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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
A new paradigm of value creation, driven by your personal values. In Invisible Wealth: 5 Principles for Redefining Personal Wealth in the New Paradigm, certified wealth management advisor and entrepreneur, Jennifer Wines, delivers an insightful exploration into reimagining and redefining wealth. This book explores the technological advancements and societal shifts that have us considering everything from digital assets to digital community, all of which are organized around values. This new paradigm places a premium on intangible, or invisible, assets represented by 5 principles--money, health, knowledge, time, and relationships--each of which is attainable through your own personal, renewable resources. This paradigm shift takes on a more holistic and personalized approach to defining wealth. In this book, you'll discover: * How to use the personal wealth algorithm to identify your values, and wealth goals. * How to optimize your most valuable asset, your time. * How technology can support your wealth and well-being. Offering pragmatic and philosophical considerations for redefining what's truly important to you, Invisible Wealth belongs in the hands of anyone seeking a rich life. It's time to reimagine and redefine what wealth means to you.
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Seitenzahl: 327
Veröffentlichungsjahr: 2023
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Table of Contents
Cover
Title Page
Copyright
Dedication
Preface
Part I
Chapter 1: Defining and Redefining Wealth
The Relationship Between Wealth, Money, and the Economy
What Is Wealth?
What Is Money?
What Is an Economy?
The
New Wealth Paradigm
Notes
Chapter 2: A Rich Opportunity for the Unluckiest Generation
Past: Why Are Millennials Called the Unluckiest Generation?
Present: Are Millennials Still Unlucky?
Future: A Rich Opportunity for the Unluckiest Generation
Notes
Chapter 3: We Can't Put the Genie Back in the Bottle
The Great Wealth Transfer
The Great Migration
The Great Resignation
The Great Restructuring
Notes
Part II
Chapter 4: The 5 Principles of Invisible Wealth
The Wealth of Money and Investment
The Wealth of Health and Quality of Life
The Wealth of Knowledge, Status, and Influence
The Wealth of Time, Energy, and Experiences
The Wealth of Relationships, with Self and Others
Chapter 5: The Wealth of Money and Investment
The Relationship Between Money, Investment, and Wealth
Retail Revolution
Public and Private Markets
The Democratization of Wealth
Sustainable Investing
Blockchain and Digital Assets
Societal Implications of Wealth Creation
Notes
Chapter 6: The Wealth of Health and Quality of Life
The Relationship Between Health, Quality of Life, and Wealth
Wealth of Health: The Foundation on Which All Else Is Built
What Is Health?
What Is Quality of Life?
Notes
Chapter 7: The Wealth of Knowledge, Status, and Influence
The Relationship Between Knowledge, Status, Influence, and Wealth
What
Isn't
Knowledge?
What Is Knowledge?
The Knowledge Economy
What Is Status?
What Is Influence?
Notes
Chapter 8: The Wealth of Time, Energy, and Experiences
The Relationship Between Time, Energy, Experiences, and Wealth
What Is Time?
What Is Energy?
What Are Experiences?
Notes
Chapter 9: The Wealth of Relationships with Self and Others
The Relationship Between Our Relationship with Self, Others, and Wealth
What Is a Relationship with Self?
What Are Relationships with Others?
Relationships and Money
Notes
Part III
Chapter 10: Personal Wealth Algorithm
The Relationship Between Principles, Values, and Wealth
Collective Principles
Individual Values
Collective and Individualistic Culture
Personal Wealth Algorithm
Notes
Chapter 11: Personal, Renewable Resources
The Relationship Between Environmental and Personal, Renewable Resources
Environmental, Renewable Resources
Personal, Renewable Resources
Inside Out
Where Wealth Begins
Notes
About the Author
Index
End User License Agreement
Guide
Cover Page
Title Page
Copyright
Dedication
Preface
Table of Contents
Begin Reading
About the Author
Index
Wiley End User License Agreement
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Invisible Wealth
5 Principles for Redefining Personal Wealth in the New Paradigm
Jennifer Wines
Copyright © 2023 by Jennifer Wines. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per‐copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750‐8400, fax (978) 750‐4470, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748‐6011, fax (201) 748‐6008, or online at http://www.wiley.com/go/permission.
Trademarks: Wiley and the Wiley logo are trademarks or registered trademarks of John Wiley & Sons, Inc. and/or its affiliates in the United States and other countries and may not be used without written permission. All other trademarks are the property of their respective owners. John Wiley & Sons, Inc. is not associated with any product or vendor mentioned in this book.
