Suppose you bake bread, and you want a pair of shoes. To trade directly, you have to find a shoemaker who also happens to want bread — right now, in about the right amount. Economists call that lucky match the double coincidence of wants — the need, as W. Stanley Jevons put it in Money and the Mechanism of Exchange (1875), for "a double coincidence" between two traders. It is rare, and waiting for it is slow.
Money is the thing that ends the search. Sell your bread to anyone for money, then hand that money to the shoemaker. You never have to match two wants at once again.
Once you have it, money quietly does three jobs (a modern shorthand — the economist Jevons himself distinguished four functions of money):
Here is the part that matters most for everything that follows. A banknote is not valuable the way bread is valuable — you cannot eat it. As the Bank of England puts it, money today is essentially a trusted IOU: it works because everyone expects everyone else to accept it. Take that shared expectation away and the paper is just paper.
So money is a promise that a whole society keeps together. That raises an obvious question — who do you have to trust for the promise to hold? — and it is the question the next pages are really about.
You may have heard that money "grew out of barter": that people first swapped goods directly, found it clumsy, and invented money to fix it. It is a tidy story, and the double-coincidence problem above makes it sound inevitable — but as history it does not hold up. The anthropologist Caroline Humphrey, surveying the evidence in Barter and Economic Disintegration (1985), found that "no example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money." Real communities, as the anthropologist David Graeber argues in Debt: The First 5,000 Years (2011), ran on credit, debt, and mutual obligation long before coins.
So treat the double coincidence of wants as a clear way to see what money is good for, not as a documented account of how it first appeared. What we can say plainly is that money has worn many forms — and that, as the Bank of England notes, its nature has varied a great deal over time, from metal coins to paper claims to today's bank deposits, which are mostly just numbers in a database.
People have long argued about what makes money good money. One well-known answer is the idea of sound money. Ludwig von Mises — who described the principle as "a product of classical political economy" — gave it a systematic statement in The Theory of Money and Credit (1912).
The argument goes like this. Debasement is when whoever issues the money quietly makes each unit worth less — historically by mixing cheaper metal into coins, today by creating more currency. Mises wrote that "the postulate of sound money was first brought up as a response to the princely practice of debasing the coinage," and he cast it as a limit on power — "an instrument for the protection of civil liberties against despotic inroads on the part of governments."
This is a point of view, not a settled fact, and plenty of economists disagree with it. We present it because it is the lens through which much of the cryptocurrency world, Zcash included, talks about money — so it is worth knowing what the words mean.
Almost all money today is fiat money: money that is not redeemable for any fixed amount of gold or other commodity — U.S. Federal Reserve notes, for instance, are "not redeemable in gold, silver, or any other commodity." As the IMF notes, this has been the norm for national currencies since their tie to gold was cut. Its value rests entirely on the trust and acceptance described above, and on the issuer behind it — for national currencies, a central bank.
That design is a trade-off. It lets a central bank adjust the money supply to steady the economy — but it also means the money is meant to lose a little value every year. The U.S. Federal Reserve, for instance, openly aims for about 2% inflation over the long run, which it judges most consistent with stable prices and employment. A small, steady decline by design — which is exactly the property the "sound money" argument objects to. You do not have to take a side to see the tension.
Pull the thread back to one idea: money rests on trust in whoever issues it and keeps the records. For most of history there was no alternative — someone had to be in charge of the ledger.
The next question is the interesting one: could you keep money's useful properties — above all, a record of who owns what that everyone can trust — without putting one bank, company, or government in charge of it? The answer people have built is called a blockchain, and it is where we go next.