The Three Tests Your Money Fails

You use it every day. You have never tested it.

By Blake Warren, Founder of The Bitcoin Warren

You use money every day. You understand it the way a fish understands water. It is so constant, so ordinary, that testing it has probably never crossed your mind.

The previous guide showed that money stores your time and effort, and that the unit you store it in has been losing value for decades. That raises a harder question. What is money actually supposed to do? And was the dollar built to do it?

There are three functions of money: three tests that any form of money must pass. The money in your wallet, your bank account, and your superannuation is measured against all three. It fails all three. And the reason you have never noticed is that the one function you interact with every day, spending, works well enough to make everything look fine.

These three tests are named below, run on the money you use, and assembled into a framework you can apply to any form of money that has ever existed or ever will.

What Money Is

Money is a tool. It moves value across two dimensions: space and time.

Across space means moving value from one place to another: paying a bill, sending money to a family member, buying from a supplier interstate. Across time means setting value aside today to use next month, next decade, or forty years from now when you stop working. Anything that moves value reliably across both dimensions is functioning as money.

People have been doing this for thousands of years, long before banks or governments existed. Shells, salt, glass beads, silver, gold. Nobody designed money. It emerged. When enough people recognised that a particular good was durable, scarce, easy to divide, and hard to counterfeit, they started using it to trade. The properties of the thing determined whether people trusted it.

Human trust has limits. The anthropologist Robin Dunbar estimated that a person can maintain about 150 stable relationships. Beyond that, you need something that lets strangers trade without needing to know each other personally. Money is that something.

Every form money has ever taken, from gold coins to the number on your banking app, has three functions it must perform. Think of them as tests. If money stops passing any one of these tests reliably, people look for something that does.

The Test It Appears to Pass

The first function is the medium of exchange.

Every purchase you make, every bill you pay, every time you tap your phone at a register, you are using money’s most visible function.

A medium of exchange is anything accepted as payment for goods and services. It is the function that lets you buy a coffee without offering the barista something they happen to want in return. Without it, trade collapses into barter: you have what I need, I have what you need, and we both have to be in the same place at the same time wanting the same thing. Money solved that problem.

When someone says money is for buying things, this is the function they mean. And it works. Payments clear. Salaries arrive. Groceries get scanned and bagged. That daily experience, everything working, every day, is the reason most people assume money is fine. Spending works.

The medium of exchange works under normal conditions. But it is not unconditional, and it is not the test that determines whether the time and effort you store in money will hold its value over the next thirty years. The two tests that determine that are the ones you were never taught to check. Even the spending function has conditions attached that most people have never examined.

The Two Tests It Clearly Fails

The Measuring Stick – Unit of Account

A metre is defined by the speed of light. A kilogram is defined by a physical constant called the Planck constant. A second is defined by the oscillations of a caesium atom. These definitions do not change. They cannot be voted on, adjusted by a committee, or expanded to suit a policy objective. They are fixed reference points, anchored to the laws of physics.

In any physical system, a shifting measurement standard is treated as a serious problem. You cannot build accurately if the ruler changes length while the job is underway.

The dollar has no equivalent fixed definition.

A unit of account is the unit in which value is expressed and compared. Every price tag, salary, contract, and mortgage is denominated in a unit of account. It is the measuring stick for your entire financial life.

When the measuring stick is stable, everything works. Prices mean something. A salary negotiation makes sense. You can plan ten years ahead and the numbers still hold. When that standard shifts, none of that works. Every number denominated in it becomes unreliable. Your salary looks bigger than it did five years ago, but you cannot tell whether you are actually earning more or whether the ruler shrank.

Every measurement standard humanity depends on is anchored to something outside human control. The one we use to measure the value of our time, our savings, and our work is not.

The Function Your Savings Depend On – Store of Value

A store of value is the function that determines whether your savings hold purchasing power over time. Purchasing power means what your money can actually buy: not the number on the screen, but the goods and services that number can get you. If money stores your time, as the previous guide showed, this is the test that tells you whether the stored time is still there when you go to use it.

You can still buy a coffee. The transaction completes. But the dollars you set aside ten years ago now buy less than they did when you earned them. The spending worked. What was stored didn’t.

This is the trap most responsible households fall into. They do the visible thing right. They save. They avoid waste. They watch the number grow. But the hidden test is not whether the number increased. It is whether that number still controls the same amount of future food, housing, and the time those things cost.

