When I was born in 1957, the US dollar came in two forms, a note and a silver coin. As a kid, I much preferred the coin and could not understand why it had the same value as the note! After all, the note could catch fire and disappear while the coin was made from silver. Were it not illegal, the coin could be melted down and I would still have a lump of something valuable. I asked my father, and he said the value of notes was the government’s promise that they were “backed” by precious metals, silver and gold. The coin was backed by its own silver content, whereas the note was backed by silver and gold held at Fort Knox. In fact, notes were redeemable into gold until 1933 and into silver until 1968.
The back of dollar bill used to say:
This note is legal tender for all debts, public and private, and is redeemable in lawful money at the United States Treasury or at any Federal Reserve Bank.
If you look at a dollar bill now, it simply says:
This note is legal tender for all debts, public and private.
The world got more complicated in 1971 when we moved away from the gold standard. Notes became merely a promise by the US government. Backed solely by its GDP, the government said that notes could be used for purchasing goods and services. Notes held value so long as everyone believed the promise was still good.
We have now fully entered the computer age of money. Can not recall the last time I used a note or coin, but it has been several years. My money is now just ethereal bits of data on a bank’s computer. For an old timer, this might seem scary when compared to keeping piles of notes in a safe. But I think it was a great advancement, enabling much easier transactions. Ditto for crypto and blockchain. I like the idea of storing value outside the world of major fiat currencies, and I hope to see it used more widely in the future for secure transactions.