What is a “MEDIUM of EXCHANGE”?

What is a medium of exchange and how does a modern money become a medium of exchange? So any modern money, if you look this up on chat GPT or on Google or you know Wikipedia, whatever, it's going to tell you money has three primary attributes. It is a store of value. It is a medium of exchange. It is a unit of account. When something is becoming monetized, it goes through those three stages. initially as only a store of value, then as a medium of exchange, then as a unit of account. And oftentimes you hear people criticize Bitcoin because they say, "Hey, people are not buying coffee with it every day." Well, I am. I don't drink coffee, but I buy stuff with Bitcoin all the time. But people don't understand that those three stages do not happen simultaneously. When something is becoming a new money, it does not have all three attributes simultaneously. It goes through three stages. The first of those stages is always store of value. And the reason that stage is always first is because people will not exchange something that they do not perceive to have value. So you would never start a money and have it become a medium of exchange immediately. And the reason is because nobody will exchange something that does not have value. So they will only exchange things when people on both sides of the transaction perceive it to have value. And Bitcoin does have value because of its monetary properties. So eventually enough people were using Bitcoin as a store of value because of its monetary properties that one person gave someone else Bitcoin for something in the real world, a you know, pizza or whatever it was. You know, the very first transaction was for two Papa John's pizzas. But that is because one person had Bitcoin, the other person wanted Bitcoin, and that transaction happened. uh but they both had to perceive Bitcoin to be a store of value first because otherwise they never would have made that transaction. Okay. So when a money is becoming a money, it goes through store of value, then medium of exchange, then unit of account. But since this video is about medium of exchange, let's walk through what it means to be a medium of exchange. Let's go through some simple examples. One, when you buy something in the real world with cash, your medium of exchange is US dollar cash. And the recipient's medium of exchange is also US dollar cash. You are handing them US dollar cash. They are receiving US dollar cash. The medium of exchange is US dollar cash for both parties. But most transactions are not done with cash. So let's say the transaction happens with a debit card. So if if a debit card is used, your medium of exchange is US dollars and the recipient is also receiving US dollars, although typically with a time delay. Okay? But it gets more interesting if you introduce credit cards because people perceive credit cards to be entirely a US dollar medium of exchange. But if you think about it, and again I'm not saying this is technologically correct scientifically or you know according to economics books. I'm just saying let's think through it together. The way it logically makes sense is what you are actually spending with a credit card is not US dollars. You're spending US dollar credits because US dollars did not actually leave your possession. what what actually left your possession is you became indebted to Visa or Mastercard but the actual dollars did not leave your account because that happens later once a month or you know if you don't pay your credit card bills it's you know significantly delayed so you are paying with US dollar credits but the recipient even if it's time delayed is receiving US dollars from Mastercard or Visa or American Express so in that case you'll notice that the medium of exchange for both parties is not the Same thing. Your medium of exchange when you use a credit card is US dollar credits, but the recipient is receiving actual US dollars from Visa, Mastercard, Discover, or American Express, even though those companies are not actually receiving the the US dollars from you until the end of the month or potentially if you don't pay your bills, a much delayed place. Now, Bitcoin is often criticized by people who say, "Wait, you know, if I'm using a Coinbase debit card in the real world, it's not really Bitcoin because the recipient is receiving US dollars." That is true, but that is also true every time you use a debit card of any kind in a foreign country. So, I travel down to Honduras a lot to uh visit the our development there on the island of Roaton. Okay. Okay, when I'm in Honduras and I'm using a Coinbased debit card, let's walk through a transaction. What is my medium of exchange? My medium of exchange is Bitcoin because when I swipe or I use touchless payments on my Apple Watch, that's basically how I pay for everything is with touchless payments on my Apple Watch with the Coinbase debit card. When I touch my watch to a payment terminal in Honduras, I am having Bitcoin reduced from the balance in my Coinbase account, which I keep at pretty low levels, but it's always enough that a debit card transaction will process. Okay. So, I'm having Bitcoin reduced. So, that is my medium of exchange is Bitcoin. The recipient is getting Honduran Limpira. So, their medium of exchange is Honduran Limpira. My medium of exchange is Bitcoin. Now again, some people would criticize that and say Bitcoin is not being used as a medium of exchange. But the truth is, anytime you're traveling internationally, US dollars are not your medium of exchange. First of all, we already talked about the fact that if you're using a credit card, your actual medium of exchange is really US dollar credits, not actual US dollars. But if you are traveling internationally, whether you are using a credit card or a debit card, the recipient is typically not getting US dollars. So, if you're using a debit or a credit card in Europe, the recipient is receiving euros. If you're in Japan, they're getting yen. If they're in China, they're getting one. If you're in Switzerland, they're getting the Swiss Frank. If you're in Honduras, they're getting the Limpira. And if you're in Venezuela, they're getting the Venezuelan Bolivar, if anybody even accepts the Venezuelan Bolivar anymore after 50 million% inflation. Literally 50 million% inflation. Um so in in that case uh people think that the medium of exchange is US dollars although they don't really realize it but the truth is no Visa, Mastercard, American Express or Discover are making a translation for you. Part of the service that they are providing in exchange for getting about 3% or around 2.9% credit card transaction fees is making a conversion for you. They are allowing you in the case of a US dollar debit card, they are allowing you to use US dollars as your medium of exchange, but the person in Europe is receiving euros as their medium of exchange. Now, you could criticize the US dollar in that scenario, just like sometimes people criticize my use of a Coinbased debit card, saying that's not real Bitcoin