Cryptocurrency: The evolution of Money

The evolution of money from fiat currency to cryptocurrency is an interesting phenomenon. This article captures fully the stages involved in the evolution of money from barter to the emergence of cryptocurrency powered by blockchain technology.

Introduction

The evolution of money began since man’s existence, there are various stage in the evolution of money, from barter to fiat and cryptocurrency. In recent years, cryptocurrency and blockchain technology has been making waves all over the media and deservedly so. You can regularly find them mentioned on the news more often. Many headlines declared an end to traditional currency (fiat), while many startups claim to have eliminated the need for conventional banks. This current development in an interesting phase in the evolution of money from  barter to digital currency. 

In the heat of these happenings, there have been several adoptions in multiple industries. Cryptocurrency and blockchain have become a match made in heaven, and the full impact of their partnership remains to be known. 

The underlying technology behind cryptocurrency (blockchain technology) has also experienced increased adoption across different industries. If you are wondering what cryptocurrency and blockchain are, this page will take you by your hand and guide you through.

You hear about Bitcoin and altcoins like Ethereum, Litecoin, etc. but have you stopped to think about how they came about and what you can achieve with them?

Today you find almost everyone talking about crypto and blockchain, and a few people claim to be using it. In reality, only a handful of people understand the concept of cryptocurrency and blockchain technology. The essence of this website and articles on this website, is to make you have a clear understanding of cryptocurrency and blockchain.

Therefore, saddle up and sit tight as we go on through the journey to explore the world of cryptocurrency and blockchain.

The History of Money

The history of money has been about the development of social and economic systems. These systems provide at least one of the functions of money and can be understood as a means of trading wealth indirectly. 

Money is a mechanism that facilitates the process of trading wealth indirectly. Money can be in physical form like coins, notes, or it may exist as a written or electronic account.

It can have an intrinsic value (commodity money); it can be legally exchangeable for something with intrinsic value (representative money). 

Money can also have a nominal value (fiat money). Money came into existence before the beginning of written history. In essence, any story on how money first came about is mostly based on conjecture and logical inference. 

There is significant evidence that many things were bartered in ancient markets that we can describe as a medium of exchange.

You have things like grain and livestock which are useful in themselves, and merely attractive items like cowrie shells or beads which were exchanged for more useful items.

The first official monetary currency is believed to have appeared in 600 BC in Lydia (present-day Turkey). 

Non-Monetary Exchange 

Barter

Historically, there is no evidence of a society in which barter is the main mode of exchange.

Non-monetary societies operated along with the principles of the gift economy and debt.

Barter mostly occurred between total strangers or potential enemies. 

Barter enabled an individual in possession of surplus-value like a measure of grain or a quantity of livestock to exchange it for something perceived to have similar or greater value or utility. The limitation of the barter means of exchange is that it solely depended on the coincidence of wants. A farmer must have to find someone who wants his grain and have something in return that the farmer wants. 

Gift economy

The gift economy is a system where valuable goods and services are regularly given without any clear agreement for future or immediate rewards.

In history, there have been various social theories that concern gift economies. 

Some consider the gift economy a form of reciprocal altruism, where people create relationships from this type of exchange. An alternative explanation is that it implies, “I owe you” debt and social status are also awarded in return for the “gifts.” 

A good example is the sharing of food in a gathering of hunters where food sharing served as a safety net against the failure of an individual’s daily foraging.

The custom may have been a reflection of altruism or a special form of information insurance, or it served to bring social status or other benefits. 

The Emergence of Money

Anthropologists have noted many cases of medieval societies using what looks like money but for non-commercial purposes.

During this period, commercial use may have been outlawed. Such currencies are often never used to buy and sell anything.

Instead, they are used to create, maintain, and also reorganize relations between people.

It can be used to arrange marriage, establish paternity of children, console mourners, atone for crimes, negotiate treaties, and almost everything aside from buying items. 

It means that the basic idea of money has long preceded its application in commercial transactions.

The domestication of cattle and the start of crop cultivation in 9000-6000 BC lead to these items being used as money.

Meanwhile, a characteristic of agricultural production is that things take time to reach fruition.

Farmers may have to purchase things that they cannot be able to pay for immediately.

At this point, the idea of debt and credit was introduced, and there was the need to record and track it. 

The creation of the first cities in Mesopotamia in 3000 BC provided the infrastructure for the next simplest form of money known as representative money.

During this period, farmers would deposit their grain in temples that recorded the deposits on clay tablets and gave the farmers receipts in the form of clay token. These clay token can be used to pay fees or other debts to the temple. 