When the store of value fails, the other functions follow. The order it happens in is: the store of value degrades first, because the money supply expands and each unit buys less. The unit of account breaks second, because prices move so fast that the measuring stick becomes useless. The medium of exchange collapses last, because by that stage people abandon the currency entirely. The store of value is the load-bearing function. When it gives way, it takes the other two with it.

How Money Has Always Evolved

Throughout history, when money emerged naturally, it followed a specific sequence. People stored it first because it held its value. Then they traded it because others recognised and accepted it. Then they started using it to set prices because it had become the common standard. Store of value first. Medium of exchange second. Unit of account last.

That sequence was not planned. It was discovered, over centuries, through trial and error. This sequence was not universal. Different goods emerged as money in different places and times. But across the historical record, the pattern repeats: things people trusted to hold value became things people used to trade, and eventually became the standard by which value was measured.

When a monetary system begins with a legal requirement to accept it rather than an emergent choice to use it, it skips the trust-building phase that commodity money had to earn. The acceptance is imposed. The trust is assumed.

When Money Fails All Three

The tests above are not theoretical. Every one of them has failed, and not in history books. The evidence is recent enough that people who lived through it are still alive.

When the Measuring Stick Shatters

In Weimar Republic Germany in the early 1920s, prices doubled every few days. Workers were paid twice daily. They collected their wages in wheelbarrows and ran to the shops before the notes became worthless. Menus were written in pencil and updated by the hour. By the end, the banknotes were worth so little that people burned them for heat. They papered their walls with them. The banknotes were more useful as a physical material than as a unit of value.

When Zimbabwe printed a one hundred trillion dollar banknote in 2009, the store of value function was not performing at its best. To manage the numbers, the government repeatedly sliced zeros off the currency and reissued it, a process called redenomination. The measuring stick did not bend. It shattered.

These are the extreme versions. But fiat currencies have a long history of failure, not because of bad luck, but because the structural incentive to expand the supply rarely disappears. The mechanism that destroyed the mark and the Zimbabwe dollar operates at a lower speed in every fiat system. When the measuring stick shrinks slowly enough, the numbers on the price tag go up and nobody questions the ruler itself.

When Savings Erode

You have already seen this failure in the previous three guides: the cost of living, the mechanism behind inflation, the erosion of your stored time. The store of value function is the structural name for all of it.

The store of value is degrading. Slowly, structurally, and by design.

Australia has not experienced hyperinflation. The erosion here is slower, closer to a slow leak than a burst pipe. But over a working life, slow leaks add up. The direction of travel has not changed. The speed is the difference.

When Money Cannot Be Used or Trusted

This is the test most people assumed their money passed. Spending works, after all. The qualification is in the conditions.

Medium of exchange failure takes two forms.

The first is access failure. The money exists. The owner cannot always reach it. A bank run locks the doors. An account is frozen by court order, regulatory action, or the bank’s own policy. In Australia, banks have historically restricted legal transactions when the counterparty fell outside their approved categories. Who controls the door matters as much as what is behind it.

The second is trust failure. The money still circulates. It is still legally required to be accepted. But people reject it in practice. In the end stages of hyperinflation, currency becomes a hot potato. People convert it into anything that holds value better the moment it arrives: foreign currency, goods, building materials. Legal tender status persists. Practical trust does not. The paper is still money by law. By function, it is kindling.

Three tests. Three failures. Not in obscure historical episodes that have nothing to do with your life. In the money you carry, the money you save, and the money you cannot always access on your own terms.

What You Actually Hold

The word ‘money’ covers thousands of years and dozens of forms. Not all of them pass the three tests equally well. Understanding which era your money belongs to, and what it is actually made of, changes what you see when you check your balance.

Commodity Money – Gold

For roughly five thousand years, gold was the dominant form of money. Not because a government said so. Because it passed the tests on its own merits. It was scarce. You could not legislate more of it into existence. It had to be mined from the ground, at real cost, with real energy. It was durable: it did not rot, rust, or decay. It was divisible and fungible: one gram of gold was identical to any other gram of gold.

Gold mastered time. An ounce of gold two thousand years ago bought roughly the same quality of goods as an ounce today. As a store of value across centuries, nothing has come close. Where gold struggled was space. It is heavy. Moving it across borders is slow, expensive, and risky. The modern economy needed something faster.

Fiat Money – The Dollar

Fiat money is currency that has no physical backing. Its acceptance is required by law. Its supply is set by decision, not by any physical constraint. The Australian dollar is fiat money. Every modern national currency is.

