The History of Money: the Long Road to Bitcoin
Before we understand the history of money, let’s first understand what it is. According to Merriam-Webster, it is something generally accepted as a medium of exchange, a means of payment and a measure of value.
As a rule, people use a banknote to buy something. But often children agree on a desired object, for example, a toy, through another object, for example, a cookie.
Unacceptable, you say. But when both sides agree to the terms of such a contract, negotiations are successful. Moreover, this system based on barter has long suited our ancestors.
It is difficult to name the exact date of the appearance of barter in our civilizations. Many historians believe that this system of exchange arose long before the appearance of writing and ancient civilizations. They also noted that this system varies from one society to another.
Specifically, at the level of peasants, barter exchange manifested itself as follows: one person turns to another with a request for the exchange of goods and services, as well as goods of the same kind. The items of exchange included food, agricultural tools, livestock and clothing.
However, this system had certain disadvantages, including the coincidence of scales and the coincidence of needs. If the first is related to the problem of fairness in the exchanged items, then the second refers to the coincidence of needs.
After people are faced with the restrictions of barter, the history of money informs us about the transition to commodity money. This new system combines objects with intrinsic value that can be used as means of payment for goods and services. With the advent of such an innovative idea, no one else had to carry wheat with them to exchange it for cattle. One metal coin was enough.
There was a time when people used gold, copper, salt, pearls, nails and even cigarettes to get the desired goods. Yes, paleovalute has sometimes been accepted as a form of money because of its commercial nature. This type of money is distinguished by other properties: the absence of spoilage and the complexity of manufacturing.
An example is the Rai stone, which was used by the indigenous inhabitants of the Yap Islands (Micronesia). As a rule, these stones imitate the shape of a disk with a hole in the center and are cut from crystalline limestone. Their peculiarity lies in their rarity, difficulty of reproduction, as well as in their weight. The weight of Rai stones can reach more than 3.6 tons, which corresponds to the weight of two Tesla Model Sg.
It is worth noting that the islanders observed this practice for quite a long time. Until the conquistadors came and made them understand that the stones of Paradise can be produced with the help of several iron tools. Hence their loss of value and rejection of this type of exchange.
Silver, gold and banknotes
Silver and gold have been used as currency for centuries. The more humanity armed itself with the technique of making homogeneous coins from these precious materials, the more legitimacy these items acquired.
Although gold and silver became more expensive over time, in the case of large transactions, they suffered from transportation problems. It was here that banks appeared, which facilitated the storage of coins and issued paper receipts for subsequent payments.
It is worth noting that the banknotes were not money, but had the form of representative documents, which the British called “pounds”. These banknotes usually indicated the value of the precious metal stored in the bank.
But this monetary system had its drawbacks. In particular, banks have taken the liberty of printing more banknotes to increase the amount of money at their disposal. Hence the loss of public trust and the need for a new form of money.
The issue of this type of money is the responsibility of the government of a country that enjoys the trust of its citizens. Unlike the banknotes mentioned above, the fiat currency has no intrinsic value. The same government attributes a certain value to him, which the citizens will support.
This type of currency was first introduced in China in the 11th century. The problem with this system is inflation, a phenomenon that occurs after mass printing of money.
Payment cards and digital money
Debit and credit cards appeared in the 20th century. They are so easy to use that, according to statistics, the level of user satisfaction is 60%.
To better understand how they work, imagine a financial ledger in which all transactions can be recorded. This ledger should record all transactions, the amount of purchased goods that will be debited from your balance, and its crediting to the seller.
Bitcoin (BTC) and cryptocurrencies
Bitcoin would not have been possible without the initiative of a computer programmer with the pseudonym Satoshi Nakamoto. According to Coinmarketrate.com Nakamoto called the currency “a new electronic monetary system that is completely peer-to-peer, without a trusted third party.” In other words, Bitcoin is not dependent on any bank or government.
Satoshi Nakamoto is not the only one who imagines such an alternative. David Chaum, for example, introduced the idea of a digital currency called DigiCash in 1980. Unfortunately, his project failed. Nick Szabo also created a decentralized digital currency mechanism in 1998. He called it Bit Gold. A year later, Wei Dai developed “b-money”.
Of all these digital currencies, only Bitcoin stands out for the security it provides. It also has all the properties of real money, while eliminating obstacles to sending it to any address.
To better understand the essence of Bitcoin, imagine a computer file stored in a digital wallet. When sending money, this file ends up in another wallet belonging to another user. And this is without using an intermediary. Hence the term “peer-to-peer”.
When using cryptocurrencies, there is no need for an accounting book, since it is replaced by a blockchain. Every transaction made on the blockchain must be verified by miners. Miners are millions of people around the world equipped with very powerful computers capable of verifying and approving every transaction.
The digital currency, which is BTC, needs a secure network called cryptography. And BTC is mined by solving complex mathematical puzzles, which end with receiving a reward in the same coin.
The cherry on the cake is that Bitcoin transactions are pseudonymous, so everyone has access to them through the blockchain. And this is where the public addresses and the private key come into play.
Just think how long it took humanity to get to such a wonderful thing as Bitcoin. The history of money is rich in details of human evolution. But Bitcoin is
the crown of digital financial genius today. The evolution continues inexorably, over time, perhaps, people will listen to BTC with the same surprise as you about the stones of Paradise.