What Is Money?

For many people, their first sense of Bitcoin is that it is magic internet money—something easily ignored and certainly not worth the time needed to understand it. Many of the people I talk to about Bitcoin say that their “plan” is just to ignore it until it goes away. As we will learn throughout this book, that isn’t really an option. Most people also laugh when presented with their first opportunity to exchange “real money” for bitcoin. But bitcoin is real money; better money than any of us have had in our lifetimes—and it is so much more.

Both Bitcoin the network and bitcoin the digital token can be hard to define because they don’t just replace one thing and make it better. Bitcoin is the new, better version of gold from the ground and the paper dollar bill. Bitcoin is also the new, better version of your savings account and your checking account and your credit card. It is also the new, better way to send money internationally and to buy a cup of coffee down the block. Bitcoin doesn’t just replace the hard asset money and the currency, but also the payment rails, the political monetary policy, and even the central bank—all in one fell swoop. It is a completely new thing.

To truly understand Bitcoin, you must understand the thing it aims to replace: money. What is money? Oddly enough, despite its centrality to almost everything we do, we rarely pause to consider the question. But we have to if we really want to understand what Bitcoin actually is.

In the most fundamental form, money is any object that is used for some combination of the following purposes:

1. A medium of exchange (folks can buy stuff with it);

2. A unit of account (folks can reliably use it to price stuff); and

3. A store of value (folks can buy stuff with it later).

Over the years, many different objects have been used as money: sea shells, salt, large stones, gold, and the $20 Federal Reserve Note currently in your wallet. If you’re reading this book in prison, you might use cigarettes or packets of ramen as money. I encourage you to reflect on how and why people naturally converge on forms of money based on the time and circumstances they find themselves in and how technology has always played a role in the development of new money. Some things make better money than others. As we will see, the paper money and its digital copy you use every day is the latest form of money, but it isn’t the best—in fact it is far from the ideal.

To be considered a good form of money—something that accomplishes the three purposes listed above well—an object must have some combination of the following fairly intuitive properties:

1. Durability (It has to last, not spoil or deteriorate);

2. Portability (You have to be able to move it around);

3. Divisibility and Aggregability (You need to be able to buy little things and big things too);

4. Fungibility (The units need to be uniform);

5. Scarcity (If there’s a lot of something, it won’t maintain value);

6. Acceptability (People have to want it for you to use it); and

7. Verifiability (You don’t want a lot of counterfeit money).

You or I may have other properties that we think should be added to the list. For example, I think good money should be created fairly. But this is the list that economists have used for generations. In fact, the Federal Reserve Bank of St. Louis lists these properties in the teachers’ resources section of their website¹² and uses them to argue—correctly—that US dollars are better money than a cow. A cow seems like a low bar, but maybe they only want to make the arguments they can win.

Each of these properties economists use to decide how good something is as money is measured on a scale; none of them is a binary “yes” or “no.” If an object fulfills many of these properties, it would make for a good form of money. From this list, it is trivial to see what your intuition already tells you. Bananas would make a horrible form of money and coins made of gold would probably serve the purpose well. But what about the $20 bill in your wallet? What about bitcoin?

In a head-to-head competition, the $20 bill easily beats bitcoin in category #6: Acceptability. But acceptability can change and has many times throughout history, and the gap is narrowing every year as more establishments accept bitcoin. It’s not too hard to imagine that gap closing substantially over time. On a technicality, the dollar also has a slight edge in category #4: Fungibility. But this is only a small difference that most people would not notice, and technological methods already exist that close this gap completely.

As we will see as the rest of this section unfolds, Bitcoin walks away with the lead over dollars in all of the other categories. It’s not even close. Bitcoin is not just a little but a lot more Durable, Portable, Divisible/Aggregable, Scarce, and Verifiable. These aren’t properties I cherry-picked because they make Bitcoin look good. These are the old textbook properties economists have used for “good money” forever. We can add to this list the fact that since Bitcoin is natively digital and programmable, it seems like a better form of money right now and for the future. Nor is Bitcoin just better than the dollar: when comparing Bitcoin to other forms of money (e.g., gold) it still demolishes the competition across most or all of the categories. It’s simply the best money that humans have ever created.

