What do barter, whale tooth, metal coins and blockchain have in common ?

This is an opinion from recognizing certain patterns throughout history and having a base understanding of simple economics and how humans interact.

I believe blockchain technology will be in direct contact to regular people in the coming years whether they realize it or not. Before jumping into a futuristic fantasy, let’s dive into a quick history of what we, as mankind developed over the years to arrive at where we’re at today.

What does whale tooth have to do with anything?

Fundamentally, early humans naturally are social beings who form groups to survive — communities, clans, states, countries. Trading within your own community through barter systems was fairly common. A fisherman could get x amounts of wheat in exchange for y amounts of mackerel from a wheat farmer. Overtime however, acquiring specific goods to trade with someone who has too much mackerels or if the farmer needed other goods, it would prove to be impractical. Hence, the early humans invented IOUs. This was when early money was invented. Whale tooth was documented as an early human IOU — aka early money. This meant that people were free to trade with anyone and could even store purchasing power for later use with their retradable IOU tokens aka whale tooth. In a simple nutshell, whale tooth was the financial tech of the day. Technology has increased convenience and improved security. It will be this same principle that will drive innovations today and beyond.

Where do we go from here?

Minting metal coins

Whale tooth and other objects with or without intrinsic values became too easily forged, fairly easy to acquire, heavy and impractical to carry around in long journeys of trade. Hence, during the early centuries, Kings and rulers of monarchs realized that having lots of stacks meant power. Hence, they began minting their own coins — not a bad idea. Once a large chunky item to carry around on horses and carts, IOU objects like whale tooth were replaced with metal coins. The reigning monarch would stamp their faces on it, guaranteeing their weight and value — this was good problem solving. It certainly checks off quite a number of issues prior. The coins are portable, hard to forge and easily divisible. This was clever innovation as it addresses the shortcomings of object based IOUs. As it was “official” currency issued by monarchs at the time, metal coins had intrinsic value and it facilitated trade with other communities. This had brought success to economies by trading on metal money. However, with it comes temptation and mischief. Those “bright” humans started looking for ways to trick the system. Sovereigns started to melt metal money and mixing it with cheaper metal to create more tokens — let’s call these guys, “hackers”. Obviously, this decreases the face value of metal coins overtime. Therefore, metal money isn’t fool proof and hence, it leaves space for innovations in financial technology.

Let’s recap, metal money comes as an upgrade from bulky whale tooth but is also flawed nonetheless. They were heavy to transport in large quantities for long distance trade.

Then came paper money.

During the dynasty centuries in China, the emperors decided to keep the metal coins at a secure safe while issuing paper IOUs to its merchants and promised to pay them what is owed on the paper. The paper then becomes a trusted IOU as the people could always trade these IOU papers for gold or metal coins. This proved to be trustworthy and it facilitated trade growth. As trade became more and more global, the idea of having paper IOUs or “paper with no intrinsic value”, caught on and was backed by gold — just as what the Chinese did. We know this as the “gold standard”. Shifting from metal coins to paper IOUs was once again predicated on convenience and security. Again, due to advancement in technology, we see human lives improving. It was harder to forge and due to its lightweight nature, long distance logistics weren’t a burden. However, it’s not to say that it’s not flawed.

Since its so good so lets make more?

Governments realized that the more money in circulation, the more it stimulated economic growth. Hence, governments and private entities tries to control them — pretty much the same case in point whereby governments and financial institutions attempt to control cryptocurrencies today. However, too much money in circulation could also mean potential inflation. In the 16th century, when Spanish explorers brought back massive amounts of precious metals and gold into the country, it just successfully drove traders to hike up prices of goods. So, the returning explorers were no better off. This was a clear example of too much money and too few goods can cause inflation.

The same predicament happened when banks borrowed more money from other banks to loan to American home buyers in the early 2000s. While this stimulated the economy and afforded many borrowers with questionable credit to own homes, something terrible is brewing.

Charles Ferguson directed a documentary about the 2008 financial crash, where it showcased top level banking executives were incentivised to earn for their own pockets while their banks issued interest-only loans that became affordable to subprime borrowers — aka borrowers with questionable credit. The people that centralized financial institutions are responsible to serve has had their own needs served first.This unethical practice by people in the highest power of financial influence inevitably left the world’s economy in ruins while profiting billions throughout the crisis. Financial institutions who create money out thin air from overprinting has lead to inflation and multiple economic downturns throughout human history. This economic crisis exposed many flaws in the banking system we have today.

The silver lining of past crisis

Let’s look at this at a macro level, financial tech in the past has always grown from opportunities presenting itself as crisis. During the 2008 crash was also the time where blockchain technology surfaced — this was the dawn of the future of money. Paper money or FIAT currency has served the world throughout centuries and in today’s globalized world, shipping stacks of paper for trade is just not as practical as it was during 10th century China. Today, 90% of all global trade is done online — the internet has facilitated global trade since the 90s and has laid the framework for blockchain technology to thrive in the coming years. Even all these complex systems in place, the chances of fraud rose in correlation to economic growth.

Blockchain technology came at a time when the global economy was in a crisis. Again history shows that advancement in technology was predicated on convenience and security. Blockchain technology holds both, and thus, it is only natural that we will see a shift from FIAT currencies to cryptocurrencies based on the blockchain technology.

History will repeat itself for the better

We tried to control it, it didn't quite work and blame was put on the top executives. So decentralized systems are the new language of trust?

In a nutshell, this article is meant for an easy read but the gist of it is the point I’m making a on a macro level. The age of internet, communication, banking and mobile is truly in its infancy. Remember, the first ever iPhone was introduced in just a mere 10 years ago — in 2007. The thought of whipping out a phone from your pocket that’s capable of doing what real banks do, but faster, secure and safer? Now, that’s disruptive innovation. The framework and technology is already available, but as with most pioneering innovations, there will be some level of cynicism. Nevertheless, patterns in history has shown to favor practicality and safety.

In my humble opinion, the next frontier of finance tech and/or tech in general will be heavily predicated on convenience and security — and that’s blockchain. 2018 will the year that blockchain technology stands on the world’s center stage as countless debates will go back and forth to how entities will regulate it.