Blockchain and Crypt Currency by Unknown

Author:Unknown
Language: eng
Format: epub
ISBN: 9789811533761
Publisher: Springer Singapore

3 Transaction Costs and Money

History shows that a new type of money was, and is right now, introduced when it can economize the existing transaction costs by raising trust in money.7 This has contributed to the creation of an economy with a higher quality market economy. In this section, I will examine this process.

3.1 Commodity Money

What materials are good for money? The first answer that comes to mind is precious metals such as gold and silver. Because everyone wants these precious metals and can carry them in small portions, it is perfect as a medium of exchange. Because those precious metals do not lose their values easily, they are good for a store of value. Moreover, these metals can easily be divided into small pieces and melted into a big chunk. This implies that they are good for the four arithmetic operations.

One problem of these precious metals is that they are too precious. This implies that they are not suitable for small transactions. Copper is a metal that is more suitable for small transactions. Because copper does not rust as quickly as iron, copper coins have been widely used for many centuries. In addition, copper has been in daily use for tools and ornaments.

Previously, real goods such as silk, barley, or rice were used as a medium of exchange. Although they are far more fragile than precious metals, it may be that they were more acceptable for many ordinary traders as a medium of exchange in the world in which gold, silver, and copper were not readily available.

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