The dollar is something you and I use most certainly on a daily basis. Even if we’re not spending or earning more of it on any given day, it’s highly likely that we’re spending some portion of our day planning future events that are contingent on our money. Yet, for something so common-place, the fundamental nature of money is often overlooked or misunderstood. Have you ever wondered what money is or why it exists in the first place? In this section, I hope to answer these questions and to demonstrate some examples of good and bad forms of money to further flush out the answers to these questions.

Money is a tool for exchanging value, storing wealth, and measuring economic activity. Perhaps you may have taken an economics class in high school and your teacher may have said something closely similar, and it’s true; this is what money is. People exchange a wide range of their wealth for all kinds of stuff, be it a house, food, college tuition, etc. Moreover, it’s common for people to invest their money in the stock market, quite often for the purpose of retirement, with the intention that their money will not just grow in dollar size, but also retain its purchasing power.

Fred Graph

U.S. M1 money supply (all circulating currency and checkable and savings deposits) has spiked dramatically in just the last 5 years.

Next, it’s important to build on the idea of money by describing it from the perspective of “hard” vs “easy. I’ll begin this segment by stating that not all money is equal. Money that is easy to produce and expand the supply that is in circulation within an economy is an “easy” money. The governments and central banks of our day are largely responsible for the currencies that we use. For example, the U.S. dollar was created and is supplied by the Federal Reserve. While the FED might use its power to increase the supply of money in the economy to spur economic growth in the short-medium term, this act will lead to inflation in the prices of goods and services. If wages cannot keep up with the general rise in prices caused by inflationary pressure, then the result is a loss in purchasing power for most Americans. So over time, inflation can erode savings and destabilize an economy.

“Hard money,” by contrast, resists inflationary pressures because it’s difficult to increase in supply. Gold has historically been the prime example, with its limited supply and the effort required to extract it. Gold’s annual supply increase stayed below 2% between 1942 and 2018, and in 2022 the total supply finally increased by 2% due to an increase in mining supply and recycling after two previous years of decline.

Bitcoin brings the concept of hard money into the digital age. Its supply is capped at 21 million coins, ensuring that no more can ever be created. This fixed supply contrasts sharply with fiat currencies like the U.S. dollar, which can be inflated at will. Bitcoin’s predictable issuance rate decreases over time through “halving” events (the most recent of which occurred on April 20th this year), further reinforcing its scarcity and solidifying its role as digital hard money.

Understanding the difference between easy and hard money is a crucial first-step to appreciating Bitcoin’s significance. In a world where fiat currencies are easily manipulated, Bitcoin offers a stable, decentralized alternative. Its fixed supply and resistance to inflation make it not just a form of money, but a tool for financial sovereignty in a world where $20 just doesn’t travel like it used to.