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Further, readers should be aware that websites listed in this work may have changed or disappeared between when this work was written and when it is read. Neither the publisher nor authors shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.
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Library of Congress Cataloging‐in‐Publication Data:
Names: Wines, Jennifer, author.Title: Invisible wealth : 5 principles for the new wealth paradigm / Jennifer Wines.Description: Hoboken, New Jersey : John Wiley & Sons, Inc., [2023] | Includes index.Identifiers: LCCN 2022052837 (print) | LCCN 2022052838 (ebook) | ISBN 9781394180530 (hardback) | ISBN 9781394180554 (adobe pdf) | ISBN 9781394180547 (epub)Subjects: LCSH: Wealth. | Interpersonal relations.Classification: LCC HB251 .W564 2023 (print) | LCC HB251 (ebook) | DDC 330.1/6—dc23/eng/20230119LC record available at https://lccn.loc.gov/2022052837LC ebook record available at https://lccn.loc.gov/2022052838
Cover Design: WileyCover Image: © Micha Frank/Unsplash
For my granny, who always wanted to write a book.And for my mom, who inspired me to write one.We are forever three leaves of the same shamrock.
Preface
Conversations were shifting, with my private wealth management clients, with my friends, and within myself. These shifts in conversations were, and remain, emblematic of the paradigm shifts currently underway in our society. There's an undercurrent of change happening, which is revealing itself through conversation and constructive action. We, individually and collectively, are revisiting values (qualitative) and value (quantitative) within our (economic) ecosystems; thereby, revisiting our concept of wealth. After all, value and wealth are inextricably linked.
And as it so happens, wealth is something I'm quite familiar with, after working in the world of private wealth management for over a decade—although, in April 2022, I left a great company, a great team, and great clients in order to fully commit myself to (what I term) the new wealth paradigm. These shifts in conversations and paradigms propelled me into researching well‐established axioms and maxims of wealth, long before leaving my job. In fact, in retrospect, it feels as though my whole life was designed to place me in a position for writing Invisible Wealth. Law school included, which is where I fell in love with the written word.
Language is the oldest technology in the book. And while technological advancements have much to do with the paradigm shifts we're experiencing, it's words that enable us to communicate thoughts, ideas, and narratives relating to such advancements. What's more, these narratives—or collective conversations—help us to exchange ideas with one another, in order to flush out and define (or perhaps redefine) concepts and, by extension, applications of those concepts. Words are powerful. With this backdrop in mind, it's my hope that these architected ideas are helpful to you—for revisiting, and perhaps redefining, your concept of wealth—what's your wealth?
Part I
When I was growing up, my grandmother had a watercolor painting hanging on the bathroom wall; it was a painting of a personified frog who was relaxing in a bubble bath while holding a glass of champagne; the painting read: you can never be too rich or too thin. The message was clear: the more money, the better; the skinnier, the better. While the painting was playful and funny, there's no denying that it played back a set of values that permeate(d) society.
I'm an immigrant and the first person in my family to attend college in the United States. Like many other millennials, I started my adult life burdened with six figures of student loan debt, starting life at a financial deficit. After graduating from undergrad and law school, I entered the world of finance. And while my profession as a wealth management advisor has provided an intimate lens into the world of the super wealthy, I've also personally experienced wealth, in every sense of the word. My life has provided insight into both ends of the financial wealth spectrum. There were times when I would watch my single mom put $3.11 worth of gas into the car just to make it to and from work (ahead of the next paycheck). There was also a time when I vacationed in the South of France on a 311‐foot superyacht. Through a myriad of experiences, both personally and professionally, I've observed, learned, and researched valuable lessons regarding wealth—within the context of our rapidly evolving world.
We are in the midst of a huge paradigm shift, rethinking what we value and therefore rethinking how we define wealth. This shift caught exponential wind during the past couple of years when our lives turned inside out (or was it outside in?), as we turned inward and reflected. The pandemic invited us to rethink, rediscover, and reinvent ourselves. We upgraded our own internal software, all the while upgrading our Zoom software. And Zoom we did, both inwards and outwards. These upgrades ushered in reinvention of self, extending to the rise of the personal brand, which now competes with the company brand. At the same time, we are seeing significant advancements in technology, thus bolstering our digital world alongside the “real” world. Toss in blockchain technology, the Great Resignation, and the fact that the entrepreneurial spirit animals are alive and well, and we have ourselves a dynamic environment. We're currently playing what feels like four‐dimensional chess.
