Thread by @yb_effect

[1/365: Stages of Money]

1/ Money is not just what you give at the cash register in return for some coffee. Rather, money actually evolves through different use cases. To explain the stages of money, let’s compare it to a relationship (yes, you read that right). 🧵

2/ Typically, the first part of any relationship starts with the honeymoon/talking phase. Both people are first physically attracted to each other and like the idea of being together. Essentially, it’s the discovery process where attractiveness stems from a few, basic properties.

3/ This translates to the phase of money known as: Collectible. Money starts off as an item that has unique enough properties for people to have a desire to collect & hold (i.e. beads, shells, etc). No one knows if item x is going to be the next ubiquitous form of money or not.

4/ The next part of the relationship is when you start to understand your significant other on a more personal level. You both talk about things that other people might not know and trust each other with intimate information.

5/ This translates to the phase of money known as: Store of Value. This occurs when there is clear value for people to hold & trust money x. People start to trade current assets they have in exchange for more of money x as they realize this new collectible is here to stay.

6/ The purchasing power of money x increases as more people desire and acquire. “The purchasing power of a store of value will eventually plateau when it is widely held and the influx of new people desiring it as a store of value dwindles.” - @real_vijay

7/ The next phase is when you are in a long term relationship. By this time, both people have gotten through a lot of the beginner's volatility & uncertainty; now there is a strong layer of trust and both people are serious about each other in the present and the future.

8/ This translates to the phase of money known as: Medium of Exchange. At this point, people can use money x to purchase goods without worrying about the opportunity cost. Purchasing power has stabilized & there is a low chance that any spent money will have serious upside left.

9/ In fact, in the early days (and even now), people failed to realize that #btc was a store of value. Take for example the classic story of Laszlo Hanyecz, a programmer who spent 10,000 btc to buy 2 boxes of pizza in 2010.

businessinsider.com/bitcoin-surge-…)

10/ In the last phase of a relationship, you are married and finally operate as a couple. You have to account for both yourself and your partner, in the majority of cases. There’s typically no “me” anymore, and it’s about “us”.

11/ This translates to the phase of money known as: Unit of account. At this point you don’t think of money x in terms of other monies, but rather only in regards to the market value. Meaning that sellers of goods adopt their prices based on how money x is changing.

12/ In terms of bitcoin, “Only when merchants are willing to accept bitcoins for payment without regard to the bitcoin exchange rate against fiat currencies can we truly think of Bitcoin as having become a unit of account.”

13/ To summarize, the four phases of money are: collectible, store of value, medium of exchange, and unit of account. Currently, bitcoin is in the store of value stage and is seeing infrastructure being built to use bitcoin as a medium of exchange in the future.

14/ Disclaimer: The analogy of the stages of money to the stages of a relationship is meant to be taken loosely. Use it as a tool to give rationale to critics of bitcoin who say it can’t be a form of money because it’s too volatile.

15/ Source and Inspiration for this thread came from “The Evolution of Money” section in @real_vijay medium post.

vijayboyapati.medium.com/the-bullish-ca…

16/ If you liked this thread, please take a second to follow me! I enjoy teaching crypto and decentralization concepts through twitter threads. DMs are always open as well!