Money emerged to solve the problem of "coincidence of wants" in the barter system. Money has three primary functions:
Salability is the concept of how easily a good can be sold with minimal loss in price. Three dimensions of salability:
The Stock-to-Flow Ratio refers to how difficult it is to increase supply
High stock-to-flow ratio = hard money (resistant to devaluation). Low stock-to-flow ratio = easy money (vulnerable to devaluation).
The Easy Money Trap: Anything whose supply can be easily increased will destroy the wealth of those who used it as a store of value. Successful money requires mechanisms restricting new supply.
Economic Implications of Sound Money
Sound money enables people to store value reliably over time, which means people are more willing to delay immediate gratification for greater future rewards. This enables more complex economic activities including entrepreneurship and venture capital.
Rai stones of Yap Island was a historical money system that resembled Bitcoin the closest. There were these human sized Rai stones that were not native to Yap and very difficult to move. They were placed in prominent locations and ownership is transferred verbally publicly.
The monetary properties of Rai stones included: