From plastic money to the blockchain

UTRUST
UTRUST
Mar 27 · 6 min read

History of Money part 5: Where we are now

Hello, dear students! 👋

Have you been keeping up with class? Have you seen our lovely writings about such important topics as the origins of money, the history of coins, banknotes and the fiat, and, most recently, the fall of the gold standard?

We sure hope you have because it’s time to wrap it up.

This is the very last chapter in our History of Money series, and we are going to be talking about *drum roll*

Blockchain.

But not just yet. First, we need to understand how money made its way to the Internet.

The age of plastic

Once the gold standard fell, as we’ve discussed in the previous article, we could finally speak of true fiat currencies. These are currencies that are tethered to nothing. It’s money that has no intrinsic value and no use value. It is valuable for two reasons:

  • Because the government says so (via legislation).
  • Because trading parties agree.

Once we have reached this point, the transition from paper money to plastic money to electronic money was extremely fast. In terms of money, and its characteristics as a means of exchange, there’s really not much difference between the US Dollars or Euros you’re paying with when you’re using a banknote, a debit card, or an app on your phone.

It’s all the same Dollars or Euros.

The only thing that changes is the material.

We have been adding alternative means of payment

Cheques actually came before banknotes (we’ve looked at those), but since the fall of the gold standard, governments and banks have been all to eager to introduce new, more practical, ways for us to use money. Here’s a quick timeline:

1938 — The Charga-Card comes out, an early predecessor of the credit card.

1958 — Bank of America launched the BankAmericard, the first successful modern credit card.

1967 — The first ATM was set up on a street in Enfield, London.

1997 — The first online banking service was launched by Sumitomo Bank.

2000 — Electronic bill payments are now commonly used.

As we can see, money is evolving right alongside technology. As soon as some new way of processing data and information is available, money starts flowing through it. Since there is no gold standard, and the government has no need to actually ensure that all of this electronic money will ever be converted into physical currency… who cares?

This actually allows governments to pump money into the economy whenever they feel that would be beneficial (granted, they’re not always right).

In fact, a very small percentage of money in circulation right now can be attributed to physical tender. As of 2010, of the $8,853.4 billion of broad money supply in the United States, only $915.7 billion (about 10%) actually physically existed. In any form, be it coins or banknotes.

So what happens when technology overtakes money?

Enter digital currencies

The moment we’ve all been waiting for!

The increased digitalization of money was always going to lead to disruption. There have been attempts to create some form of digital currency or other since the ’80s. The first real attempt, as far as we can tell, was David Chaum’s scientific paper. He called it Blind Signatures for Untraceable Payments.

This was happening at around the same time as the first electronic point-of-payment systems were developed, so you can see this has been going on for quite a while. Way earlier than Satoshi.

Speaking of Satoshi

Satoshi Nakamoto is the best known name in Bitcoin, despite no one really knowing who they are.

We all know the story, but here’s a quick recap: in August 2008, the domain name bitcoin.org was registered.

In October of the same year, these sentences were first published:

“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”

These are the first lines of one of the most famous whitepapers of all time, Bitcoin: A Peer-to-Peer Electronic Cash System, by Satoshi Nakamoto. What makes Bitcoin revolutionary is not only the technology (more on that later), but the very ideology.

DigiCash, HashCash lay the groundwork

Let us look back for a second. What exactly did Bitcoin do that was so different from its predecessors? Why did it succeed where others failed?

Let’s look at DigiCash.

DigiCash was a company founded by American David Chaum, and its flagship product (of the same name) already had many of the hallmarks of digital currencies today. People liked it for a lot of the same reasons too. It allowed for security (in the form of cryptography). It allowed for privacy (payments were untraceable by the issuing bank, the government, or a third party). It eschewed high fees for small payments, which is one of the major drawbacks of credit cards.

Many considered it to be a truly great product, and technically perfect.

So what happened?

This was the very beginning of ecommerce, the 90s. People still hadn’t figured out how they were going to make it work

DigiCash had no way of decentralising its processes. As its user-base grew, and a couple of banks actually adopted the tech (Deutsche Bank among them!), the company was unable to survive internal tensions or scale accordingly. It eventually went bankrupt, and credit cards won the war of e-commerce.

So what about HashCash?

HashCash really has nothing to do with money (though people saw the potential early on). It was a proof of work system designed to keep people from sending spam emails. Spam email was a larger problem than we now realise. Whatever service you use today probably has quite effective filters. This wasn’t the case back in 2002.

So Adam Back (some people think he’s Satoshi) devised a proof of work system that would force email senders to perform a “moderately hard, but not intractable function” before sending anything. This wouldn’t be of much concern to people sending normal emails, but it would be a massive demand on spammers, who rely on the ability to send many thousands of emails at a time.

Back’s proposed system would allow for easy and computationally effective verification from the part of the receiver, and the world would be a better place.

The fact is the idea never really took hold, and other forms of filtering through spam won out. But people immediately started speculating about other uses for this specific kind of hash-based proof of work.

Bitcoin, the blockchain, the money of the future

The blockchain is the system that would arise from connecting the dots from all of these previous unsuccessful endeavors. It takes the security measures and concern with privacy of DigiCash, it uses HashCash’s hash-based proof of work principles to ensure the authenticity of every block, and it also mimics a lot of the characteristics of fiat money, namely: portability, scarcity, durability, fungibility, divisibility and recognisability.

This would change the world.

By evading traditional banking systems AND governments, Bitcoin and other blockchain-based digital currencies have taken money out of the hands of political deciders, and made its value rely entirely on adoption and its usage.

With the advent of other blockchain-based technologies in the wake of Bitcoin, the potential for these currencies has exploded. Stablecoins, smart contracts, NFTs. The use cases for this tech are only just beginning to become apparent.

Surely, there are concerns. Volatility and the environmental impact of the energy consumption required to provide proof of work chief among them. Not everyone is immediately ready to embrace a system with no watchdogs and no authorities to prevent wrongdoing.

But adoption is happening.

At Utrust, we are very glad to say we are providing some stepping stones in this process. We are creating a payment system that allows businesses to accept payments with these currencies easily, safely and seamlessly. Because we understand that these currencies truly are the future of a more transparent and safer world economy.

So that’s what’s behind us.

Now, we build. You should join us.

UTRUST

Building the world’s first cryptocurrency payment solution…

UTRUST

Building the world’s first cryptocurrency payment solution to offer instant transactions, buyer protection & crypto-to-cash settlements. utrust.com

UTRUST

Written by

UTRUST

The easiest way to pay with & accept digital currencies. The money of tomorrow is here. Experience digital payments with Utrust: utrust.com

UTRUST

Building the world’s first cryptocurrency payment solution to offer instant transactions, buyer protection & crypto-to-cash settlements. utrust.com

Medium is an open platform where 170 million readers come to find insightful and dynamic thinking. Here, expert and undiscovered voices alike dive into the heart of any topic and bring new ideas to the surface. Learn more

Follow the writers, publications, and topics that matter to you, and you’ll see them on your homepage and in your inbox. Explore

If you have a story to tell, knowledge to share, or a perspective to offer — welcome home. It’s easy and free to post your thinking on any topic. Write on Medium

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store