GIBSON: Can money be plucked from the air? | Columns

That question once puzzled me, and still does to some extent. However, as I studied it, I went from puzzlement to utter amazement. I believe you too will be amazed because, the answer is yes; it’s called crypto or digital currency.

To understand how it can have value, you must know how any fiat money such as the dollar, pound, yen, etc., has value, where the value comes from, and why it constantly changes? The principles are the same no matter what is used as money.

At the dawn of civilization there was no money; therefore, if a person had a goat to sell, he had to find someone with something to exchange; it was called bartering. What if the person wanting the goat had only one chicken, but the goat is worth eight chickens? That made it difficult to make an exchange.

A medium of exchange was needed. It had to be something scarce so that everyone did not have large sums of it. Gold and silver are scarce soft metals. Therefore, they are a natural for money. It could easily be pounded into various shapes and sizes. One early coin was called “pieces of eight.”

Legend says it was stamped to look like a pie with eight slices which could easily be broken into eight equal pieces. That’s a fable but it makes for a good illustration, now back to the goat and chicken.

If the man with the chicken had a “pieces of eight” coin and exchanged it for the goat, the goat man could break off one piece and give it back for the chicken. Now he has a chicken and seven pieces remaining on his coin which he could use to buy seven more chickens, that’s eight chickens. Thus commerce began.

The American Indian also had a form of money called wampum. It was beads made from highly polished unusual looking shells making them scarce and desirable.

When I was a kid, haircuts were a dollar; now they’re $15. Haircuts are not more valuable now. So why does it cost 15 times more? It’s because money is 15 times less valuable.

Here’s another example using the character from Washington Irving’s story Rip Van Winkle, the man who slept for 20 years. Let’s say one evening in 1958 Rip Van Winkle is at a car dealership looking at new cars. He is quoted a price of $2,000. The next morning, when he goes to buy the car, he doesn’t realize that he has been asleep for 62 years; it’s now the year 2020.

To his chagrin, he discovers that his $2,000 will not buy the car. Why? It is exactly what he was quoted the day before; at least he thinks it was the day before.

Like the haircut, mentioned above, the car isn’t 15 times more valuable; his money is 15 times less valuable. What changed the value? Was it the government?

No, our government prints and declares money to be legal tender, meaning, if someone owes a debt, payment in U.S. currency must be accepted. But, it is silent about how we use or place value on it. So, where does the value come from and why does it change?

In a free society, such as ours, it is we, the users, who determine the value and acceptance of it? However, the government has an impact on its value by printing more of It. Like pouring water into a pitcher of tea, it becomes diluted. Therefore, we determine it to be less valuable and it takes more of it to buy the same thing.

We think the U.S. dollar has value, but does it really? Yes and no. Strangely, it has value only because those who use it believe it does.

People can place value on anything. In the 1600s, tulip bulb contracts were traded on Dutch market exchanges, thus making them a form of money. The principles are the same whether it’s the U.S. dollar, crypto or tulip bulbs; users determine the value.

For generations, we have become accustomed to one currency. We recognize and feel comfortable with it. Therefore, it is difficult to understand and accept that crypto currency can suddenly have value especially when that value seems to come from nowhere. It may take a generation for people to fully accept it the way we accept the U.S. dollar.

Crypto is gaining prominence because it is private and convenient. Even the Federal Reserve is looking into creating a digital currency. Imagine, no need for cash, checks, credit or debit cards, etc., therefore they can’t be lost or stolen, no bounced checks, and no germs or viruses from handling cash which may be one way we catch the flu and other diseases.

Add to that, no fees are paid to credit card companies or banks, thus saving merchants billions of dollars a year which can be passed on to us, the consumer. An example is gas stations that sell for less if you pay cash.

Hopefully, this very simplistic explanation will help you to better understand and accept that crypto currency has value. Its use worldwide will continue to dramatically increase. And, yes, money is being plucked from the air and, under certain circumstances, anyone can pluck it. Isn’t that astonishing.

Hoot Gibson is a resident of Valdosta, author of “Hoot’s Wisdom Nuggets: You Cut I Choose,” and “Hoot’s Wisdom Nuggets to Help You Become a Super Salesman.” Email: 36hoot@gmail.com.

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