Given this confluence of circumstances, we now have a ripe opportunity to reimagine and redefine wealth, because so much of what we value, both individually and collectively, is shifting. The way we make, invest, transact, and spend money is changing right before our eyes. We are witnessing the move from corporate cubicles to the creator economy, from dollar bills to digital dollars, and from the purchasing of things to the purchasing of experiences. As a society, we are becoming increasingly comfortable with pegging value to intangible assets, as we fundamentally always have. To put it neatly, we are shifting into a world that values intangibles over the tangibles: Invisible Wealth.
Chapter 1Defining and Redefining Wealth
We are shifting into a new wealth paradigm that's inviting us to reimagine and redefine our definition and concept of wealth. The antiquated wealth narrative typically equates wealth to an abundance of money; we're wealthy when we have lots of money. We see this messaging everywhere, watercolor frog paintings included. And while there is an interconnected relationship between wealth and money, now is the time to revisit the premise that they are merely one and the same. But before we can redefine wealth, we must first define it. Additionally, by exploring the concept of wealth, we'll explore the relationship between wealth, money, and the economy. First, we'll take a look at how these three concepts are braided together; thereafter, we'll untie the braid and focus on each thread independently: What is wealth? What is money? and What is an economy?
The Relationship Between Wealth, Money, and the Economy
We're familiar with the idea that wealth equates to an abundance of money. The intertwined relationship between wealth and money has a lot to do with the advancements in our economies; the more efficient economies became, the more synonymous wealth and money became. An economy is a system where goods and services are produced, sold, and bought, within a country or region.1 The introduction and use of money within economies allowed economies to scale, thereby increasing the potential for (financial) wealth creation. Throughout this chapter, we'll unpack how and why economies became more advanced and efficient over time, thereby influencing the intertwined relationship between wealth and money.
What Is Wealth?
Let's start with a simple question: What is wealth?
Take a moment to answer this for yourself.
What came to mind?
Odds are, your mind went to one of two places: either that wealth is having lots of money, or a forced pause and ponder. Regardless of which fork in the (mental) road you went down, each response invites a deeper look into what wealth is.
First Principles Thinking
The best way to approach the question What is wealth? is through a critical thinking model called first principles thinking. This turn of phrase has gotten a lot of attention lately thanks to the likes of Elon Musk. Despite the recent attention of this phrase, first principles thinking has been around since the days of Aristotle, around 350 BC. Therefore, it is a tried‐and‐true methodology. This critical thinking model requires the breaking down of a concept, idea, or problem into its most fundamental parts. Per Aristotle, first principles thinking is “the first basis from which a thing is known.”2 Per Elon Musk, “First principles is a physics way of looking at the world. You boil things down to the most fundamental truths and then reason up from there.”3
From that, we can extrapolate that if we want to understand what wealth is, by definition, then a great place to start is with where the word came from—its etymology. Etymology is the study of the origin of a word, and how the meaning of a word changes over time. In other words, we are looking at the genesis of the word wealth. We can more fully appreciate the word wealth by understanding where the first basis (or instance) of the word was used (first principles). From there, we can explore how the meaning has changed over time, and the reasons for this evolutionary change. First principles thinking allows us to break down wealth into basic, etymological building blocks, to then reassemble it’s meaning from the bottom up, within the context of today's world.
The Etymology of Wealth
Using the Online Etymology Dictionary, let's take a look at the origins of “wealth” as a noun:
Mid 13‐c., “happiness,” also “prosperity in abundance of possessions or riches,” from Middle English wele “well‐being” (see weal (n.1)) on analogy of health.4
Given the definition suggests we look at “weal,” let's go ahead and do so here:
“well‐being,” Old English wela “wealth,” in late Old English also “welfare, well‐being,” from West Germanic *welon‐, from PIE root *wel‐ (2) “to wish, will” (see will (v)). Related to well (adv.)5
Next, here's what the etymology dictionary provides for the adjective “wealthy.”
Late 14‐c., “happy, prosperous,” from wealth + ‐y (2). Meaning “rich, opulent” is from early 15‐c. Noun meaning “wealthy persons collectively” is from late 14‐c.6
Finally, here's a look at the etymology of “commonweal,” given that we just saw a nod to collective wealth:
Mid 14‐c., comen wele, “a commonwealth or its people;” mid‐15c., comune wele, “the public good, the general welfare of a nation or community;” see common (adj.) + weal (n.1).7
Now let's string these etymological pearls of insight together. First things first, the word wealth came into our lexicon in the mid‐thirteenth century, compliments of England; wealthy came next, followed by commonwealth. It's fascinating that wealth started out as a noun relating to the individual and then wealthy came into our lexicon as an adjective to describe an individual. Finally, the term expanded conceptual reach to that of the community in the mid‐fifteenth century. Following this logic, we can deduce that wealth related to the individual first, and then to society as a whole second. This logic supports the premise that wealth originally started as an individualistic construct: personal wealth, thereby supporting community wealth.
Furthermore, the word wealth initially took on a more expansive definition in the mid‐thirteenth century. Originally, wealth expanded into the realms of possessions, happiness, health, and well‐being. It embodied a wider array of concepts, covering both the tangible and intangible aspects of wealth—a multidimensional definition; a totality of being. What's interesting is that the fundamental roots of the word related to health and well‐being, more so than anything else. Over time, the definition and concept of wealth narrowed to our current wealth narrative, which suggests that wealth relates to money and material wealth, generally speaking.8 This is the antiquated wealth paradigm. This reflects the fact that over time—from the thirteenth century up through today—the relationship between wealth and money evolved, ultimately becoming tightly intertwined, nearly collapsing into one and the same.
This then begs the question: What is money?
“What can be added to the happiness of a man who is in health, out of debt, and has a clear conscience?”
—Adam Smith
What Is Money?
Money used to be a crisp (or not) green piece of paper we'd line our wallets with. Maybe you'd fold a $10 bill into a secret compartment within your wallet as a kid—for a rainy day. I remember having a multicolored, neon wallet with Velcro compartments, which I loved. I also remember the sound and feel of peeling the Velcro panels apart, granting access to my hard‐earned money—money I earned from my after‐school, 3.5‐hour shift at Filene's department store in New Hampshire. My then‐boyfriend would drive me 30 minutes to and from work, where I made less than $10 an hour, all to line my favorite neon wallet with.
Money is a tool used to transfer value within an economy, because it is an expression of value. Money has specific attributes that enable it to work within an economy. The functional attributes of money unlock the potential for an increasingly efficient economy. So long as these attributes (listed later) are satisfied, the monetary tool of popular choice can be used to transfer value across society. Consider this historical example: there was a time when cowry shells were considered money. Some of you may be scratching your head thinking, shells, really? And yes, it turns out cowry shells do embody the attributes necessary to function as money. Here are the three primary functions of money, plus the use case for cowry shells, in parallel:
Store of Value:
Money can be saved and used later because it retains its value over time—in perpetuity. Money retains its value over time because of its durable nature—meaning it doesn't rot, rust, or decay (which would otherwise diminish its value). Money also exists in finite supply (scarcity), preserving the integrity of its value.
Cowry shells retain their value over time because they are durable. In other words, cowry shells don't rot, rust, or decay. There is also a finite supply of cowry shells in the world.
Unit of Account:
Money must exist in small, standardized units for less valuable exchanges and aggregated together for more valuable exchanges. The units of account must be divisible, fungible, and measurable.
Cowry shells are standardized units that are divisible, fungible, and measurable, because of their consistently small size and shape. Each cowry shell can easily represent one unit of value, and can be aggregated together for more valuable exchanges.
Medium of Exchange:
Money can be used to buy and sell from one another, facilitating exchange. This is possible when money is portable (easy to transport or transmit), and when the monetary tool is widely accepted by society.
Cowry shells can be used to buy and sell from one another, facilitating exchange. This is possible because they are easy to transport, and were a widely accepted monetary tool within society.
With this backdrop in mind, we see how cowry shells used to be used as money. Initially, natural objects were the natural, go‐to option as money. Over time, the sophistication of money evolved and so did our economies.
So how did cowry shells evolve into the next form of money? Categorically, the evolutionary timeline of money looks like this: commodity money, representative money, fiat money, and electronic/digital money. We are seeing a clear shift from tangible, visible currency to intangible, invisible currency. Let's dive in.
“All money is a matter of belief.”
