Explain why money is a social technology built on trust
Distinguish intrinsic vs. subjective value
Risk vs return across asset classes
Risk vs return across asset classes
How value grows over time
How value grows over time
The three functions of money
Every form of money, from shells to Bitcoin, does three jobs: it is a medium of exchange (you trade it for goods), a unit of account (you price things in it), and a store of value (it holds purchasing power over time). If an object fails any one of these, people stop using it as money.
Money is a ledger, not an object
Money works because everyone keeps a running score of who holds how much. That score is the ledger. Physical cash is just a token representing a ledger entry. Blockchains make this literal: the ledger is the money.
💡 The Rai stones of Yap
On the island of Yap, giant stone discs were money. A stone sunk to the ocean floor still transferred ownership — the islanders simply updated their shared memory of who owned it. No stone moved. That is money: a community's agreed record of value, not the object itself.
Why gold beat shells
Money converges on materials with four traits: durability (doesn't rot), divisibility (splits into small units), portability (carries value densely), and scarcity (can't be printed at will). Gold won for millennia; Bitcoin optimizes all four for the digital age.
Value is subjective
Nothing has intrinsic price. Value lives in the mind of the valuer. A share, a coin, or a house is 'worth' exactly what the next buyer will pay — and that number shifts with desire, fear, and information.
💡 Water in the desert
The same bottle of water is worth pennies at a supermarket and priceless to a lost hiker. The water didn't change — the context did. Price is a signal about scarcity and urgency, never an objective truth.
❓ Quick check
Which of these is NOT one of the three functions of money?
A) Medium of exchange
B) Store of value
C) Unit of account
D) Source of intrinsic worth
Money has three functions: medium of exchange, unit of account, store of value. 'Intrinsic worth' is not one — value is subjective.
(Knowledge check — full exam is next)
Key takeaways
Money = medium of exchange + unit of account + store of value
Money is a shared ledger; trust is the real asset
Value is subjective and contextual, not intrinsic
📝 Weekly Exam — pass with 80% to unlock next week
10 questions. Review the Deep Dive and courses before attempting.
1. The three functions of money are:
The classic triad: medium of exchange, unit of account, store of value.
2. The Rai stones of Yap demonstrate that money is primarily:
A stone on the ocean floor still transferred ownership — the shared ledger mattered, not the object.
3. Which trait does NOT help a material become money?
Scarcity helps; abundance lets anyone print it away, destroying value.
4. 'Value is subjective' means:
Value is assigned by individuals based on context, desire, and information.
5. A store of value is money that:
A store of value preserves wealth across time.
6. Why did gold outlast shells as money?
Gold's physical properties made it a superior monetary material.
7. Bitcoin, like Yap's stones, is best described as:
Bitcoin IS a ledger — the blockchain records who owns what.
8. The unit-of-account function of money lets people:
A unit of account is the common measure for pricing.
9. Subjective value theory implies the 'correct' price of an asset is:
Price emerges from what buyers are willing to pay.
10. Money is fundamentally a technology of:
Money coordinates strangers through shared trust in a ledger.
Your score: —
🛠 Weekly Project
Audit your own money beliefs: inventory 20 purchases from the last week and classify each.
1
List 20 things you spent money on this week (or last month).
2
Label each as need (survival) or want (discretionary).
3
Total the 'wants' and compute the % of total spending.
4
Write one paragraph: what does your spending reveal about what YOU value?
5
Reflect: how does subjective value explain why you paid what you did?