What is Money? Of course, you think you know what money is, but do you really? The dictionary defines it as any circulating medium of exchange. Many years ago, “money” was what the Indian’s called “wampum”. Then there were the frontier men using furs as a means of exchange. Now we think we are more civilized using paper and coins, but different countries have different-looking paper and coins. But they are still what we now consider money.
Crypto-currency
But now there is a new “medium of exchange”. Something called bitcoin or cyber-currency. People are having a hard time grasping this “medium of exchange” because it is not physical. They are shown here as physical, but those coins have never been minted. There is no piece of paper or bit of metal. It is all virtual. Virtual does not have a physical form. It is a bit like stocks and bonds that are sold by Stock Brokers, but stocks and bonds can have paper forms. Cyber-currency, sometimes called Crypto-currency has no form. It never has and never will.
However, this crypto-currency has a value. But the value fluctuates, which also makes it difficult to comprehend. When we think of a US dollar, we believe it always has a fixed value. One dollar is always one dollar, but what fluctuates is the economy. What one dollar can buy changes. For example, maybe last week a loaf of bread cost $1.00, but today it costs $1.50. In this case, the dollar has actually changed value, because its buying power decreased.
With crypto-currency, the value also fluctuates. Usually, when the crypto-currency was created, it was stated that one gold crypto coin was equal to one ounce of gold. At that time, one ounce of gold was valued at $42/ounce So we could think of our one gold crypto coin (which is virtual, not physical) as being an ounce of gold. So, if someone paid you $100 American Dollars, but they paid you in gold crypto coin, they deposited 2.38+ crypto coins to your account. If tomorrow, the price of gold increased to say $50/ounce. The value of your account would be $115 US Dollars.
Because of this fluctuation in value, per the IRS, it is required for people to record the value of the currency at the time of earning and at the time of spending.
So What is Money?
Yes, a means of exchange. We can now buy things and pay for them with crypto-currency. But keeping accurate records of this exchange might become very tedious. Therefore, there are now companies who act similar to banks, to record the value of the crypto-currency by date. Therefore, we can accurately record of gains (and losses) by date for tax purposes and refer to these records for the actual value of the transaction.
