Why cryptocurrencies exist

Looking at the history of money to predict its future

Introduction

Recently I was asked why I was buying bitcoin, and why I thought it was a good investment. To answer this question, I prepared a 2 part series, and in this part, we’ll go over how cryptocurrencies came to be. In the second part, I’ll elaborate on why I think some of them are a good investment.

Part 1: From seeds to coins

Money: anything that can be exchanged for goods and services and is used as a measure of their values on the market.

To understand money, let’s go back 7000 years, to around 5000 B.C. The totality of the human population is around 40 million. Back then, people bartered. Bartering is like trading: you exchange goods and services for other goods and services. If a corn farmer wants a pig, he will try to trade with someone who has pigs, offering corn in return. The problem here is that it’s difficult to agree on the amount, because there isn’t a set price, a standardized rate of exchange. Another problem is the coincidence of wants: if the pig owner doesn’t want any corn, the farmer won’t get his pig.

So we need something that the pig owner deems valuable on its own. Many cultures around the world started using commodity money: objects that have value in themselves as well as value in their use as money. Think of seeds, salt, or tobacco. The settlement our farmer lives in has come to agree to use…