The Blockchain and Fur Trade

During the 18th and 19th century, beaver pelts were a form of money within North America — being used to directly purchase manufactured goods. The men involved with the fir trade enjoyed high social standing due to their alliances between cultures and new found wealth.

The entire business was fueled by foreign trade. Europeans could travel to North America, purchase beaver pelts, then return home for a 10x return. The reason was the demand of beaver wool hats along with a rapidly declining population of beavers in Europe.

To give an idea of scale, between 1700 and 1770, it is reported that over 21 million beaver hats were shipped from English ports. While in today’s terms, this is a small number It is important to realize this was in an age where people bought one of something and kept it until needing replacement.

It was not until the middle part of the 19th century that beaver was replaced with silk for fashionable headgear, putting an end to the business all together. Those left with pelts at this time had to discount them substantially if they could even sell them at all.

And when money failed in the land of Egypt, and in the land of Canaan, all the Egyptians came unto Joseph, and said, Give us bread: for why should we die in thy presence? for the money faileth. — Genesis 47:16

The point to the beaver trade is that sometimes money fails. What made this business so unique was the fact that no conversion needed to occur. One could go into the forest, trap a beaver, skin it, and come out with a form of money.

Cryptocurrency is not unlike the beaver pelt. There are a finite number of coins as beavers. Both represent global trade for their era. Most who desire to do so, can perform the work to obtain both a beaver pelt and a cryptocurrency. One through mining and the other by trapping. As more people seek to obtain either, the act of harvesting them becomes more difficult until it is no longer possible.

However, beaver pelts were more liquid than cryptocurrency is today. It is very difficult, if not impossible, to take a digital wallet into a store and make a purchase. However, in 1790, one could do just that with a beaver pelt.

The decline of the beaver pelt market was due to its direct connection with fashion. Something that changes over time. Cryptocurrency is currently tied to the hype of a new and shiny technology. Unlike fashion, even if the technology behind it fades, the underling currency will probably remain.

There were most likely similar concerns when paper bills replaced coins. “What happens if it rains,” I am sure the creators were asked. “If it’s not made from silver, how can it be worth anything,” could of been another concern.

Regardless, society adopted paper money and only recently moved toward all digital transactions. Only a small percent of our fiat currency is actually printed money. The rest is just digital marks in a ledger. Perhaps fiat and crypto have more in common than most believe.

One of the common criticisms of cryptocurrency is the volatility. For comparison, consider the U.S. dollar. It was originally valued at $20.67 per ounce of gold. In 1933, during the Great Depression, the value was reduced to $35 per ounce of gold. Then in 1971, due to Richard Nixon’s money policies, the dollar dropped to $350 per ounce of gold.

Today, the U.S. dollar is worth somewhere around $1000 per ounce of gold. However, it is no longer valued by Gold so that number is just a spot price. By the same token, it takes approximately $7500 U.S. dollars to buy 1 Bitcoin. Where is the volatility? Is it in the Bitcoin or the U.S. dollar?

The correct answer is both. There is volatility in anything subject to speculation. Be it tulips to bonds. The exact nature of an asset has nothing to do with its volatility which is a measure of the public’s perception over actual worth.

In closing, the fur trade is an interesting event in economic history. It contained both good and bad elements — as did the U.S. dollar and most likely all means of trade between people. Will the blockchain based currencies learn from the past or is it doomed to the same fate.

Thank you for reading.

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