—Adam Smith
Commodity Money
First up is commodity money. Commodity money has intrinsic value independent of its value as money. Take gold, for example. Gold has intrinsic value and also satisfies all the functions and characteristics of money detailed earlier. Therefore, this esteemed metal became an attractive—pun intended—tool for economic exchange. Gold's strong yet malleable nature makes it perfect for coin creation, which is exactly what the Kingdom of Lydia (current day Turkey) decided to do around 600 BCE. Lydia was the first empire to issue regulated coins. These coins were considered regulated because the government authority issued them. You could see that the coins were issued by a government authority because the coins had certified markings on them to signify they were intended as a specific value of exchange.9 From 600 BCE onward, gold has maintained its stronghold in societies and economies.
Despite gold maintaining its stronghold, the vulnerabilities of gold as money started to reveal themselves—especially as societies, economies, and greed grew. The biggest example of these vulnerabilities relate to the durability, portability, and counterfeit susceptibility of the metal. Gold has high durability given its high density and noncorrosive properties, but gold coins can still be tampered with. Someone can shave a little gold off a coin or bullion bar—a little off the top and into their pocket. Or someone might dilute the gold with another (less valuable) metal prior to minting. Moving beyond the durability and counterfeit susceptibilities, large amounts of gold are hard to move around. Because of its high density, gold is heavy and not the most conducive for strolling around town with. As societies and economies expanded, gold coins and bars became a less attractive means of exchange. Hence, the next iteration of money.
Representative Money
The next iteration of money is representative money. Just like commodity money, the name representative money is pretty intuitive. Representative money is paper money that represents the valuable commodity (asset) it can be exchanged for, like gold. The paper represents the commodity it's backed by, but the paper in and of itself has no value. One brings the representative, paper money to the bank and redeems it for the commodity it represents. This makes representative money akin to a debt instrument: aka an “I owe you.” For example, checks are considered representative money. When you bring a check to the bank and “cash it in,” you get the money owed in return. These valuable papers were designed to create more trust and practical efficiency in economic trade by way of less counterfeiting lighter pockets. Replacing gold coins for paper money reduced counterfeit susceptibility, and transaction friction. Therefore, paper money increased the efficiency of trade, thereby increasing the sophistication of economies. You're more likely to travel further, geographically, to purchase an expensive item if money is light and portable. Plus, the purchaser is more likely to transact if they can trust the authenticity of the money. Win/win.
At this point in the evolutionary timeline of money, all money was local—meaning the state‐chartered banks issued representative money, readily redeemable for gold (or silver). Therefore, trust in the issuing bank was imperative and regulations helped to establish and maintain this trust. Regulations required that a bank maintain enough gold in their vault to back the representative money issued, and in circulation. Otherwise, you ran the risk of holding representative money that represented nothing. In eighteenth‐ and nineteenth‐century America, there were frequent “runs on the bank,” which meant people would literally run to the bank to redeem their paper money for gold before the (poorly regulated and untrustworthy) bank ran out.10
Clearly, the primary problem with representative money was ensuring that the state‐chartered banks would maintain convertibility (from paper to the valuable, underlying commodity). If banks issued or loaned more representative money than they could back with intrinsic value, then this would lead to an expanded money supply, which could create debasement or the devaluing of money. And debasement of money can lead to a systemic collapse of the economic infrastructure.
In comes the federal government.
The federal government (in many countries) recognized the need to regulate the local banks issuing representative money to ensure that the money was in fact backed by intrinsic value, or gold. Therefore, the federal government created policy around money—monetary policy. Initially, this policy was colloquially termed the “gold standard.” The gold standard is a monetary system in which a government's paper money is directly linked to gold. In the 1870’s, the gold standard became the international standard for valuing currency.11
The gold standard was golden … until it wasn't. In the United States, President Nixon nixed the gold standard in 1971, ushering in our next category of money, fiat money.12 This is where things get interesting.
“Gold is money. Everything else is just credit.”
—J.P. Morgan
Fiat Money
The third iteration of money is fiat money. Fiat money, just like commodity and representative money, is pretty literal in its definition when you consider what fiat means. Fiat is defined as “an authoritative or arbitrary order” or “an authoritative determination.”13 It follows that fiat money is that which originates by government decree. The money, typically paper money, has no intrinsic value nor does it have representative value. The government that issues the money sets the value of the currency. Fiat money extracts its value from the fact that it is issued and tightly controlled by the government. This is why governments issuing money are hyper focused on two things: making sure the money is not counterfeited and that it is the only standard of money in the economy.
