The History of Money and is Bitcoin Set to Redefine Everything?

The concept of money goes extremely far into our past when anything was used as money, from rocks to shells. Now we are exploring the history of money to try to determine if bitcoin as it currently stands will ever be used as money? Let’s explore.

Bartering

Barter was invented by Mesopotamia tribes as long ago as 6000 BC. It was an exchange of goods or services for another good or service. The seller and buyer agree on what is a valuable exchange for both parties. Such a simple concept was made more complicated quite quickly when the barter then involves a third party who values good but doesn’t have the right service to exchange. 

One solution to this was “store-of-wealth”, which is when an asset is saved for exchange later down the road. Unfortunately, what was used at the time (crops, cows, etc.) could not be stored for an indefinite amount of time without degrading in value. That’s when a “community agreed barter” was created. This is an exchange of goods or services for a physical representation of value (shells, horn, etc.) This must be something that’s hard to acquire in nature and also robust and won’t degrade with time, and the community agreed on a value.

This, in turn, created new problems like the unit of account, and if it was smaller than a whole shell. It also prevented fair exchange between communities that used different systems. The advent of metal solved these problems. Not only did it resist changes by nature, but it could be divided by weight and was hard to simply acquire in nature. The problem of counterfeiting was solved by kingdoms stamping their symbol on the coin to protect its value.

The Rise of Paper Money

Paper money came about when coins were insufficient to represent great weight, and there were issues with transporting and storing great wealth. Instead, paper became a representation of value and guarantee that the gold equivalent was available. Then became a race to print more money and get more gold.

In the late 1990s and early 2000s, people started talking about decentralized private money. This concept was codified in 2007 by Nakamoto to create a decentralized trust minimized system of money. The bitcoin network uses a monetary rule as its law so that no single person can change the rule. This means there is no more reliance on a country’s centralized power like a Federal Reserve.

Can Bitcoin Replace Money?

Because it’s decentralized, bitcoin has the same problems as the shells from millennia ago. Bitcoin is only accepted in certain communities so it’s only valuable to communities that find Bitcoin valuable. Bitcoin would only replace money if the global population saw it as valuable.

If the price of bitcoin goes below the cost of producing that coin, no one would want to produce it until it becomes profitable to do so. However, since the cost of producing bitcoin rises, it’s possible that the price of bitcoin itself will become more valuable.

We can’t know yet if bitcoin will stand the test of time. It will either become extremely popular in the next 10 to 15 years or it will become obsolete. As it stands now, it’s essentially a digital version of the shell. If people in the community want to trade outside of that bitcoin community, they still need to use something valuable to that other community (paper money). The benefits of bitcoin over the shells is that it’s more divisible into smaller amounts and cannot be counterfeited thanks to cryptography. 

If bitcoin isn’t the future of paper money, will there be another option instead? There are new technologies like blockchain that possess intrinsic value and allow decentralized trust, like Ethereum, Ziqilla, or EOS. Is there going to be a digital version of the advent of metal? We don’t yet know, but we finally see that we are at a stage where a price-stable monetary system is possible while also being completely decentralized and privately issued. Only time will tell what the future of money will look like. If it does come to pass, what happens when there is a poor price to a decentralized currency system? These are all questions that will need to be answered as we move forward.

Mildred Delgado, a marketing strategist with Academic Brits, is passionate about cryptocurrency and new monetary technologies. She keeps her finger on the pulse of new developments in that sphere and shares her insights with her readers.