According to the renowned philosopher Aristotle, “money became a means of exchange when the inhabitants of one country became more dependent on those of another, and they imported the things that they needed while exporting the things that they had too much of.”

Trading with foreigners required that a form of money not tied to local temples. People needed money that carried its value with it.

The solution was a third proxy commodity that would mediate exchanges. As trade links expanded, the number of parties involved increased, and acceptable proxies also decreased.

In the end, one or two commodities were converged on each trading zone, and the most common was gold and silver.

Early Mesopotamia used copper as a means of trade until it was superseded by silver.

The temple that controlled most foreign trade fixed exchange rates between barley and silver and other important commodities that enable payment using any of them.

On the other hand, it also enabled the extensive use of accounting to manage the entire economy. This ushered in the development of writing, and thus the beginning of history. 

Commodity Money, Credit and Dept

Many cultures around the world developed the use of commodity money, such as objects that have value in themselves and value in their use as money.

Cowry shells were used in ancient China, Africa, and India.

The Mesopotamian civilization developed a large-scale economy that was built on commodity money. The shekel served as the unit of weight and currency, first recorded in 3000 BC.

It was the Babylonians who developed the earliest system of economics as we see them today.

They were the first to bring about rules of debt, legal contracts, and law codes that pertain to business practices and private property.

At this time, money wasn’t just an emergence; it has gone on to become a necessity.

The Code of Hammurabi, known as the first-preserved ancient law code, was developed in 1760 BC in ancient Babylon.

The earlier collection of laws include the code of Ur-Nammu, a king of Ur in 2050 BC, the Code of Eshnunna in 1930 BC, and the code of Lipit-Ishtar of Isin in 1870 BC.

All these laws combined to formalize the role of money in civil society.

These laws set the amount of interest on the debt, fines for wrong doing, and compensation in money for different infractions of formalized laws.

Wherever metals were available, they were favored to serve as proto-money over other items like cattle, cowry shells, or in some cases, salt.

The reason is that metals are durable, portable, and easy to divide.

The use of gold as proto-money can be traced back to the fourth millennium BC when ancient Egyptian used gold bars of a defined weight as a means of exchange. 

Standardized Coinage 

During the Zhou dynasty in 1000 BC, money in small spades and knives was in use in China.

Meanwhile, cast bronze replicas of cowry shells were in use before then.

There is evidence that the first manufactured actual coins appeared separately in India, China, and the cities around the Aegean Sean in the 7th century BC.

Meanwhile, all modern coins descended from the coins that first appeared in the kingdom of Lydia in Asia Minor around the 7th century BC.

It spread through Greece in the next centuries. Pheidon was the first ruler in the Mediterranean to officially set standards of weight and money.

Minting of money took place in the late 7th century BC among the Greek cities of Asia Minor.

It spread to the Greek islands of the Aegean and then to Italy in 500 BC. 

Banknotes

The first paper money was first introduced in the Song dynasty in China in the 11th century.

However, the development of the banknotes began in the 7th century with local issues of paper currency.

It started when merchants and wholesalers desired a less bulky form of money than the copper coinage during large commercial transactions.

During the early 12th century, the total amount of money in banknotes issued in a single year equaled an annual rate of 26 million strings of cash coins.

In the 13th century, paper money was introduced in Europe through travelers like Marco Polo and Wiliam of Rubruck.

In medieval Itay and Flanders, money traders started using promissory notes because of insecurity and the difficulty of transporting large sums of money over a long distance.

In the beginning, these promissory notes were personally registered, but it soon became a written order to pay the exact amount to anyone that had it in their possession.

These promissory notes became the predecessor to the regular banknotes.

The first European banknotes were issued by Stockholms Banco, which later became Sweden’s central bank in 1661.

In 1664, the bank ran short of coins to redeem notes, and they suspended operations in the same year.

In the USA, the issuance of banknotes continued although the 19th century. There were more than 5,000 different banknotes issued by various commercial banks in the United States.

The Bank of Hindostan issued the earliest paper money in India from 1770 – 1832.

However, only the notes that came from the largest and most creditworthy banks were widely accepted. 

In the second half of the 20th century, the advent of computer technology paved the way for money to be represented digitally.

In the early 21st century, most money existed as digital currency in bank databases.

In 2012, more than 20% of transactions were electronic, depending on the country.

Digital currency allows for faster, easier, and more flexible means of payment.

This brings us to our major concern and the essence of this article (cryptocurrencies).

We will be exploring cryptocurrencies in the coming articles.