What money is, and why Bitcoin exists

Mama Wanjiru sells vegetables at the market. Over the years she has kept her savings in a clay tin under the bed, then in M-Pesa, then in a SACCO. Each time she trusted someone: the tin to stay hidden, Safaricom to keep its records, the SACCO to stay honest. That trust is the story of money.

The three jobs of money

Anything that works as money does three jobs:

1. Medium of exchange. You can swap it for goods and services. The seller of tomatoes accepts it.
2. Store of value. You can keep it and still buy something with it later.
3. Unit of account. Prices are measured in it: "a bunch of sukuma is 20 shillings".

Cattle, salt and shells have all been money. They worked until they were too hard to carry, divide or keep.

Who controls the shilling

The Central Bank of Kenya issues the shilling and decides how much of it exists. Banks and M-Pesa keep the records of who owns what. This works well most days, but it means a few institutions can freeze an account, reverse a payment or create more money. Over time prices rise, so 1,000 shillings buys less than it did ten years ago. That is inflation.

What Bitcoin changes

Bitcoin is money that no single company or government issues. Its rules are written in open software that anyone can read:

• Only about 21 million bitcoin will ever exist.
• New bitcoin is released on a fixed schedule that nobody can speed up.
• Thousands of computers around the world, called nodes, each keep a full copy of the record, the blockchain, and check every payment against the rules.

In 2008 someone using the name Satoshi Nakamoto described this in a nine-page paper. The goal was money that two people can send to each other directly, without asking a bank for permission.

What Bitcoin does not promise

Bitcoin is not a plan to get rich. Its price in shillings moves up and down a lot, as the next lesson explains. Jifunze teaches how it works so that you can make your own decisions; it never tells you what to buy.

Try it

Ask three people in your family or chama two questions and write down their answers:

1. Where do you keep your savings?
2. Who could stop you from using them tomorrow?

Bring the answers to the reflection below.