because the recipient is not receiving Bitcoin. Well, my question is, okay, if you're using a a US dollar debit card in Europe, does that mean those are not real US dollars? Well, of course they're real US dollars. Your bank account is getting reduced by US dollars when you use a debit card in Europe. The it just so happens that Visa, Mastercard, American Express, or Discover is doing the courtesy for you behind the scenes of transacting in foreign currency. They are converting the US dollars that they took from your bank account to euros and they are handing those euros minus a small processing fee to the recipient on the other end. So in that case again very often in the modern economy the medium of exchange for each side of the transaction is different. Um if you are using a US dollar debit card your medium of exchange is always US dollars. the recipient is getting all sorts of things and the the recipient's medium of exchange is whatever the local currency is that they have negotiated to receive by Visa, Mastercard, American Express or Discover. Okay? So, if I'm using a Coinbase debit card, then my medium of exchange is Bitcoin because Bitcoin is what I am losing as a result of initiating a transaction. The recipient if I use au a uh bitcoin debit card in the United States is receiving US dollars. But again their medium of exchange is dollars. My medium of exchange is bitcoin. But very frequently in the modern economy the medium of exchange is different for each side of the transaction because we live in a complex modern economy where Visa and Mastercard are willing to make those translations for us. All right, let's walk through one especially complicated example, which would be the Coinbase credit card. Not the Coinbase debit card, but the credit card. Okay, when you use a Coinbase credit card, you are transacting, your medium of exchange is US dollar credits, just like any other credit card. So, the entire month between billing cycles, your medium of exchange with the Coinbase credit card is US dollar credits to American Express. in this case because Coinbase uses American Express for their credit card and they use Visa for their debit card. But since we're talking about the credit card, that would be American Express. So, you are using US dollar credits on the American Express network when you transact with the Coinbase credit card. Now, when it is time to pay off your bill, you can choose to pay it off with your Bitcoin balance, which because I keep effectively zero US dollar balances, that means if I'm ever using the Coinbase credit card, which I alternate between the credit card and the debit card depending on what I'm buying or what I'm using it for. Uh the credit card has a higher limit on it more than $2,500 per day. So, sometimes I use the credit card if I'm traveling for airline or uh hotel accommodations. If they exceed $2,500 for an entire trip for my family, for example, I'll use the credit card from Coinbase. But once a month, when it's time to pay that bill, I pay it from my Bitcoin balance. So, at that point, my medium of exchange to American Express via Coinbase is Bitcoin. So in the case of a credit card, there's actually two medium of exchanges for the person using it. The medium of exchange at the time of purchase is US dollar credits. The medium of exchange at the time that the uh the credit card statement is p paid off in my case with the coinbased credit card is Bitcoin. So again, we live in a complex world. medium of exchanges are easy to sort of interchange because Visa, Mastercard, American Express, and Discover and numerous others are willing to do all sorts of fancy currency conversions to allow you to spend virtually any currency in virtually any uh location and have the recipient get the currency of their choice, which is why it's so easy for me to live exclusively on Bitcoin. I can use the Coinbased debit card, and with the Coinbased debit card, my medium of exchange is Bitcoin. The recipient's medium of exchange is whatever they've negotiated uh with the credit card processing organization. Now in the case of Cash App uh you can actually choose if the vendor allows you to pay with Bitcoin and chooses to accept in Bitcoin then the medium of exchange is Bitcoin and Bitcoin on both sides. If the vendor using uh the square payment terminals which is made by the cash app people if they have set it to receive US dollars then uh the company square or technically block is their company name but the the product name is square and it's made by the cash app uh the company behind cash app and bit key they're all made by the same company which is uh uh run by Jack Dorsey the former founder or the founder of Twitter before he sold it to Elon Musk. Um, in that situation, you can choose in the Square payment terminals whether you want the medium of exchange as the recipient uh of that transaction to be Bitcoin, US dollars or whatever. And then at the payment terminal itself, you can choose whether you want to pay in US dollars or pay in Bitcoin and it will let you do either. So hopefully this primer on medium of exchange is helpful. As always, any money goes through the process of becoming a store of value first, then a medium of exchange, then a unit of account. That process often takes uh definitely years, but often decades between each of those stages. Bitcoin is firmly uh in the store of value stage. It is in the very early stages of medium of exchange and almost non-existent as a unit of account. Very very very rarely do you see things that are priced in Bitcoin. As soon as you start seeing lots of things that are priced in Bitcoin, you will know that Bitcoin has started down the road of becoming a unit of account in addition to its current function as a store of value and the emerging early stages of being a medium of exchange. But again, with a credit card or debit card network, you can have lots of different medium of exchanges on each side of the transaction. And with things like Square and Cash App, you can choose whether you want your medium of exchange to be US dollars or Bitcoin on both ends. So you can pay with US dollars and the recipient can receive Bitcoin. You can pay with Bitcoin, the recipient can can receive uh uh US dollars or you can pay in Bitcoin, receive Bitcoin, or you can pay in US dollars, receive US dollars. The Square payment terminal lets you configure it where depending on what they pay with, you can choose how you get paid. And again, that gives you four different options. US dollars to US dollars, US dollars to Bitcoin, Bitcoin to US dollars, or Bitcoin to Bitcoin. And it supports them all. And that is likely to be the case for a lot of payment processors uh for the near future where as more and more come online, you have the choice of Bitcoin or US dollars on paying and receiving, and it will do anything you want in between there to give you exactly what you want. Uh hopefully that's helpful. I hope to do a lot more videos on each of the different functions of money, and I'm here to help if you need anything. The bags.