[Music] So, I grew up in Buffalo. I lived there 31 years. And then when CO hit, my fiance and I looked at each other and we said, "All right, it looks like this is going to be a real thing. Where do we want to live for this?" And fortunately, she and I were both working remotely already at the time. So, we had the flexibility to live really anywhere in the world that we wanted. and she said that it was really important to her to spend time near her father and her father had just retired down in Amelia


Island. So we decided to go to Amelia Island as well. So in summer of 2020 we rented an apartment sight unseen and drove down to Amelia Island and we've been living here since that time. We've said before that a store of value or money maintains your purchasing power over time. But how does it do that? By what mechanism does something store value? And why might the free market choose one thing to be a store of value over something else? Well, there are 12 properties or features that make for a


good money or a good store of value. And in this episode, we're going to talk through each one of them. [Music] In my mid20s, I got a $100 gift card to Pier 1, a home furnishing store. And there was nothing I wanted right away. So, I decided to save it. And a lot of time passed. And eventually, I heard on the news that Pier 1 went bankrupt. And so I thought I was going to have $100 to buy some homegoods and it turned out I had zero because I waited too long. And that was yet another lesson for me not


to treat a currency like a store of value. Each of these currencies should be redeemed as soon as possible. If I wanted to store my value over the long term, several years, I have to use a real store of value like gold, silver, or bitcoin. Each of these assets is decentralized. So there's no central entity that can change the rules or corrupt them. [Music] Money needs to be portable so you can carry it around with you. Durable so that it won't rust, corrode, or otherwise decay over time. Divisible so


you can break it up and make large and small purchases and make change easily. And fungeible so that all units of the same size have the same value. But money also needs to be quantifiable so you can measure the size of each unit. Recognizable so buyers and sellers don't accidentally confuse it with something of greater or lesser value. Desirable so anyone holding it can be reasonably confident that others will want to trade for it. And liquid meaning that there's a wellestablished accessible market for


trading it. Of course, money also needs to be secure, meaning it's hard to make a counterfeit version of it. And it needs to be verifiable, meaning that anyone who's holding one of these units can easily check whether or not it's counterfeit. Money also needs to be arduous, meaning that it takes an increasing amount of energy to produce each new unit. And you might wonder why. Why does it have to be energyintensive? And that's a great question. And the answer is keep in mind that money is


fungeible. so that all units of the same size have the same value. And what would happen if units got easier and easier to produce? Well, if people could go out and produce new units of money for very little energy, they would have no reason to buy your unit of money from you at a high price. So, your money wouldn't hold a lot of value. People could just get new units of money for very low cost. That's what we see with the US dollar and any fiat currency. New units can be created for no energy cost whatsoever.


And as a result, dollars and other fiat currencies don't store value. So if you want something to be a store of value, it has to be arduous. It has to take more energy to produce each new unit over time. But there's one more property of money that is absolutely critical. Money needs to be decentralized. Meaning that there's no agency that's in charge of creating the rules, enforcing the rules, or participating on the network in any permissioned way. You could imagine if some entity were able to change the


rules and make the individual units nonfgeable or nonarguous. That would completely undermine the store of value properties. When I was in college, I got a $50 gift card to my favorite restaurant for my birthday. And I was really excited to use it, but I was busy with school work and regular work and I just didn't have time to go. So, a few months went by and I forgot about it. And it wasn't until a year went by, my next birthday, that I remembered that I had this gift card. So, a couple days after my birthday, I


went to the restaurant, I had a meal, and when it came time to pay, I handed the gift card to the waitress, and she looked at it and she said, "Sir, this gift card expired a few days ago." And unfortunately, there's nothing I can do to help you. So, for me, that was another painful lesson in how not to treat a currency like a store of value. I thought I could hold it as long as I wanted, but it turns out that value went to zero because there was a deadline. [Music] You might notice a few common properties


of money that actually don't appear on our list. For example, a medium of exchange, a unit of account, and scarce. So, these items are deliberately left off of our list. But why? Well, we've said before that a medium of exchange is actually a word for currency, not money. Of course, you can take money like gold and use it to buy a cup of coffee, but that's rare. It doesn't happen very often, and it's usually quite difficult, expensive, and slow. So, money can be a medium of exchange, but really


currencies are mediums of exchange. So, what about a unit of account? Well, a unit of account is really a proxy for ensuring that a type of money has ongoing demand. So, if something is a unit of account, that means that contracts, salaries, or other official documentation is denominated in that particular unit of money. And if something is a unit of account, you know that there will be reasonable demand for it in the future. However, that's really just a subset of what we said earlier, that money needs to be desirable. We


want to make sure that money will be demanded in the future, that it will be desirable, but it doesn't have to be a unit of account specifically. A perfect example of this is gold. Gold is desirable. People want it, but we really don't denominate our salaries and our contracts in ounces of gold. Finally, scarce. Does money need to be scarce? Well, again, we can look at gold as a perfect example. We think of gold as being scarce. But if we look at the universe as a whole, we realize the supply of gold is essentially infinite.