Before I explain why that is true, I want to pause and make sure we also understand what money isn’t. You will notice that the properties listed above for something to serve as good money do not require the item to have a physical form you can hold in your hand. Nor do the properties suggest that something used as money needs to have some other intrinsic value. Nor do the properties suggest that money must be issued by a government. All three of these things are often cited as reasons why Bitcoin cannot be real money, yet none of them really have anything to do with the actual definition of money. These are things people reference because they are important to their experience with money, but they aren’t intrinsic to that experience. Just like how what has served as money has changed over time, so too has our experience with money.

For example: It is not necessary for money to have a physical form that can be touched or held. Indeed, you have never held most of the dollars you have earned, spent, and saved in the last 20 years. They have just been numbers on a screen. Digital money, dollars or otherwise, is perfectly functional as money. And the same is true of Bitcoin; just because you can’t touch it doesn’t mean it’s not real either. Hopefully this is reassuring, since this is typically the very first argument offered by well-meaning folks when they first start to grapple with Bitcoin. But the simple fact is that you don’t need to be able to touch something for it to be a good form of money.

Nor is it necessary for money to have an intrinsic value. In fact, because money is used to communicate price information from one market participant to another, it is better that it not have other use cases. Money having intrinsic value would add “noise” to the signal and make every economic decision more difficult. Imagine having to weigh every purchase you make with your money against the value of its other uses. It would cause economic activity to grind to a halt as everyone debated whether to use the money they had for purchasing goods or this other use. Some people don’t realize that the numbers on their screens that represent the dollars in their bank account don’t have an intrinsic value either. Bitcoin’s lack of intrinsic value is another very common argument launched against it, when in fact that turns out to be a valuable feature and not a bug. The fact that Bitcoin doesn’t have some other intrinsic value means it is able to provide price information for economic decisions without noise or manipulation.

Finally, it is not necessary that money be issued by a government. For many centuries it wasn’t. People would use various media of exchange and stores of value without the government interceding in any way. It was only in the last couple of centuries that it made sense for governments to get into the money game when it was difficult to trust and verify the purity and weights of coinage. Stamping the king’s face onto a coin served a purpose at that point. Since then, the intertwining of government and money has been so complete that most folks have a hard time imagining that money can be something separate from the government. This misunderstanding has repeatedly been manipulated for the sole benefit of the government that controls the issuance of money. But despite our experience, there is no need for money to be issued by the state to be valid. Bitcoin is the best hope humanity has of severing the ties between government and money.

At the very least it will serve as a check on how the governments discharge their responsibility as stewards of monetary policy.

The good news is that people understand the seven properties of good money listed above on an intuitive level. In other words, people do not need to read an economic textbook to recognize “good” money. They just start gravitating toward it over time. People won’t need to know why Bitcoin is better to know that it is better. Our recent monetary experiment with unbacked paper money is only 50 years old, and paper money owes most of its success to the privileged legal status paper money enjoys through the governments that issue it. But absent coercion people will always choose a better form of money, as shown by the fact that they did for thousands of years by using gold. Before Bitcoin had been invented, Jörg Guido Hülsmann explained, in his book The Ethics of Money Production, that in the case of “gold and silver—and whatever else free men might discover and develop for monetary services . . . there is a natural tendency in the market to spread the use of the most useful monies over the entire world.”¹³ Bitcoin is better money and because of that, Bitcoin adoption is very likely to grow and spread for the foreseeable future.

This article is an excerpt from A Progressive’s Case for Bitcoin: New Revised Updated Edition, available now for pre-order at a discounted price of $21 through November 15, 2025.

12 Federal Reserve Bank of St. Louis, “Functions of Money,” Economic Lowdown Podcast, https://www.stlouisfed.org/education/economic-lowdown-podcast-series/episode-9-functions-of-money.

13 Jörg Guido Hülsmann, The Ethics of Money Production (Auburn, Ala.: Ludwig von Mises Institute, 2008), 197.