Fiat mastered space. Digital transfers move dollars across the country in seconds and across the world in minutes. Payroll, mortgage payments, international trade. None of that works with gold bars. That is not trivial.

Where fiat fails is time. Its supply can be infinitely expanded by decision. No mine required. No energy cost. No physical constraint. When the supply expands, each existing unit buys less. The store of value test fails structurally, by design, as a feature of how the system operates.

When you deposit money with a bank, you are not storing cash in a box with your name on it. You are holding a claim on the bank. Under Australian banking law, a deposit is classified as a liability of the bank, not property held on your behalf. The number on your banking app, is the bank’s promise to repay you, not specific money sitting there untouched for your benefit.

Australia’s deposit guarantee exists because a bank balance depends on the bank’s ability to pay you back. If your money were already sitting there separately in your name, that guarantee would not be necessary.

Australian banks are regulated and the deposit guarantee is backed by the federal government. The point is structural: a bank balance is not the same as holding money directly. Understanding that does not require changing anything. It requires seeing the number on your banking app for what it actually is: a claim on the bank, not cash set aside in your name. An IOU is not the same thing as the thing it promises.

The Constraint That Shifted

Gold’s supply was constrained by the ground it came from. You could not wish it into existence or legislate it into a vault. The constraint was tied to physical reality: energy, geology, chemistry.

Fiat money removed that constraint. The supply of modern money depends entirely on the decisions of the institutions that manage it. The constraint moved from physical reality to institutional authority. That shift is the reason the store of value test fails, the measuring stick changes size, and the medium of exchange comes with conditions attached. It all traces back to the same structural change.

What the Three Tests Actually Show

The dollar is optimised for the function that lets you spend today. The function that determines whether what you save today is worth anything in thirty years is the one the system has the least structural reason to protect.

To be fair, the spending function works. Payments clear. Salaries land. Goods move across the country on a schedule. That infrastructure is real and dismissing it would be dishonest.

But the test that matters for your future is not whether you can buy a coffee this morning. It is whether the hours you worked last year, stored in dollars, will still be worth the same hours when you need them. The spending works. The saving and the measuring don’t. Both failures are quiet enough that the daily experience of tap-and-go makes everything look fine. Most people only notice when the conditions change.

Every one of those failures traces back to the same structural fact: the supply of fiat money is controlled by human decisions, which means its value depends entirely on trusting that those decisions will protect you. Every other standard humanity uses to measure anything is anchored outside human control. The dollar is the exception. Your retirement projections, your salary negotiations, what your superannuation will buy in thirty years. All of them use a unit that can be redefined without your consent. That is the standard with no standard. The system can change the unit of account, expand the supply, and keep the spending function running well enough that most people never think to question any of it.

The Water You Are Swimming In

A fish does not notice the water it swims in. It just swims. The water is not a fact to be examined. It is the condition of existence.

The money system you have been swimming in your whole life fails two of the three tests outright, and passes the third only conditionally. The measuring stick changes size. The saving function leaks. The spending function depends on who controls the door.

Not clean. Not poisoned. Murky, in ways that only become visible once you know what to look for.

The question that follows naturally is what clean water would look like. What would money look like if the measuring stick held still? If saving actually preserved what you stored? If the spending function had no gatekeeper? And if the answer to all three required no trust in any human decision at all?

Three Tests You Can Now Apply to Any Money

You came here knowing one thing money does: buy things. You leave with three tests you can apply to any form of money that has ever existed.

Does it work as a medium of exchange? Can you use it freely, without needing permission from an institution, when you need it?

Does it work as a unit of account? Is the measuring stick fixed, or can someone else change its size without telling you?

Does it work as a store of value? Will the time you stored in it still be there when you go to use it?

Gold passed the time test for millennia but struggled with space. Fiat money solved space but surrendered time. No form of money in history has passed all three without a cost to the people holding it.

Bitcoin was designed around the missing properties: fixed supply, direct verification, and the ability to move value without relying on a central issuer. Whether it can pass all three tests in practice is what the Bitcoin Basics series is built to examine.

You now have three tests to apply to any form of money. The next guide puts every form money has taken through that test and asks why each one eventually gave way to the next.

KEY TAKEAWAYS

Three tests. Three failures.

Spending works. The saving and the measuring don’t.

Your bank deposit is the bank’s promise. Not your property.

Nothing constrains how much fiat money can be created.

Fiat money requires you to trust the people controlling the supply.

Common Questions

Where to Next