What, REALLY, Is Money?

Bitcoin on hundred dollars bills

What, REALLY, Is Money?

Don’t think “money”. Think MoE, UoA, SoV.

To really understand decentralized finance (DeFi), we begin by understanding money afresh.

To do so, don’t think “money”.

Think MoE, UoA, SoV.

Like this:

MoE = Medium of Exchange. Money exists first and foremost as a tool that solves the “Coincidence of Wants” problem. In other words, if I want what you have, and you want what I have, and we both want it at the same time, in the same quantity, in the same location, then we have achieved a coincidence of wants.

Unfortunately, that rarely happens. And that’s usually because of timing, location, and quantity differences and constraints. That’s why barter trade doesn’t usually work. Barter suffers from the problem of the “coincidence of wants”. And therefore, for exchange to value, to exchange things, we need a medium of exchange (MoE).

An MoE is an intermediary instrument. I might desire what you have, and you might desire what I have, but at different times, locations, and unequal quantities. So, then we go through a middle thing, an MoE, usually pieces of paper with numbers, or coins, so we can trade. The middle thing, the money, is not really what we wanted. But it helps us get what we really wanted. That’s the first and primary function of this thing we call ‘money’. An intermediary is used to facilitate trade and to avoid the inconveniences of the lack of a coincidence of wants.

Now, realize that we are accustomed to having bank currencies as the only medium of exchange that we use. But there are many other instruments that can be used as MoEs. Anything suitable can be used as an MoE. It doesn’t have to be bank money.

UoA = Unit of Account. The second main function of money. A UoA is anything suitable that allows us to (1) value transactions and compare different goods and services using one common standard of value (2) keep accounts in a ledger of transactions and (3) make calculations, either on the ledger or the value of the goods and services themselves.

SoV = Store of Value. The final main function of money. An SoV is anything suitable that can hold value, be saved, retrieved, and exchanged later. It must be predictively useful when retrieved, it must retain that purchasing power. It shouldn’t lose much value over time (even better, it should gain value over time). It shouldn’t be easily counterfeited or overproduced such that its supply gets inflated. And it shouldn’t get destroyed easily. An SoV stores the value gained in exchange, so you can use it later. The best examples of an SoV are gold and land. But many other things can function as an SoV.

Simply break down the word money into his constituents, MoE UoA SoV, and that begins to free your mind.

That’s the first step in truly understanding decentralized finance.

Now, besides having the functions of MoE, UoA, and SoV, currency and money must also have these four properties:

Portable: easy to carry.

Durable: last a long time, even with repeated use, without being destroyed.

Divisible: you can break down a big unit into smaller units easily (e.g., break $100 into one hundred $1 bills)

Fungible: absolutely interchangeable, which means $1 in my pocket is the same as $1 in your pocket.

The more you make money or currency to be portable, durable, divisible, and fungible, the better and more publicly useful and acceptable it will be.

Now, here’s a point:

If you can establish the attributes of MoE, UoA, and SoV on ANY instrument, and people agree to use it, you have created MONEY.

If you can establish the attributes of MoE and UoA (without the SoV) on ANY instrument, and people agree to use it, you have created CURRENCY.

Currency = Money – SoV. The US dollar, the Kenya shilling, the British Pound, the Peso, the RMB/Yuan, the Yen, the Euro… all these are currencies, not money. They lose value daily, they lose their purchasing power, which is what we experience as ‘inflation’ (things getting more expensive over time). Most people have never actually used money in their lives, they have only used currencies. Strictly speaking, gold is money, the dollar is currency. However, to make it easier to read this book, I will usually use the word money to mean both money and currency.

So that’s money.

MoE, UoA, SoV.

It is that simple.

There really isn’t any magic or mystery to it.

Next… An Insider Look at Monetary Systems, Banks & Banking (And Their Achilles Heel)

We have looked at what money is.

But to really do DeFi properly, it pays to really “get out of the box” and look at monetary systems afresh. Because money is manufactured using monetary systems.

Don’t assume the current monetary system is the only one possible.

It isn’t.

But we have been born into it and lived inside it all our lives, and we don’t even realize there are alternatives. Therefore, without understanding monetary systems, we will tend to build DeFi systems that work within the current monetary system. One foot in the old world, one foot in the new world.

However, the real opportunity with DeFi lies not just within the current system, but even more so outside of it.

And with that in mind, let’s start with Bill Gates…

“Banks are dinosaurs… we can bypass them.”

– Bill Gates, 1994

“Banking is necessary, but banks are not. We need banking. We don’t need banks anymore.”

– Bill Gates, 1997

Now, why would Bill Gates say such an alarming thing?

Let’s see. We start by looking at monetary systems.

Whenever someone creates a monetary system, they must decide two things: the SOMEONE and the SOMETHING. This is unavoidable.

The Someone = Who owns the monetary system?

The Something = What is this monetary system based on?

Those two questions must be answered. These are the fundamentals of any monetary system.

And depending on what you choose, you end up with a very different economic system, culture, and society. Because monetary systems have massive effects on the populations that they operate in.

