Lessons from the History of Money
Money enables trade in unreliable environments by expanding our network of trust
In the last newsletter we looked at the history of personal computing, this week we continue our series by looking at the history of money and how it applies to crypto.
Hardly anyone really understands money because it’s complex, loaded with history, and touches all parts of society. So if Bitcoin and other cryptocurrencies are going to revolutionize the world, where best to start than by trying to understand its origins?
In this context, highly recommended the following two reads:
1/ Shelling Out: The Origins of Money by Nick Szabo
This essay, written in 2002, looks at the precursors of money and explains how heirlooms enabled humans to cooperate and solve “problems of reciprocal altruism, kin altruism, and the mitigation of aggression.” These non-fiat currencies were more than decorative elements; they could also be used as collateral or as payment for goods, food, and more.
2/ Debt, The First 5,000 Years by David Graeber
This book, written by an “anarchist anthropologist,” explores the development of money diving into the relationship of debt with society from marriage to religion, war, slavery, and much more. One of the major book arguments is that trade didn’t start with barter but with debt, followed by money, and then only in some instances barter. It’s a long and difficult read, so for those who’d like a shortened more digestible version watch the Google Talk.
Takeaways
These readings tell us that money is a way to measure and formalize delayed reciprocal altruism. In environments where one’s network of trust is enabled by personal connections or by institutions (e.g. states or communities of faith) credit predominates but in instances where there is no such support system money allows people to grow their trust network by tokenizing reciprocity. This is where cryptocurrencies come in; they digitize trust with no dependence on institutions or intermediaries and in the process they break down borders and enable seamless global peer-to-peer trade.
From around the web
Hodlers are the revolutionaries (Medium) by Dan Held — Goes back to the fundamentals of why bitcoin was created. It explains how Bitcoin is not just a financial innovation but also a social one where hodlers play a critical role in driving up value and thus mass adoption.
We can’t all be friends: crypto and the psychology of mass movements (Tony Sheng blog) — Explains the psychology of mass movements and how it applies to Bitcoin and Ethereum. Good food for thought on go to market implications for new protocols.
What Makes a CryptoKitty Worth $140,000? (Unchained podcast) — Laura Shin interviews the CEO and Head of Asia at Dapper Labs, the company behind Cryptokitties. They cover how the the project got started, launch growth hacking tactics used, and where they see the ecosystem evolving.
Understanding Web 3 — A User Controlled Internet (Coinbase blog) — Strong post explaining the benefits of Web 3.0 vs 2.0. Main argument is that the Web 3.0 provides a way to store and transfer a state without a trusted a 3rd party, which enables for the first time a digitally native way to exchange value. The post then proposes a layered framework for explaining how different Web 3.0 components fit together.
What Do You Believe Now That You Didn’t Five Years Ago? Centralized Wins. Decentralized Loses (High Scalability blog) — Enjoyed this skeptical view on decentralization. Strongest argument in it is that consumers don’t care. My take is that the importance of decentralization will depend on the layer that ultimately captures most value; if it’s at the application consumer-facing layer then there’s a good chance Web 3.0 winners will be centralized entities.
Layer 1 Should Be Innovative in the Short Term but Less in the Long Term (Vitalik Buterin’s Website) — Vitalik expects layer one innovations to slow down and start shifting to layer 2 as blockchain technology matures.
Token Bonding Curves in Practice (Token Economy) by Paul Kohlhaas — Funky but cool idea of how token bonding curves can be used to open up inventor collaboration whilst still protecting and rewarding innovators.
Game of the week
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The views expressed are my own and do not necessarily represent the views of my employer.
