A LOOK BACK AT THE HISTORY OF MONEY!
When Satoshi Nakamoto first set the Bitcoin blockchain into motion in January 2009, he introduced two concepts. The first is the “bitcoin,” a decentralized peer-to-peer online currency that maintains a value without any backing, intrinsic value, or central issuer. The second part was ‘proof of work’ based on mathematical agreements of decentralized nodes. I call it the ‘trusted third,’ which brought the credible decentralized solution to this century. The trust in the system grew, and ‘bitcoin’ today is a currency without a central bank. The consensus protocol developed by Satoshi Nakamoto got a boost from next-generation researchers and pioneers in the industry. Ethereum introduced quickly codable smart contracts, which enabled a massive surge in tokenization. This innovation encountered many challenges like scalability, interoperability, standardization, speed of transactions.
The Money: The invention of money took place before the beginning of written history. Consequently, any story of how payment first developed is based mainly on conjecture and logical inference. The term accounting dated back more than 7,000 years and found in Mesopotamia.
Let’s look at the pre-history of money and its emergence. It all started with the non-monetary exchange with a barter system.
In 600 B.C., Lydia’s King Alyattes minted the first official currency. The coins were of electrum, a mixture of silver and gold that naturally occurred, and stamped with pictures that acted as denominations. In the streets of Sardis, circa 600 B.C., a clay jar might cost you two owls and a snake. The coins helped the country to increase its internal and external trade, making it one of the wealthiest empires in Asia Minor[1]. Then the rest of the world followed the trend by minting coins using precious metals. Soon the world was short of precious metal. Then we moved from gold to silver, copper, and less rare metals, but the trend continued until the Chinese invented the paper bills.
The first known use of paper money was reported in China from the Tang dynasty, but it became institutionalized during the Song dynasty. Compared to traditional money made from precious metals, this money was more comfortable to transport. This money, known as “flying cash,” were certificates issued by the Tang government to pay local merchants in distant parts of the empire[3]. By using vouchers, the government could avoid having to transport metal money far away.
The most important aspect of this currency was it was redeemable for metal cash. So if you are entering the capital, you have to turn in the gold and use the paper as local currency, and if you’re exiting capital, then you can redeem it into gold. Again all the kingdoms in the world followed the suite. The royals got richer by exchanging paper with metal. We can call it the heist of precious metals by royals. The organized robbery of people’s wealth continued for centuries.
Let’s fast forward to July 1944, Bretton Woods Conference, formally United Nations monetary and financial conference even though the meeting was organized to make long term capital available to states urgently needing foreign aids. The project is also recognized as ‘exchange control.’ A specialized project was founded at the conference to secure international monetary cooperation, stabilize the currency exchange rates, and expand global liquidity[2]. Since it’s creation, the IMF started stabilizing currency exchange rates. The Special Drawing Rights (SDR) were created to supplement international reserve assets. The value of SDR was based on the basket of five currencies — the U.S. dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling. The SDR was initially defined as equivalent to 0.888671 grams of fine gold, which at the time was also equivalent to one U.S. dollar. After the collapse of the Bretton Woods System, the SDR was redefined as a basket of currencies.
The interesting thing happened around the same time. The internet was born with a transfer of simple messages digitally. Nikola Tesla toyed with the idea of a “wireless system” in the early 1900s. The first workable prototype came in the late 1960s with the creation of ARPANET, or the Advanced Research Projects Agency Network. The birth of the internet paved the way for new ideas of e-commerce. “One thing we are still lacking and will soon develop is reliable e-cash — a method by which money can be transferred from A to B on the Internet without A knowing B and vice versa,” Milton Friedman, an economist in 1999.1
David Chaum 28-year-old, a Ph.D. student in computer science from the University of Berkeley, California, attempted the first vision of digital money. Since then, there were many attempts to bring convenience to online shopping. In 1996 e-gold system was launched by an oncologist Douglas Jackson and attorney Barry Downey. The company was started two years before Paypal. E-gold would back the services accounts with gold coins stored in the bank’s safe deposit box in Melbourne, Florida. The ability to make an instant transfer of value returned (backed) by the gold made them quite successful. At one point, the e-gold processing was more than the U.S. $2 billion. The story of e-gold and privacy of citizens went down after the introduction of The Patriot Act.
If you are still reading this, you will understand that most of the attempts to build a digital currency were flawed and centered on the following points.
- A monetary system based on gold has many limitations. There is not enough amount of gold to back the trade value.
- Also, centralized management makes it vulnerable to hackers.
- The absence of a trusted third party to keep the records.
Let’s go back to where we started. Satoshi Nakamoto hit the two birds with one stone. He created a new electronic cash system that is fully decentralized, with no trusted third party. The digital money is called ‘Bitcoin,’ and it is transacted, processed, reconciled with a unique digital date stamp. The ledger is immutable and irreversible, making the entire platform the most transparent and repelled hacker attacks.
The first time in the history of money, currency came into existence with a white paper. Those nine pages describe all the core functions of Bitcoin.
While writing this article, the value of one Bitcoin is equivalent to USD 9,212.44, nine thousand times, dominating the most powerful currency on the earth.