This is a good time to address the relationship between “money” and “currency.” Money is an intangible concept, and currency is a tangible representation of the intangible concept of money. Technically, you can't hold money in your hand, but you can hold currency in your hand, which represents the abstraction of money. For example, fiat money is tangibly represented by fiat currency in the form of paper bills and coins.
A government manages the value of its money by controlling how much is in circulation, which is why it's important that currency not be counterfeited. If a third party were to counterfeit fiat money, adding faux currency into the existing supply, this would have negative implications on the supply/demand dynamics of the economy. The economy would experience a devaluation of money, and on the other side of this coin, higher inflation. Note: inflation can also happen when the government, more specifically the central bank, prints additional money for circulation into the economy. We currently have front row seats to this here in the United States, where we saw trillions of dollars added into the economy during the pandemic, ultimately causing inflation to hit as high as 9% (in June 2022).14,15
Additionally, a government manages the value of its money by declaring their issued currency legal tender. This decree requires the issued currency be the only acceptable standard of money in use.16 This means the fiat money issued by the government is the only form of currency recognized for payment of financial obligations, debts, and taxes. Could you imagine if a majority of people decided to use cowry shells to pay for financial obligations instead of legal tender? This would undermine the value of fiat currency because there would be less demand for it. As a result, the supply/demand dynamics would be off‐kilter.
Electronic/Digital Money
Electronic/digital money, too, is exactly what it sounds like—electronic/digital money, which exists in a banking computer system, and is available for transaction through electronic systems.17 Many people consider electronic and digital money to be one and the same, but it's important that we take the time to parse out the distinction between the two. Electronic money moves through electronic systems, and can be turned in for physical, tangible currency. Whereas digital money also moves through electronic systems, but it cannot be turned into physical, tangible currency. Digital currency never takes physical form; it remains on a computer network.18 Electronic money has the potential for conversion into tangible currency, while digital currency is, and always remains, intangible. This is the distinction.
The intangible nature of electronic/digital money enhances many of the functional attributes of money, hence it's prolific adoption in our increasingly digital world. As a store of value, electronic/digital money is certainly durable because it doesn't rot, rust, or decay; thereby retaining its value in perpetuity. As a unit of account, electronic/digital money can be broken down into small or large standardized units, because it is electronic/digital in nature, existing in a computer system. Finally, electronic/digital money functions as an efficient medium of exchange, because of its portable, easily transmittable (intangible) nature. It is easy to transmit across electronic systems; all you need is your digital wallet (via computer or smartphone) to access your money at any given time. This is why only 10% of the money supply, worldwide, is in physical form.19 Our predominately cashless society depends upon a strong, technological infrastructure to support economic activity. We've come a long way since my multicolored, neon wallet days.
Bitcoin
There is no literal interpretation for Bitcoin like there is for commodity money, representative money, fiat money, and electronic/digital money. Although, consistent with the evolutionary timeline of money, Bitcoin is (purely) digital in nature. Bitcoin was first introduced to the world in 2008 through a white paper titled “Bitcoin: A Peer‐to‐Peer Electronic Cash System.”20 The title, in and of itself, tells us that the exchange of bitcoin occurs peer‐to‐peer, which negates the need for an intermediary. The title also tells us that Bitcoin was created for the purpose of being a cash system. Here is the first half of the abstract, which is presented in the white paper:
Abstract. A purely peer‐to‐peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double‐spending. We propose a solution to the double‐spending problem using a peer‐to‐peer network … 21
Bitcoin has gone (and continues to go) through an identity crises, because of its novel and unique nature. Bitcoin has been socialized as digital money, digital currency (represented by a lower‐case b, “bitcoin”), a digital asset, and/or specifically, a digital commodity—depending on who and when you ask.
In August 2022, a new Senate bill emerged, stating that Bitcoin is a commodity; therefore, the Commodity Futures Trading Commission should regulate it.22 This bill will be voted on in the Senate, before moving to the House (if it's passed). That said, Bitcoin could shape up to be commodity money—digital, commodity money. In other words, Bitcoin could be a multipronged asset, meaning it's both a digital commodity (without an issuer) and a digital asset that can be used as hard money.
For purposes of this discussion, let's assume Bitcoin is digital money, for two reasons: first, Bitcoin was envisioned as a digital currency when it was first introduced in 2008 and, second, this approach helps us to further crystalize the concept of money. Here are the three primary functions of money (again), plus the use case for Bitcoin as money, in parallel:
Store of Value:
Money can be saved and used later, because it retains its value over time—in perpetuity. Money retains its value over time because of its durable nature, meaning it doesn't rot, rust, or decay. Money also exists in finite supply (scarcity), preserving the integrity of its value.
