There is much debate between the full history of currency and its origins. For the sake of the relevance of this essay, we will ignore the debate and discuss the history of money and barter only as it relates to the economic value and use of money. Before the advent of a monetary system, humans are believed to have existed in a barter economy and slowly progressed toward a monetary system. which existed in many diverse forms ranging from amber, eggs, feathers, gongs, hoes, ivory, jade, kettles, leather, mats, nails, oxen, pigs, quartz, rice, salt, thimbles, umiacs, vodka and others. . (History of Money, Glynn Davis P27). Say no to plagiarism. Get a tailor-made essay on “Why Violent Video Games Should Not Be Banned”? Get an Original Essay As money has existed in many different formats, it becomes apparent that it is almost impossible to define it by its physical characteristics. Instead, we defined money by its function. In economic theory, as the BoE summit paper (Ali et al) points out, something is considered money because of its functionality as a medium of exchange, unit of account and ultimately store of value . *Although Glyn points out many other functions of money, it is important to note that many other functions are abstract and not necessarily necessary. We look at the barter economy, its problems, and how these 3 functions of money alleviate the inefficiencies and problems of barter, thereby giving value to money. The barter economy is described as an economy in which a good that one wishes to consume is obtained by directly exchanging it for the good that one owns and, as such, no good is used as a means of exchange (ModellingMonetary Economics, pages 34-35). At the beginning of civilization, when the economy was small and there were fewer goods, a barter economy is not a major problem, but as the economy grows and there are more people and more goods to exchange, a barter economy can be very inefficient because it requires a double It is a coincidence to want an exchange to take place. A double coincidence of desires occurs when, for person A and person B to trade, they both must possess what the other desires. In a large economy with many goods, this can be a costly undertaking. Other costs in a barter economy relate to the perishability of a good: for example, suppose that person A has corn that he wishes to exchange for cotton. Since a trade can only occur in the case of a double coincidence of needs, there can be a case in which person B acquires cotton in time = t, in order to be able to exchange it for corn. It is not unfair to say that this would take some time, assuming that person B acquires cotton in t+1 which he hopes to exchange for corn. However, in t+1, the corn (crop) died. Person A has lost a business and person B who went to acquire fabric only to exchange it for corn has lost, because he finds himself with a good that he does not want and must once again start looking for something. 'a double coincidence of desires. Paul Samuelson delves deeper into the problem of the barter economy and its inefficiencies with the use of the OLG model. Noting that without money, there would be no incentive for trade between generations and that the economy would therefore be self-sufficient. Money solves these problems by acting as a decentralized record-keeping system. The OLG model shows howthe use of money in an economy not only facilitates exchanges between generations, but also increases the welfare of the economy, such that both parties are now better off. The intermediary exchange function of currency is very useful in removing the costs of seeking a double coincidence of desires. The unit of account function of money makes it possible to assign a real value not only to goods but also to other services. And allows you to price goods more accurately. The importance of this function can be highlighted by an example: if we assume that cows are used as a medium of exchange and someone wants to buy a pair of shoes. A pair of shoes is not worth a whole cow, but both parties agree that it is worth half a cow. In this scenario no trade can take place, you simply cannot give half a cow cow without killing it and thus destroying its value. Simply put, because the cow is not divisible, it cannot serve as a proper unit of account and thus makes trade difficult. And finally, the function of money as a store of value is also important. If money does not have a stable store of value, then no one would be willing to accept it as a medium of exchange, lest it lose its value and be unable to use it. The corn example above highlights why this function of money is important. However, as Noah Smith points out, it is important to understand that when economists think of money as a storage value, it is in the context of short-term value. Because if it were a long-term store of value, that would discourage its use as a medium of exchange. Money is not without its flaws, as Bruce Chap points out. The use of money induces two transactions, from goods to money and from money to goods, whereas a barter economy requires only one, a direct exchange of goods. This can induce what is sometimes called a switching cost. To assess the magnitude of an exchange cost, we use the Bruce Chap model: where ?= cost of exchanging goods per person, ?m = exchange cost associated with the use of money & J = number of goods in the economy. If we assume that exchange costs are zero in this model, then in the case where the number of goods is greater than 3 (J>3). Monetary exchange is cheaper than barter and is therefore a superior payment mechanism. However, in reality, it is worth considering that there would be foreign exchange costs, especially if commodity money (i.e. gold coins) was used. In such an example, an exchange cost could include the cost of verifying the weight and quality of the gold. So, in this scenario, the advantage of money (reducing search costs) could be offset by possible exchange costs. Because of these and other problems with commodity money, money has been modified and developed to better meet the needs of people. From commodity to commodity-backed commodity (gold standard) and later to the monetary system used by all countries today, fiat currency. Bitcoin is valued like money and what category of money it falls into (including why it would be good money). Understand that in economic theory, money acts as an instrument that functions as a medium of exchange, a unit of account and a store of value. We begin by discussing how Bitcoin performs these functions. To be used as a medium of exchange, enough people must be willing to accept bitcoin in exchange for goods and services. In.