The available choices are as follows.

The Someone that owns a monetary system can either be:

  1. The public. The collective population, not the government. Meaning, everyone in the population owns a share. Today, no population of any nation owns its monetary system.
  2. The government. E.g., the US government’s Greenback currency in the 1860s. Today, almost no government owns its monetary system. They own the treasury and the mint, but not the monetary system. Today, our monetary systems are mostly owned by private banks, worldwide. Central banks simply regulate the private banks, but they don’t own them. Central banks mint a few coins and paper notes, less than 4% of the money supply. The bulk of money supply is created out of thin air by private banks using a debit-credit system of debt.
  3. Privately owned. E.g., banks, monarchies, and companies. This is the option we have today, worldwide.
  4. Decentralized and autonomous, which means nobody really owns it. Like the internet, Bitcoin, or the ocean or sky. Nobody owns the internet, the bitcoin network, the ocean, or the sky.

The Something that a monetary system is based on can either be:

  1. Asset-based. This means the currency is backed by an asset, like gold. Also known as “reserve” banking. You can have a full reserve (every note is fully backed by an equivalent value of an asset), or fractional reserve (every note is only partially backed by assets). In the old days, for a time, money was asset-based, which means it was backed by gold. You could take your paper note, walk into a bank, put it on the desk, and they’ll give you an equivalent sum of gold. But you cannot do that now (because today’s money isn’t backed by any gold at all, none, contrary to popular belief). There is no gold backing your money. None. Zero. Period. That ended when President Nixon took us all off the gold standard in 1971.
  2. Debt-based. Whereby the currency is literally founded on debt. Every new dollar is literally created out of debt, backed by debt. Debt instead of assets. This is what we have today, worldwide. It creates fiat currency (the opposite of reserve currency). Fiat money does not have intrinsic value (it is just a piece of paper or digital record, with nothing backing it, except being legally enforced by the government through legal tender legislation).
  3. Productivity-based. Proof of work. You produce something, or you do a service, and a receipt is created out of thin air for you. You get that receipt, and that receipt is currency, you can trade with it. The receipt did not exist before you did the work, made the products, provided the services. This is not the same as earning a wage, a salary. You are not working for money. Instead, money is being created out of thin air, to recognize your output. When you work for money, you earn an income, paid from a pre-existing amount of cash. With productivity-based systems, when you work, new money is created, it does not pre-exist before the work happens. So literally, you do not have to first have money to make things happen. This is very liberating. It eliminates the false scarcity that debt-based and asset-based money creates because it creates money that is always sufficient and equivalent to the work/output of a person or society. We will talk more about this later when we discuss complementary currencies, plus the inflation and artificial scarcity created by our current monetary system.


What is the best combination of Someone and Something?

I suggest to you that the best combination is:

Decentralized & Autonomous + Productivity-Based

Because it creates equal opportunity, equal access, efficiency, and transparency. And this is the hidden power of DeFi.

And what is the worst combination of Someone and Something?

Privately-owned + Debt-based

That is the worst. By far!

And that is what we have today.

I’m not the only one who thinks so. See:

“Of all the many ways of organizing banking, the worst is the one we have today. Change is, I believe, inevitable. The question is only whether we can think our way through to a better outcome before the next generation is damaged by a future and bigger crisis.”

– Sir Mervyn King, Governor of the Bank of England 2003 – 2013

Most of the money in the world is not just stored in private banks; it is created by private banks. For nearly a hundred years, some of the smartest economists in every generation have said this is a horrible way to do money.

– Jacob Goldstein, “Money

Sure, it is arguably better than barter trade. But the problem with it is that private entities (a small group of elites) own and control the system that everybody else must use. The problem with this is that it creates an elite vs non-elite society, the haves, and the have-nots, and that gap keeps getting bigger and bigger.

It also creates secrecy and cabalistic control. Cabal means a secret political clique or faction. Unelected people running the world behind the scenes. This makes a mockery of democracy. The kind of a system where private entities control the issuance of currency, powered by placing the population in debt to themselves, creates that kind of outcome.

Plus, debt-based systems have the worst rate of loss of purchasing power (poor SoV capability), and they siphon real wealth, real assets, from the masses and into the hands of the monetary system owners, through built-in and unavoidable debt default.

Worst, it forces us to destroy our home planet at an unsustainable rate. Because the debt-mechanism of issuing currency creates the need for “growth”. To grow faster than debt and inflation (also avoidable with different types of monetary systems). This forces people to optimize to profits instead of sustainability. They “must grow” or get eaten by the debt and inflation monster created by the system. But to “grow”, they must destroy the planet. Caught between a rock and a hard place. Damned if you do, damned if you don’t. Today, we are consuming 1.7 Earths per year! That is obviously unsustainable, and a recipe for disaster.

