What Does (Ultra) Sound Money Mean in Crypto?
Have you ever heard the terms sound money or ultrasound money in relation to crypto? Learn about what the terms mean, how they emerged, and how they relate to crypto.
In this article, we will cover the meaning and history of common crypto-associated phrases - Sound money and Ultrasound money. These terms are commonly used when describing a particularly strong financial concept in the crypto world.
Key Takeaways:
- The term “Sound money” dates back to Ancient Rome, where it was used to describe the distinct tinkling of valuable silver coins.
- Today this term is used in a derived sense to describe money that has intrinsic value, is scarce, and can be stored for longer periods without depreciating.
- “Ultrasound money” is a meme introduced by the Ethereum community to describe the tokenomic model, which increases scarcity over time and rises in value.
Definition and Meaning in Crypto
What is Money?
Money in a general sense is an item or a verifiable record that can be used simultaneously to perform the three following functions:
- Medium of exchange - widely accepted in exchange for goods and services
- Unit of account - used to measure the market value of goods and services
- Store of value - can be stored for longer periods of time without losing its value
The problem with current fiat money is that it is not too good in performing those three elementary functions. That is why the term sound money was introduced.
Sound Money
In its essence, sound money refers to a form of currency that retains its purchasing power over time, is resistant to sudden depreciation, and has intrinsic value.
The purest form of sound money is often considered to be gold, due to its scarcity and long-lasting appeal. However, in our digital age, cryptocurrencies like Bitcoin are often presented as modern iterations of sound money, offering both scarcity and decentralized control.
Especially Bitcoin is often spoken of as “Sound Money” because it presented the first approach to a liquid asset that would retain its value and can be used as a medium of exchange.
UltraSound Money
“Ultrasound money” is a meme that was introduced by the Ethereum community to describe the deflationary tokenomics of ETH, in which the burn rate exceeds the emission rate. This kind of model if sustained could increase the scarcity of ETH over time and therefore lead to an appreciation in value.
In short, if the burn rate stays above the emission rate, the overall supply of ETH is reduced, making ETH more scarce and valuable (higher price).
The Origin Behind Sound Money
The term "Sound money" supposedly dates all the way back to Ancient Rome. Back then, small silver coins were used for daily commerce, from paying soldiers to buying things from different parts of the world. The term "sound money" was used because when you dropped these coins, they made a distinctive sound, showcasing their value and authenticity.
But when Rome started to run out of money, they tried to dilute their silver coins with cheaper metals, reducing the amount of silver in them. This didn't work for long, as people quickly realized these new coins were not as valuable - did not make the distinctive sound.
Today, most people don't use physical money like gold or silver coins. Instead, we use digital money and credit cards. But the story of Rome reminds us of the importance of having money that holds its value - what we call "sound money".
FAQs
Is Cryptocurrency sound money?
Cryptocurrency can be considered as sound money due to its scarcity and decentralization. Unlike fiat currencies, which can be printed in unlimited quantities by central banks, cryptocurrencies like Bitcoin have a fixed supply. However, their value can be highly volatile, which somewhat challenges the stability aspect of sound money.
Why is Ethereum ultra-sound money?
Ethereum is sometimes called ultra-sound money to mock Bitcoiners. It refers to the fact a part of the gas fee of every transaction on Ethereum is burned and therefore removed from the supply completely. If the burn rate exceeds the emission rate, Ethereum becomes a deflationary asset, making it even better than sound money, hence “ultra” sound money.
What are the aspects of sound money?
Sound money has several key aspects: it should be a medium of exchange, a unit of account, and a store of value. It should also be durable, divisible, transportable, recognizable, and scarce.
What is an example of sound money?
A classic example of sound money is gold. It's durable, divisible, transportable, recognizable, and most importantly, it's scarce. In the digital world, Bitcoin is often referred to as digital gold due to its similar properties and limited supply, making it an example of sound money.
