History of Money — Explained
Article Gist: Explain the origin of money, and why Bitcoin has such potential as a currency
Before I jump into cryptocurrencies, let me take you to the medium of exchange history.
∞ BC — 1100 BCE: Back in BC life, when the human population is still very small, our ancestors could survive by just taking advantage of the available natural products (eg. hunting, fishing, planting). As the population grows, the natural resources are getting scarce, and our ancestors are compelled to do a barter or exchange any goods to survive. This compelled was the forerunner of transactions that happened until today.
1100 BC — 1000 BCE: Metal coins were invented by Shang Dynasty at this time and used as a currency in ancient Chinese civilization. These metal coins were made from copper, silver, gold, and metals. They were designed with square holes in the middle so they could be carried easily.
700 BCE: Gold and silver were used in the next transactions, Turkey and Greece started this invention, they believe that gold is the best medium of exchange ever created because of its limited supply and to avoid inflation.
Even these days, many still believe that gold is the best storage value.
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618–907: Merchants in Tang Dynasty swapped the metal coins by using paper money as a medium of exchange because it’s easier to bring paper money.
Keep in mind that every paper money printed is backed by the gold they have or received.
960–1279: Paper money became a trend, and so in 1265 Song Dynasty announced that paper money is their official country currency. Fourteen years later, Mongolians overthrew Song Dynasty and hijacked their financial system by printing large amounts of paper money without relying on the price of gold.
However, this system has a flaw, because those who have the authority to print money had cheated causing inflation. This kind of paper money is the currency we have now, we used to call it a fiat currency.
1450: Hyperinflation happened, Mongolians had caused a financial crisis in China, so they believe it is best to use gold or silver again.
1700: The flaw in the paper money system was used again in another country, in that time Bank of England promised interest rates would be given to those who saves their gold in the bank. The greed of those bankers began to emerge slowly, they thought there would be many people who would keep their gold for a long time and those people would not withdraw large amounts at the same time. As a result, they printed paper money beyond their gold stock.
1944: As the years go by, as a country that dominated WW1 and WW2, America managed to collect gold in a large amount up to two over three of the world’s gold reserves. So, America was able to make an agreement called the Breton Woods system in 1944–1947.
The Breton Woods system regulated how the dollar currency is based on the gold reserves owned by America, then the currencies of other countries are based on the dollar as if the dollar is gold.
1971: During the era of President Nixon, America was frightened because they didn’t control the rest of the world’s gold supply (around one over three), then America announced that their dollar would no longer be backed by gold, and this is the financial system we use until this day.
Since this system was implemented, there have been five major financial crises: (1) The International Debt Crisis in 1982, (2) The Latin American Debt Crisis in 1995, (3) The East Asian Economic Crisis in 1997, (4) The Russian Crisis in 1998, and (5) The Global Economic Recession (2007), in which the bankers and the global elite took a large role in the occurrence of this global crises.
There are several conspiracies and speculations, that fiat currencies have been controlled by the global elite. If we look at the facts, the purchasing power of the dollar is also decreasing. This is a picture of the inflation effect.
A year after the global economic recession started, a person or a group with an initial Satoshi Nakamoto published a whitepaper entitled “Bitcoin a Peer to Peer Electronic Cash System.” Quoted from the whitepaper, Satoshi intends to make an online payment system that allows one party to send cash to another party without going through a financial institution.
This digital exchange tool has a “proof of work” system, where people can get bitcoin by mining it. The mining could be done by solving difficult math questions, the question has its own algorithm and requires computer power and electric power. The presence of bitcoin is expected to replace a more stable currency than its predecessor, which has violated the supposed transaction tools.
Bitcoin is designed so that users could do a transaction without third parties anonymously, this kind of money is stored in electronic wallets. Transaction fees (in big amounts) for cross-country transactions are also lower than using intermediaries from international financial institutions. Every transaction is also transparent, it’s all written in a ledger, this ledger is known as the blockchain.
There are several popular blockchains:
blockchain.com
btc.com
etherscan.io
bscscan.com
solscan.io
Due to its decentralization, the price of bitcoin is very volatile, because it cannot be controlled by any party, only the supply and demand can change its price. But since its birth, bitcoin is able to pump the name of cryptocurrency into a valuable currency and is loved by many people.
Bitcoin has been legalized as a legal tender in El Salvador.
At the end of the day, a medium of exchange is just a medium of exchange, it all depends on the agreement of each person to accept it or not, I don’t know whether this cryptocurrency will be used as a medium of exchange in the future, but if I look at the price that keeps going up, we can see an increasing demand that continues every year.
Hopefully, the new medium of exchange will be more stable, more transparent, and have new advantages over its predecessor.
