Mistake
Many people assume money is only valuable because a government prints it and calls it legal tender. I want to correct this gently: government backing is one useful way to build trust in a currency, but it is not the actual source of money's usefulness. The three jobs I described above are what truly make anything work as money — including something that no government issues at all.
Quick Check
Which of the following is NOT one of the three traditional jobs of money?
Key Takeaways
- Money exists to solve the "double coincidence of wants" problem in direct trade.
- Anything that works as money is doing three jobs: medium of exchange, store of value, unit of account.
- Government backing is one way to build trust in money, but it isn't the only way — shared agreement is what really matters.
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