Shared Beginnings Of Bitcoin & The Medici Family

Shared Beginnings Of Bitcoin & The Medici Family

& Why The Medici Family Aren’t Who We Think They ArePhoto by Christine Roy on Unsplash

When we think of the Renaissance Medici banking family, we think of their wealth, royalty, and patronage of Michelangelo and Galileo.

Those things are all true. But there are many things I believed about the Medici family that turned out to be false:

1. I believed the Medici family rose to prominence by exerting control and operating in secrecy. But that’s not quite true.

2. I thought they rose to prominence through money-lending. They didn’t

3. I thought that the Medici family were always the aristocrats. I was wrong. Very wrong.

Reading The Ascent Of Money by Niall Ferguson, I learned about the rise of the Medici family. And I couldn’t help but notice the similarities to the rise of Bitcoin.

1. Criminal Beginnings

Photo by Rene Böhmer on Unsplash

The Medici family became a pillar of respectability. Bitcoin is on its way. Yet they were born of society’s underbelly.

The Medici Family

“Prior to the 1390s, it might legitimately be suggested, the Medici were more gangsters than bankers: a small-time clan, notable more for low violence than for high finance. Between 1343 and 1360 no fewer than five Medici were sentenced to death for capital crimes,” wrote Niall Ferguson.

Bitcoin

Early in 2011 Bitcoin reached parity with the US Dollar. It was worth $1. By the end of 2013 Bitcoin was worth $1,000. This growth was spurred by Silk Road, an online black market and the first modern darknet market, best known as a platform for selling illegal drugs. Silk Road used Bitcoin. They 2011 and was shut down in 2013.

2. Decentralised

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Decentralization increases trust and spreads risk; two valuable attributes in the financial system. We know decentralization is a feature of Bitcoin, but we think of the Medici family as a powerful family that hoarded central control. While that is what the Medici’s became, they grew as a decentralized network.

The Medici Family

“The real key to the Medici’s success, however, was not so much size as diversification. Whereas earlier Italian banks had been monolithic structures, easily brought down by one defaulting debtor, the Medici bank was, in fact, multiple related partnerships, each based on a special, regularly renegotiated contract. Branch managers would not employees but junior partners who were remunerated with a share of the profits. It was this decentralization that helped make the Medici bank so profitable,” wrote Niall Ferguson.

Bitcoin

Decentralization isn’t a selling-point of Bitcoin, it’s the most important part. The very first sentence of Satoshi Nakamoto’s Bitcoin whitepaper highlights Bitcoins decentralization, “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”

3. Built On Existing Technologies

Photo by “My Life Through A Lens” on Unsplash

Neither the Medicis or Bitcoin were built from scratch. But they did apply existing ideas better than anyone before them. While others created the individual parts, the Medici Family and Nakamoto had the vision to connect them.

The Medici Family

“The libro segreto — literally the secret book — of Giovanni di Bicci de’ Medici sheds fascinating light on the family’s rise. In part, this was simply a story of meticulous bookkeeping. By modern standards, to be sure, there were imperfections. The Medici did not systematically use the double-entry method, though it was known on Genoa as early as the 1340s.

Still, the modern researcher cannot fail to be impressed by the neatness and orderliness of the Medici accounts. The archives also contain a number of early Medici balance sheets, with reserves and deposits correctly arranged on one side (as liabilities or vostro) and loans to clients or commercial bills on the other side (as assets or nostro).

The Medici did not invent these techniques, but they applied them on a larger scale than had hitherto been seen in Florence,” wrote Niall Ferguson.

Bitcoin

Everyone believes that Bitcoin was the birth of blockchain. That’s not true. In 1991, Dr W. Scott Stornetta and Dr Stuart Harber wrote a whitepaper that introduced ‘blockchain’; a decentralized cryptic database that secured digital transactions. Satoshi Nakamoto took these ideas and built on them. In fact, he made multiple references to their time-stamped protocols in the Bitcoin whitepaper.

4. Reputation Built Through Trading

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The Medicis are seen as bankers and Bitcoin as digital money with premier reputations. In both cases, it was trading that helped them build their reputations.

The Medici Family

“Then came Giovanni di Bicci de’ Medici. It was his aim to make the Medici legitimate. And through hard work, sober living and careful calculation, he succeeded.

In 1385 Giovanni became manager of the Roman branch of a bank run by his relation Vieri di Cambio de’ Medici, a moneylender in Florence. In Rome, Giovanni built up his reputation as a currency trader,” wrote Niall Ferguson.

Bitcoin

After Silk Road, Bitcoin didn’t have a stellar reputation. Despite it being mostly untrue, many Bitcoin outsiders perceived that those holding Bitcoins were using them to buy and sell drugs. It was Bitcoin trading that bought further liquidity to Bitcoin and improved its reputation. The crowd stopped calling them ‘drug dealers’ and started calling them ‘speculators’. That change was thanks to people trading Bitcoin. Nowadays, the crowd is calling those holding Bitcoin ‘investors’.

5. They Led A Financial Revolution

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The rise of both the Medici family and Bitcoin led to financial revolutions across the globe.

The Medici Family

“The Italian banking system [created by the Medici family] became the model for those North European nations that would achieve the greatest commercial success in the coming centuries, notably the Dutch and English, but also the Swedes,” wrote Niall Ferguson.

Bitcoin

Bitcoin and its blockchain technology was the model for many cryptocurrencies including Etherium, Ripple, Bitcoin Cash and Litecoin.

The rise of the Medici banking dynasty and Bitcoin had some interesting similarities. Does the story of the Medici family tell us anything about the future of Bitcoin? Maybe, maybe not.

The Medici’s rise continued to the height of power. As the Pope described Cosimo de’ Medici, “He is King in everything but name.” But ultimately in the chaos of the French invasion, the Medici family had all its property confiscated, liquidated, or burned.

History doesn’t repeat, but it does echo.

You can learn more about Niall Ferguson on Twitter or his website.

By Tom Chanter. Thanks for reading.

Shared Beginnings Of Bitcoin & The Medici Family was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.