348. The Bitcoin Standard Course - Lecture 2: Money

Saifedean Ammous (0:00)

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Head over to bit.com and sign up for a free wallet backed by institutional-grade custody. There is no fee to open an account and no ongoing custody fee. Your Bitcoin, secured like an institution's. That's the power of Bitcoin. Hello, welcome to the Bitcoin Standard Online Course Lecture 2 Today's topic is Chapter 1 of the Bitcoin Standard, entitled Money.

The chapter basically answers the question of what is money? And to begin that, we begin with explaining the problem that money solves. Money solves an eternal problem that people have had for a very, very long time, which is how to move economic value across time and space.

It's a complicated problem, and it's a problem that continues to beset people throughout the world for many years. And we've found many, many ways of going around it. So we're going to track this problem, understand its dimensions. And by understanding the dimensions of the problem, we can understand how the solution for this problem works, and therefore understand what are the properties that are desirable in money. So the first way in which people solve the problem of moving value across time and space is through barter. You exchange things directly. People can exchange economic goods with one another directly. And this is what is called barter. Barter is a simple solution to the problem of moving value. I want something that you have, you want something that I have, I give you the thing that I have, you give me the thing that you have, we both end up happy. This is basically trade, and it is referred to as direct exchange, because we're exchanging the goods that we both want.

So you get what you want, I get what I want, we exchange them directly. This is a very simple procedure, but it is something that is only really practical in small circles with a few people and a few goods. If you have a small society of 20 people living on an island together, and they only have five goods, you know, two or three essential foods, and maybe a weapon, maybe some clothing items, in a small primitive economy in which we only have access to these goods, then barter is practical in that setting, because we are able to exchange these goods directly for one another. And we can price those goods directly in terms of one another. We only have a few of these goods, and so we can price them against each other. We can decide that one rabbit equals to two fish, or one fish equals to three apples, or one knife equals to four fish. And it becomes possible to negotiate and haggle around those things and perform this exchange directly. And we can also run a tally amongst ourselves. I give you the knife today. You go hunt, and then when you hunt, you can give me rabbits over the next week, or maybe next month, or something like that. In a small economy of a small number of people, we are able to do this with this very small number of goods. But as the number of people interacting and trading increases, barter is impractical. It is not possible for us to continue to exchange things directly, because now we have more goods, and now we value those goods differently. So I value one good, and I want the good that you have, but you do not want the good that I have. So it's not possible for me to exchange my goods with you directly, because there aren't that many goods that I have that you want, as much as the value of the thing that you have, which I want from you. So this creates a problem. As the number of goods and the number of people interacting in an economy increase, it becomes problematic for us to engage in direct exchange. It's not practical anymore. We have a problem called the problem of coincidence of wants.