I was reading this quote by Ron Paul who was on Bloomberg earlier today where he discusses Bitcoin:
“To tell you the truth, it’s little bit too complicated. If I can’t put it in my pocket, I have some reservations about that. But it has been designed in the free market. If it is a means of exchange, it would not ever be illegal. You shouldn’t regulate it in the free market, but I do not think it fits the definition of money, which has been around for 6000 years. People want to see something they can know what it is, they can define it, touch it and put in their pocket. If you do not have a computer and someone running the computer and calculations, you don’t have it. I am not a big supporter of that, but I am not opposed to it. I admit, I do not fully understand what is going on with it.”
Well, that’s a new definition for money I guess:
Money n. pl. mon·eys or mon·ies1. Something you can put in your pocket.
Okay, obviously I am being a bit of a smart ass, but I think this is really backwards thinking. Money is not necessarily something physical. It really never has been. Money is first and foremost a means of final payment. That can come in many forms. In primitive societies like ape societies it exists in the form of promises – you scratch my back, I’ll scratch yours. The physical form of money arose as a tangible form of record keeping that helped resolve the lack of trust that goes with something like a verbal bond. If I require a note or coin before I give you a back scratch you’re essentially indebted to me and I have proof of this. You can’t just skip out on your end of the deal. So, instead of promises, we created physical things that represented ways to get your back scratched.
Today, our money systems have evolved into highly complex electronic systems where the means of payment now exist mostly as records in computer systems. And those records are backed up by a structured legal system and a regulated banking system in order to give you access to the economy of back scratches. Money is increasingly moving away from something you can put in your pocket. I know it’s nice to be able to touch and feel your money, but that is not a prerequisite for defining what money is or can be. In fact, as our legal system and banking system become more and more efficient (one could even say the legal system is overly onerous in many ways) it’s rendering physical forms of money unnecessary.
Of course, Bitcoin has the problem of not having a legal system and a structured payment system to support it. So it will never be seen as a broadly accepted medium of exchange. But that’s a different story….