When people think about money, they often reduce it to what they earn, deposit in their bank accounts, and spend. But money is far more complex, and there are many views on what qualifies as money. For example, some argue Bitcoin is money, while others disagree. Rather than getting bogged down in definitions or semantics, I prefer to approach money functionally. Money, at its core, is a medium of exchange—something you own not for its own sake but to trade for other goods and services in the future. Anything can serve as money if it fulfills this role. For instance, if someone pays you with a T-shirt and you plan to sell it later to buy food, that T-shirt effectively becomes money. What makes something a good form of money, however, is its stock-to-flow ratio—the ratio of the existing supply of an asset (stock) to its annual production (flow). When this ratio is high, it means the total supply vastly outweighs the new production, making the asset scarce and resistant to inflation. This, I argue, is the defining characteristic of sound money. Take gold, for example. By the 19th century, it had become the global standard for money because it had the highest stock-to-flow ratio of any asset. Gold doesn’t corrode or degrade, so humanity has been accumulating it for millennia. Today, the supply of new gold added to the market each year is tiny compared to the immense existing stockpile. This stability makes gold a reliable store of value—its price isn’t easily undermined by new production. Bitcoin shares this property. Its fixed supply of 21 million coins ensures a scarcity comparable to gold. While gold still leads in stock-to-flow ratio, Bitcoin is closing the gap, and within a few years, it will surpass gold in this regard. This is what drew me to Bitcoin—it embodies the same economic principles that made gold the ultimate form of money, but in a digital, decentralized form. To understand money, we must focus on its functionality and what gives it value over time. Gold and Bitcoin excel as money because they are scarce, durable, and resistant to inflation, making them superior to fiat currencies that can be printed endlessly.

Saifedean Ammous