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Money

Money Throughout History

The Bitcoin Journey

Money Throughout History

  • From shells to bank accounts
  • What is the role of money?
  • The characteristics of money
The evolution of money is a fascinating aspect of human history that reflects the ingenuity of civilizations throughout the ages in meeting constantly evolving economic needs.

From shells to bank accounts

Originally, currency was a tangible asset, such as grain, livestock, or another commodity. However, these goods had the major disadvantage of being perishable, making it difficult to use them as a long-term savings medium. For example, poor harvests or animal illness could destroy an individual's wealth overnight. Thus, as civilizations advanced and trade expanded to new regions, the need for a universal medium of exchange arised. Individuals first experimented with objects such as shells and gemstones, but they were not as durable or scarce as they believed. Eventually, gold became the standard, due to its rarity, durability, and divisibility. It was, and remains to this day, a symbol of wealth and power.

What is the role of money?

Money is a highly sophisticated communication tool:
  • It allows for communication between the present and the future, because it transforms our time and energy into an asset that can be reused in the time to come without the risk of devaluation.
  • It facilitates communication in a universal language: without knowing each other or speaking the same tongue, two strangers can exchange, trade, and agree on the value of things.
Its function in our world is difficult to artificially replicate. In fact, no individual or group can create money, as it is a natural phenomenon that must emerge from the market and voluntary consensus. In this sense, prices serve as signals and pieces of information that guide society in allocating resources.
For these reasons, gold as money is the result of 4,000 years of monetary Darwinism based on the following Aristotelian functions:
  • Store of value: money can be used to transfer purchasing power into the future, so it needs to be a durable material;
  • Medium of exchange: money can be used in exchange for goods and services instead of bartering, thus avoiding the coincidence of wants between traders;
  • Unit of account: money also allows us to compare the values of different goods to better understand their relative convenience.

The characteristics of money

Gold ideally meets the criteria of an efficient currency: its natural rarity makes it valuable, while its chemical properties ensure it does not erode over time. These features have made gold a great store of value, but not a common currency, because this form of money is not easily divisible or transportable over long distances. In a globalized and digital world, gold struggles to keep pace and requires a central entity to make it divisible and easily exchangeable (i.e. through minted coins).
On the opposite, state fiduciary currencies (fiat) are easily usable, but are constantly devalued by the entities that control them (kings, central banks, emperors, dictators).
To explain this concept better, we shall explore the characteristics of an effective currency:
  • Fungibility, meaning that it is interchangeable with another unit of the same kind without loss of value;
  • Divisibility, as it can be divided into smaller units to facilitate transactions of varying volumes;
  • Liquidity, which means it is easily convertible into goods or services.
In order to meet these criteria, currency has historically evolved by taking different steps:
  • Raw stone -> Coin
  • Banknote -> Bank card
  • Blockchain -> Lightning Network
Currencies are still evolving to this day, adapting their forms to meet different use cases. As we said, while gold is an excellent store of value, it is no longer suitable for the current globalized economy. Similarly, fiduciary currencies such as the dollar and the euro are very liquid and easily transportable because they are now mostly digital, but their value is constantly lowered by monetary inflation.
On the other hand, Bitcoin opens up new perspectives. Its properties, notably a strictly limited supply, make it an excellent store of value. Likewise, as a neutral internet currency, it constitutes a viable medium of exchange, capable of transcending borders. However, despite ongoing adoption (as illustrated by the BTCmap map), it is not yet widely accepted in commerce today.
Quiz
Quiz1/5
Why is Bitcoin considered a new form of money?