✅ Ideal money is *sound* money. Something that represents a good store of value.

✅ If we ever go back to a gold-like standard, it’ll be to *prevent inflation and promote economic stability*. The properties of this ultimate store of value will be *scarcity*, *durability*, *desirability*, *easy to buy and inexpensive to store*, and *modern*.

✅ At this point, we’re clearly defining #bitcoin as a superior alternative to gold.

🤯 So confusing. Let me see if I got this right: 1/ The gold standard was a way to prevent inflation and promote economic stability. 2/ Gold is scarce, but its price depends on new sources (yet to be found) or mining technology. And, by the way, it’s hyper-expensive to acquire and store. 3/ And gold is (was?) a good store of value because it’s scarce, durable, and has intrinsic value–but the intrinsic value is in function of its desirability.

🤠 Yes. Some view it as a more reliable and stable monetary system than the current fiat system.

🤪 Remind me: Why did we drop it again?

📱 Well, it is not practical in a modern, globalized economy. And the limited supply of gold can create deflationary pressures, leading to economic contraction and lower living standards.

🙃 Modern? Deflationary? But the reasons for «inflation is good for us» kinda sucked too, agree?

🧐 We were on a gold standard many years ago, no?

😇 Yes. The gold standard was a monetary system in which the value of a currency was directly linked to a fixed quantity of gold–that is, the price of gold was fixed. It was widely viewed as a way to *prevent inflation and promote economic stability*.

💰 The gold standard was eventually abandoned by most countries, including the U.S., in the 20th century due to its inflexibility and high cost of maintenance.

🔥 High cost of maintenance? Well, yes, to implement this standard, a country needed to hold a substantial amount of gold in reserve, which can be expensive to acquire and store. It was also inflexible because it limited the ability of governments to respond to economic crises. In addition, fluctuations in the supply and demand for gold could lead to currency fluctuations, which could destabilize the economy.

💍 Fluctuations in the supply and demand for gold? But, gold is… scarce? While gold is scarce, there can still be fluctuations in the supply and demand: 1/ When new sources of gold are discovered or mining technology improves, the supply can increase, 2/ gold is often used in jewelry and other decorative items, so changes in consumer tastes and preferences can affect the demand for gold, and 3/ changes in the broader economy.

👎 So, it sounds like money is not a good store of value.

💧 Well… Inflation can erode the purchasing power of money over time, making it a less effective store of value in the long run. Money does provide *convenience*, *liquidity*, and *safety*, but folks say there are better ways to preserve wealth.

🦺 When people talk about «sound money,» they refer to a currency or a monetary system that is stable, reliable, and trustworthy. Stability means the value should remain relatively stable over time. Reliability means it can be easily exchangeable and widely accepted as a medium of exchange. And trustworthiness means a credible institution backs it––but what is considered a «credible institution» nowadays? 🤷‍♂️

🔁 Historically, gold and silver have been considered sound money due to their scarcity, durability, and intrinsic value. But the *desirability* of these precious metals and their functional value drive their intrinsic value.

✅ Money should ideally be sound money—a good store of value. If money does not retain its value over time, people may be less willing to save or invest.

😊 Some say inflation can be beneficial for an economy.

🤬 WHAT?!

🥸 It may encourage investment because it creates a sense of urgency to invest money rather than holding onto cash, which loses its value over time. It can also lead to increased wages, as workers demand higher salaries to keep up with the rising cost of living. It can reduce the debt burden by decreasing the debt’s real value over time. And it can also stimulate economic activity by encouraging consumption and investment.

🥓 Bacon from heaven! But all of these reasons suck! 🤷‍♂️

🪨 Durability in the context of a medium of exchange only meant *physical* durability. Inflation threatens the durability of the *purchasing power* of money. When the purchasing power of money decreases, it takes more money to buy the same goods and services.

🤯 Wait, why?

5️⃣ Inflation can be caused by several factors, including 1/ an increase in demand, 2/ an increase in production costs, 3/ an increase in money supply, 4/ a decrease in supply, and 5/ expectations.

🤔 I get 1/, 2/, 4/, and 5/, but… increase in money supply? Why would anyone increase (or decrease) the money supply?

📉 By adjusting interest rates, central banks can influence the level of demand in the economy. Monetary policy can encourage (or discourage) borrowing and investment, increasing (or decreasing) business activity. In general, monetary policy is meant to stabilize financial markets, promote investment and economic growth, and maintain the stability of the currency.

🧮 In ancient times, various items were used as a means of exchange. Cowry shells, beads, precious metals. Over time, precious metals became more widely accepted as a medium of exchange due to their scarcity and durability.

🪙 In the 7th century BC, the first coins were minted in modern-day Turkey. Those coins were a mixture of gold and silver. Many other cultures began minting their own coins.

💸 In the Middle Ages, paper money emerged in China during the Tang Dynasty, 618-907 AD. This spread to Europe and other parts of the world due to its lighter weight and greater ease of use.

👨‍💻 In the 20th century, the use of paper money and coins was primarily replaced by electronic forms of payment.

💭 Money is a psychological abstraction.

✨ Ancient people used gold and silver for coins and means of exchange for their durability, scarcity, and reliability. Their desirability and aesthetic appeal also played a role. The desirability gave them «intrinsic value,» making them more desirable for use in exchange.

🏅 Gold and silver were also easily divisible into smaller units, making them ideal for trade use. They were widely recognized across different cultures and regions. Over time, they became a standard unit of value to compare prices and values.

I’m in the same boat. What excites you the most about it? What are the challenges?

I finally made it to Nostr. And I’m intrigued.