The History of Money: From Barter to Bitcoin, Part Four
In our previous posts, we learned about the history of money from barter to the abolition of the gold standard and the power of central banks. In today’s article, we continue our study of the evolution of the monetary system. Today we will talk about cashless payments and cryptocurrencies, and also try to look into the future …
Cashless payments
Cashless payments have existed since the 17th century, long before the advent of electronic payments. The first common instruments of non-cash payment were bills of exchange and checks. However, cashless payments became really widespread with the advent of credit cards and electronic payments.
The idea of credit and debit cards originated sometime in the 1930s. At first, they were produced by large stores for regular customers. General purpose payment cards such as Diners Club, American Express, and Carte Blanche began to emerge in the late 1950s, and in the 1960s, banks began creating innovative credit payment systems that eventually merged into Master Charge (which later became known as MasterCard) and the competing Visa system.
In Western society, the use of non-cash transactions and settlements for household needs began to gain momentum in the 1990s, when electronic banking became popular.
In the 2010s, electronic payments were already widespread in many countries outside the West. In addition to cards like MasterCard and Visa, payments using applications on smartphones have become widespread.
However, all these innovations did not solve the problems of the modern monetary system and centralized issue of money, which we described in our previous publication. In contrast, cashless transactions are easier to track, so central banks were more than happy with the technology. Cryptocurrencies, on the other hand, are a completely different story.
Cryptocurrencies
In our previous post we mentioned that bitcoin appeared on the public scene in parallel with the 2008 crisis. It is usually customary to associate the appearance of cryptocurrencies with this time. However, the history of cryptocurrency can be traced back to 1983. And this was due to the cryptographer David Chaum, widely known in narrow circles.
Chaum became famous for the development of the eCash payment system, the purpose of which is to preserve the user’s anonymity. He later founded DigiCash, a company that specialized in electronic money. Although the term “cryptocurrency” itself did not appear until the late 1990s, Chaum’s early work in this arena created the foundation for future incarnations of this innovative idea.
One way or another, it was Bitcoin that became the first decentralized system that successfully solved the famous Byzantine generals problem.
The initial idea of cryptocurrencies was to use blockchain technology as one of the varieties of a distributed ledger to get rid of centralized intermediaries such as traditional financial institutions. After all, if you get away from monopoly on the issue of money, you can get away from the power of central banks.
It took Bitcoin several years to gain popularity. On May 22, 2010, programmer Laszlo Heinitz bought two pizzas for 10 thousand BTC. Now Bitcoin has long passed the threshold of $ 60,000. The first crypto hype began in 2017, with BTC reaching $ 10,000 in November. In mid-2018, the crypto market began to stall and skeptics began to gloat that the “crypto bubble will burst soon”. But, already in the fall of 2020, the second crypto-hype began and BTC began to break one price record after another.
BTC price from July 2013 to October 2021 according to the coinmarketcap
Some countries, such as Japan or El Salvador, have recognized cryptocurrencies as legal means of payment. Some, like China, are actively fighting it. One thing is clear — the crypto market is not going anywhere in the near future and will only grow.
Decentralized finance
However, blockchain technology is more than just cryptocurrencies, especially with the advent of Ethereum. ETH became the number two cryptocurrency precisely because it created the infrastructure for DeFi. The abbreviation “DeFi” comes from “Decentralized Finance”. This usually includes such things as smart contracts, decentralized applications (DApps), decentralized exchanges (DEX), etc. Usually, decentralized finance means financial software and decentralized online trading platforms built on the blockchain.
The scope of smart contracts goes far beyond the financial arena. Smart contracts, for example, can also be used to automate many of the legal aspects of relationships between market actors, without the use of a human intermediary. All of this can have far-reaching social implications, which we will talk about in our future publications.
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