We actually don’t need that kind of growth. It is the debt-based privately owned monetary system that needs it, not us. To keep the machine going without debt collapse. Continuous compound growth is impossible in a finite world with finite resources. The current monetary system, based on debt which has a ballooning interest that calls to be repaid, is only sustainable if there is “growth”. Growth is forced on us all, to keep that debt machine from collapsing. So we try to find a million different ways to keep consuming, so we keep “growing”.

Everything you have comes from the Earth. Your food, clothes, home, water, air. All of it, from Mother Earth. You must look after her, or else one day you simply won’t have those things, and life will become very difficult and unpredictable once the delicate balance is ruined.

“The world community now faces together greater risks to our common security through our impacts on the environment than from traditional military conflicts with one another.”

– The 1992 United Nations Conference on Environment and Development

I have shown in earlier chapters that the foundation of our monetary system on interest-bearing debt creates a cancerous growth in debt. That, in turn, leads to a “growth imperative” for the entire economy, which causes both ecological devastation and social decay. I believe that it would be generally beneficial if we would work toward economic and financial arrangements in which interest is minimized. But most important, it is essential that we establish an exchange (monetary) system that avoids the imposition of interest on the medium of exchange at its creation.

We can take a giant step toward economic equity and general prosperity by designing complementary currency systems that avoid the imposition of interest. It is one thing for holders of already created money which they have earned, to ask for interest on that part of the earnings they wish to “save.” It is quite another thing to charge interest on newly created money, such as debit balances in a mutual credit system. If we can avoid the latter, the former will gradually wither away as well.

– Thomas Greco, “Money

In short, this kind of system is unnecessarily destructive and unsustainable.

Now I hope we clearly understand that money doesn’t come from work.

It comes from monetary systems and is later injected into work.

And there are many other possible types of monetary systems.

And the one we are currently using is arguably the worst kind.


Technically, you don’t need money to produce outcomes. All you need is (1) people (2) resources and (3) tools.

Money only comes into play because we need a means of exchange and a store of value in modern society. That is why we inject money into work, but it is not a strictly necessary ingredient.

Sure, if you have money, lots of it, you can easily get people, tools, and resources to come work for you. Because people won’t normally agree to come work for you for nothing or to give you resources for nothing or make you tools for nothing. But theoretically, if they did agree to give you labor, resources, and tools for free or for payment later, you could produce work and outcomes without money.

The point is that work doesn’t create money.

Money doesn’t come from work.

Money comes from monetary systems, is created in monetary systems, and is then injected into work.

This is a very important concept to keep in mind when designing DeFi solutions. Because you don’t have to get the money first. You can make it out of thin air (of course, considering suitable monetary and fiscal practices), and then inject it into a community of people who have tools and resources.

That is the hidden power of DeFi when we finally master it.

Now, let’s examine banks and banking:

Bank = A company or institution that engages in banking activities.

Banking = Activities that include money supply, deposit-taking, lending, personal banking, corporate banking, investment banking, private banking, transaction banking, insurance, consumer finance, trade finance, and other related.

I guess what Bill Gates was alluding to is that the “bank” can be significantly replaced by technology (like the blockchain and DeFi).

But regardless of technology, we still require banking. But banking doesn’t need to be done by banks.

See the difference? Banks are not the only ones capable of conducting the activities of banking. I’m not speaking of legislation and regulation here. I am speaking of capability.

Traditionally, banking was done by banks, but with DeFi, banking can be done by software code. Maybe not completely, but significantly.

Banks have done a great job connecting the world financially over the years. However, I believe banks will have to radically reinvent themselves, or die, especially once DeFi really takes off in full swing. Because the powerful monopoly over banking activities that banks enjoyed for a few hundred years will be taken away by DeFi.

Having said that, let me be clear. This book is not against banks, per se. That’s not the point. It is for financial inclusion, efficiency, and fairness for all humankind and the earth.

Whereby mediums of exchange are no longer only produced out of debt-based privately owned monetary systems.

And that means you can exercise any and all of your abilities in any and all sorts of different ways and exchange them for various types of suitable mediums of exchange, as need be.

It is about eliminating or bypassing the artificial scarcity created by privately-owned debt-based monetary systems.

Eliminating the wealth gap, and the debt trap.

Leading to a healthier global society and ecosystem.

That’s the point.

I think, as with everything in life, some banks will be wiped out by this movement, and some will find ways to work with it and become even better stronger banks than they are today…

If you liked this excerpt, get the full book here:

About The Author

Picture of David Cameron Gikandi

David Cameron Gikandi

A creative consultant on The Secret (2006) documentary, David Cameron Gikandi is an entrepreneur and manifesting coach and consultant for conscious entrepreneurs, leaders, life coaches who are looking to create more impact in their lives. He also helps them decode their essence so they can bring that into their lives, businesses, tribes and societies. He is also the author of A Happy Pocket Full of Money and other publications. David is also a futurist interested in blockchain technology which he believes will have wide-ranging applications including decentralized finance (DeFi). He holds a BSc. in International Business, an MSc. in Information Technology, a Dip. in Film Production, is a Microsoft Certified Solution Developer, and a Blockchain Revolution in Financial Services Specialization from INSEAD.

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