Course Textbook


We stand today facing an international monetary system on the precipice of overhaul, something that rarely occurs. This book was written to provide a topography of money at these uncertain crossroads. Maps help us navigate geographies and terrains, but until now they have never been associated with money. This book provides a map of our financial system throughout time, and a preview of what the map of digital money will look like in the future. It endows the reader with a new framework called layered money to describe our evolving monetary system, help us navigate the geomorphology of money, and explain how different forms of money relate to each other.

By tracing the evolution of layered money, we gain a fascinating perspective on how and why humans interact with their chosen currencies. Along with dissecting the progression of currency, this book tackles a key question: what does the future of money entail? Many will say “it's digital," but to most of us, money already seems digital. We use smart- phone applications to manage checking accounts and make contactless payments and are increasingly surrendering to a cashless existence. But now that Bitcoin has captivated the world's monetary imagination, digital money has taken on a whole new meaning.

Part of the reason for this ambiguity is that monetary science, or the study of money, lacks the proper vernacular and theoretical framework to incorporate Bitcoin; it desperately needs a fresh update to include this novel form of money. Updates to monetary science are extremely rare, and in order to explain the enormous one about to occur, we have to look at its past to properly contextualize Bitcoin's impact on the future of money. And the update is well worth it; Bitcoin and its many iterations provide the fresh start in transparency and choice the world needs as we face the next iteration of money.

This book is an attempt to understand and explain how this integration of Bitcoin will occur, and how it will change the fate of our monetary system. In order to do that, we need a more accessible way to understand monetary science itself, which historically has been shrouded in doctorate level economic theory - very few truly understand where money comes from, or what a monetary system even is. The goal of this book is to reframe our monetary system for the uninitiated and explain it from the beginning.

Most importantly, readers will come away with an understanding that money is a layered system. Using original layered terminology, this book will explain why human beings began using monetary systems instead of coins, how these systems evolved, and how complicated and multilayered they have become today. Readers should be able to use this book to understand on which layer of money their assets are located and navigate between the layers of money. In a future world of currency choice, being able to navigate the monetary map will be empowering.

Layered Money Demonstrated

Before beginning the saga of layered money, it's best to provide the reader with a brief example and illustration of the framework. The most basic example of this new terminology can be demonstrated by examining the relationship between a gold coin and a gold certificate from 1928 in the United States of America. In this example, the gold certificate has the following phrase written on it:

This certifies that there have been deposited in the Treasury of the United States of America ten dollars in gold coin payable to the bearer on demand

Let's interpret this statement by using the layered terminology. First-layer money, a gold coin, is held in a vault. Second-layer money, a gold certificate, is printed and circulated in place of the gold coin. The paper has value to who- ever is holding the piece of paper itself, called the bearer. Both the coin and the certificate are forms of money, but they are qualitatively different from each other. This relation- ship between two layers of money (Figure 2) is another way to describe a balance sheet of assets and liabilities (Figure 1).

Figure 1

Figure 2

If we diligently apply this new framework to monetary science and trace it back to its beginnings, the yarn that unravels is a comprehensive history of money. As core players in the international monetary system begin to announce their forthcoming digital currencies, we urgently require a lucid way to analyze the coming changes, but we can't easily do so within the current mainstream financial terminology. This book frames money as a layered system because it's a clearer way to conceptualize the changes coming to our financial system, a system that temporarily erupts in chaos every few years only to be calmed by increasing amounts of government and central bank intervention.

There is a path to a more stable future; this book prescribes one that relies heavily on technological innovations that have merged monetary science with another previously unrelated science: cryptography. With its pervasive spread throughout minds and markets across the world since 2009, the science of cryptography is forcing the financial world to abandon old systems for new ones, much like the Internet has done to countless industries since the turn of this millennium. These new systems need to be carefully imagined, and we'll use this new layered framework to explain how it all might unfold. What is the role of non-government currencies in our future? Will Bitcoin coexist with government currencies or replace them? The answers mandate a study of layered money. It begins with a gold coin created in 1252.

Source: Nik Bhatia: Layered Money
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