And new gold is created all the time very very far away from planet Earth all over the universe. And so gold is essentially infinite. However, on planet Earth, it's finite because we're limited by our ability to go out and acquire new units. So gold isn't exactly scarce, but it's arduous. And as we said before, that means it takes an increasing amount of energy to get each subsequent unit. So we don't necessarily need money to be scarce per se. We need it to be arduous. And if we look at some cryptocurrencies,


for example, we find that many of them are artificially scarce where the supply of them is capped at a hard number. However, those units can be created out of thin air with no energy whatsoever. And that's a perfect example of how something scarce is not a store of value because it's not arduous. [Music] As we look over our list of 12 properties, we have to ask ourselves which assets check all 12 boxes. And I think the answer is definitely gold, sometimes silver, and probably Bitcoin. Now, some people think Bitcoin doesn't


belong on this list because it has no intrinsic value. And I agree it doesn't. But we have to discuss what intrinsic value is and what its often neglected counterpart exttrinsic value is. When I was a kid, I really enjoyed going to Chuck-E-Cheese. I enjoyed playing all the games and I like to challenge myself to see how many tickets I could earn. Of course, I really enjoyed saving those tickets and taking them to the front counter to redeem them for prizes. And of course, it doesn't take a genius to


figure out that the better prizes cost more tickets. So, I started to save my tickets every time I went to Chuck-E-Cheese. Over the course of a few years, I saved up 585 tickets. I still remember. And finally one day I went to the front desk and I looked at the prizes available and I realized you know what I don't think I want any of these prizes. I think I had outgrown them. And so for me that was the earliest lesson in life not to treat a currency a medium of exchange like a store of value. I thought I was storing


my value over several years. Turns out I wasn't. And that value went to zero. So intrinsic value and exttrinsic value are both types of value and we said that value is perceived benefit. So intrinsic value is the perceived benefit that comes from an item's physical or chemical properties. So those are set by the laws of nature and they're not going to change. Exttrinsic value however comes from the perceived benefit of how people behave towards an item and that could be affected by the laws of man. So


for example if a government makes the US dollar legal tender, people will behave very differently towards it than they would if they change those legal tender laws. And in the case of the US dollar, the intrinsic value of an actual dollar bill is very close to zero. It's just ink on cotton, practically worthless. But because of legal tender laws and the expectation of how people will behave towards a dollar, earning it, spending it, collecting it, using it to pay taxes, there's actually a high degree of


exttrinsic value in each dollar. [Music] Intrinsic value is concrete. Exttrinsic value is abstract. Both types of value are real and valuable and useful. And our society needs both. So what kind of value is monetary value? Some people think it's intrinsic value, but it's actually not. Monetary value is exttrinsic value because it's derived from the expectations about how people will behave towards it. We acquire money for the sole purpose of trading it to someone else in the future. That's what


money is for. We don't buy money so we can eat the money. We buy money so we can trade it for food in the future. But that means we're expecting that someone else will want to take that money from us and be willing to trade us food. So in this example, food has intrinsic value. Money has exttrinsic value. One important point to consider is that if you're acquiring something for intrinsic value, like food, water, clothing, shelter, you're not really concerned with how easy or how difficult


it is for other people to get their version of that thing. However, if you are concerned with how easy or difficult it is for someone to get a hold of something, that's a clue that you care about exttrinsic value. And that's relevant when we talk about money and a store of value. As we mentioned before, if something is not arduous for everybody, then it can't be a store of value. [Music] So in each of these three instances, I realize that I can't store my value in something that's a currency. So each of


these centralized agencies can do something like have undesirable products or services. They can put deadlines on my ability to redeem my currency or they can go bankrupt. And in each of these cases, my value went to zero. So if I wanted to store my value, I would have to use something like gold, silver, or bitcoin. Part of the confusion that people have who claim that monetary value is intrinsic value, I think stems from the history of the types of monies that we've used throughout human history. For


millennia, every type of money we've used, from seashells to beads to gold and silver, it all has had intrinsic value because everything is physical. And it wasn't until the invention of paper money or currency that we realized quite obviously that monetary value is purely exttrinsic value. And with the advent of cryptocurrencies such as Bitcoin, we see that of course monetary value is purely exttrinsic. However, something that has intrinsic value like gold or silver has a certain advantage


in this sense because if anything stops being used as money, its exttrinsic value will shrink to zero. And if it doesn't have any intrinsic value to fall back on, then the value of that asset entirely will fall to zero. So if something like gold ever becomes demonetized, its price in the marketplace will drop from its exttrinsic value to its intrinsic value, but it won't go to zero. And this is what we saw with silver when silver has become demonetized throughout history. If something like Bitcoin ever becomes


demonetized, well, it has no intrinsic value. So its price in the marketplace will fall from its exttrinsic value all the way to zero. In this way, intrinsic value functions as a floor of value, but it's not a prerequisite for something to have monetary value. [Music] [Music] In this series, we're also going to look at these 12 properties of money through the lens of physics. and we're going to explore what they mean in terms of energy, friction, and entropy. And coming up, you'll see how all 12


characteristics of money are really just one single characteristic looked at through 12 different lenses. I want to thank you for watching and remind you that the best investment you can make is your own financial education. And goldsilver.com is filled with free research and ways to help you protect your future. We'll see you there.