Bitcoin retains its value over time, because of its digital durability. Additionally, there's a finite supply of bitcoin because there will never be more than 21 million bitcoins created. Therefore, it is scarce.
Unit of Account:
Money must exist in small, standardized units for less valuable exchanges and aggregated together for more valuable exchanges. The units of account must be divisible, fungible, and measurable.
Bitcoins are standardized units that are divisible, fungible, and measurable. Each bitcoin is divisible into 100 million units, called satoshis.23
Medium of Exchange:
Money can be used to buy and sell from one another, facilitating exchange. This is possible when money is portable (easy to transport or transmit), and when the monetary tool is widely accepted by society.
Bitcoin can be used to buy and sell from one another, facilitating exchange, peer‐to‐peer. This is possible because of the digital, portable nature of bitcoin. In other words, bitcoin is easy to transmit across electronic systems.
Bitcoin even cracked the code on creating digital scarcity, in the land of digital copy and paste. But beyond checking all the “money” boxes, Bitcoin offers one major, plot twist: there's no intermediary involved in its creation or circulation. Bitcoin is not issued by a bank, rather it’s created by computers solving complex math problems (aka bitcoin mining).
With fiat money, trust in payments is established by government regulation of banks. With Bitcoin, trust in payments is established by blockchain, cryptography technology. Therefore, the use of Bitcoin eliminates the need for regulated banks. As a consequence, Bitcoin is geographically unconstrained; it's decentralized because of its geographically agnostic nature. Central banks have taken notice, and perhaps notes, as they explore creating their own Central Bank Digital Currency (“CBDC”).
Central Bank Digital Currency
CBDC is digital currency issued directly by a nation‐state's central bank, which is declared legal tender just like fiat money.24 CBDCs are issued by the central bank, and regulated by the central bank. Currently, 60% of countries are experimenting with CBDC technology.25 This reflects the rise of money digitalization, innovation, and a change in our future economy. Watch this space, with eyes wide open.
We only scratched the surface on digital money transformation, but there are many informative books written on the topic. A couple of suggested favorites include: The Bitcoin Standard by Saifedean Ammous and Layered Money by Nik Bhatia.
My intention for highlighting Bitcoin and CBDCs at the end of our journey through the evolution of money is to highlight the fact that things are changing. And they're changing fast! Our journey started with cowry shells and ended with cryptographic blockchain. We are traversing into the next iteration of money as our concept of money continues evolving and becoming more sophisticated over time. And as a result, our economies are evolving and becoming more sophisticated over time, too, because money enables economies to scale. We’re squarely sitting in the digital economy transformation.
“The two greatest tests of character are wealth and poverty.”
—Charles A. Beard
What Is an Economy?
An economy is a system in which goods and services are produced, sold, and bought within a country or region.26 For purposes of this exploration, broadly speaking, there are two types of economies: the bartering economy and the money economy. It's worth mentioning, that these two types of economies are not mutually exclusive.
The Bartering Economy and the Money Economy
The bartering economy came first, and, you guessed it, is based on bartering. The bartering economy is a system where goods and services are produced and exchanged for other goods and services, without the use of money. This economic system is not the most efficient, because it's predicated on a double coincidence of wants. In other words, the two parties engaged in the exchange must both want what the other is offering ‐ at the same time.27 Here's an illustration of this inefficiency. Let's assume I grow potatoes, and you make shoes. We can barter, or exchange, our goods if it so happens that you want potatoes and I want shoes—at the same time. This means bartering is possible when you want to trade something you have (and don't need) for something you need (but don't have). Although the odds of someone wanting more than a few pairs of shoes are slim, unless you're Imelda Marcos (who infamously owned 3,000+ pairs of shoes).
Because of the highly inefficient nature of the bartering economy, the money economy was born. The money economy is a system in which goods and services are produced, sold, and bought with the use of money. This economic system is more efficient because it solves for the double coincidence of wants issue by using money as a medium of exchange. Here's an illustration of this efficiency. Let's assume I grow potatoes that you want, but I don't need any more shoes. So, you pay me in money for the potatoes, and I can use that money to buy the clothes I need or save that money for future purchases. Voila. Problem solved. Money was the tool used to transfer value to me, in exchange for the potatoes you wanted. Everyone's happy.
