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what is private money

Private Money in Crypto – The Primer

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In the world of cryptocurrency, there are many types of coins and tokens. Some utility tokens give holders access to a product or service. Others are security tokens that represent an investment in a company or project. And then there are private currencies.

What is private money?

If you ever spend any time in jail (god forbid, of course), you will recognize the analogy: privately-run jails in the US will not allow fiat cash on the floor. To use the canteen, you have to exchange your dollars for “prison tokens,” which nowadays, believe it or not, can be issued in the form of tokens. Those tokens are private currency. Get it?

Another example we’ve known about for a while is casinos whose chips can be looked at as private money. Same drill: by law, patrons can’t use fiat, and the casino takes full advantage of the institution of private money.

What is company scrip?

Company scrip is yet another, although an antiquated form of private currency that was issued by businesses in exchange for goods and services. It was usually used as an alternative to using money or coins, allowing businesses to pay workers without using government-issued currency. This currency also had other uses, such as allowing customers to purchase products on credit or pay their bills. Company scrip was widely used throughout the 19th century and even into the early 20th century, particularly in rural areas or small towns where access to national currency was limited. However, as banks and other financial institutions became more widely available, company scrip gradually fell out of use. Today it is a curiosity for historians and collectors.

Company scrip was often issued as paper notes or tokens that were redeemable in goods from the issuing business and could be exchanged for money. The value of a particular scrip note depended on its demand, and each company set its own exchange rate between its scrip and national currency. In some cases, companies would require workers to purchase goods or services from the business to receive payment.

Although company scrip was generally accepted as a valid form of currency, it suffered from several limitations. For example, its value was usually tied directly to the issuing company and could only be redeemed through that particular business. In addition, workers and customers had to trust the issuing business not to devalue its scrip, meaning they risked losing money if the company went bankrupt or issued too much scrip. Despite these risks, company scrip was often a more economical choice than using the national currency in many situations.

The bottom line is private currencies are a particular type of cryptocurrency that is not issued or controlled by any government or central bank. Private entities, such as businesses or individuals, create and manage private currencies. The most well-known digital private currency is Bitcoin, which was created in 2009 by an anonymous individual or group of individuals known as Satoshi Nakamoto.

What Gives Private Currencies Value?

So, what gives private currencies value? Unlike fiat currencies, which are backed by a government’s full faith and credit, private currencies are not backed by anything. Their value is derived entirely from their popularity and adoption. The more people use and accept the private currency, the more valuable it becomes. 

This model has worked well for Bitcoin so far. As more businesses start accepting Bitcoin as payment, its value has increased. However, there are some risks associated with this model. If the popularity of a private currency decreases, its value will also decrease. This is why investing in private currencies with solid fundamentals and a large community of users and supporters is crucial. 

Another risk associated with private currencies is volatility. Because their value is not backed by anything, private currencies can be subject to wild swings in price. For example, the price of Bitcoin has been known to fluctuate by hundreds of dollars in a single day. While this volatility can be exciting for investors, it can also be risky. Investing only what you can afford to lose in any given private currency is essential. 

What is Local currency?

You may have heard about Ithaca HOURs, BerkShares, or other local currencies. The local currency is an alternative form of money that is designed to be used within a specific geographic area, such as a city or county. This type of money has been around for centuries and has seen a resurgence in recent years with the economic downturn and increasing awareness of environmental issues.

Local currency works differently than traditional currency. It is usually issued by a local organization and does not have the same value as national currencies, such as the U.S. dollar or Euro. Instead, it is valued within a specific community, often in terms of goods or services. For example, some local currencies are accepted at certain stores or businesses that are part of the local economy. Other local currencies are valued in terms of time-based exchange, where one hour of work equals one HOUR or another unit of the local currency.

Local currencies can encourage more sustainable economic development by promoting locally-owned businesses and keeping money within a community. They also create stronger social ties between members of the same area and can encourage people to use local resources more efficiently. In addition, using a local currency often helps reduce inflation in the community and encourages investment of local money instead of relying on outside sources. 

Conclusion

Private currencies and local currencies are two types of alternative money that can be used to achieve various economic, social, and environmental goals. Private entities, such as businesses or individuals, create and manage private currencies. Local currencies are designed only to be used within a specific geographic area. Both types of currency have pros and cons, and it is crucial to weigh the risks and rewards before investing in either type of currency. By understanding the differences between these two types of money, you can make informed decisions about how best to use them.

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