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The evolution of money

by | 9 Mar 2020

About 7000 years ago money was “invented”.

Not everybody owns everything. That’s always been the case. We have always had a preference for certain things and we have always needed or wanted something that someone else had a preference for. So we started to trade the things we had too much with the things we needed.

That’s how the trade began. I could trade my bread for some oranges from the orange grower.

The tailor also wanted my bread, so I gladly exchanged it for clothes. However, I don’t need new clothes every two days, but the tailor always needed bread and something to eat, so the whole thing didn’t really work out.

The solution: You had to find something that everybody wanted.

As one of the very first forms of money people took mussels.

The three important characteristics of money should be fulfilled, these are

1. It must be physical and it must be touchable.
2. It must be indestructible.
3. It must be recognized by all, by the whole community.

Mussels fulfilled the first two points, but there were problems with the recognition of the whole community because there were not enough mussels everywhere. And secondly, on the other hand, it was easy to go to the beach and collect more shells, which is not fair and not trustworthy.

Then the metal coins came into play, which were engraved and centrally issued by countries and kingdoms to control the numbers.

Disadvantages of the coins were that they were made of precious metals like gold or silver and so the possible maximum number was limited. Furthermore, the coins were very heavy and took up a lot of space, which made transport difficult.

This problem was then solved with paper money.

The coins could be deposited at a fixed place, which you could call a bank, and you got a piece of paper for it where it was documented that you had this and that amount.

The system was based on the trust that with this piece of paper you would get back the exact number of coins when you exchanged it. Now the receipts could be exchanged among each other which was easier.

People liked this so much that they preferred to exchange the paper all the time and almost never made the claim and physically picked up the coins again. Knowing that this was the case, European banks suddenly issued more paper money than there were actually coins in the bank. They believed that not everyone wanted to come and collect their coins at the same time anyway.

Today’s paper money can no longer be exchanged for gold.

Today’s paper money has merely the promise of states that it has some value and it lives on our faith in it.

The sum of all the money in the world is 60 trillion. The sum of all notes and coins, on the other hand, is only 6 trillion.

90% of our money is digital, and that does not mean crypto-currencies.

For every physical dollar in notes or coins, there are nine “digital dollars” in the form of “book money”.

How could this happen?

Banks first replaced gold with paper without covering the value, then they repeated the process. They told us that paper money can be stolen and it is perishable, and it can also break. Why don’t you give us your paper money and we will give you numbers on the computer and enter how much money you have.

So we are currently dependent on numbers on a computer – and on a foreign computer.

Clever people thought about the following in 2008.

If money is only numbers on the computer, is there a possibility that it is still a scarce resource? And not something that can always be created from nothing. And can it be made possible for the control over money to move away from a central organization to a neutral place?

Crypto-currencies and first of all Bitcoin were created as a solution to this.

Crypto currencies and Bitcoin are “programmed money” that has an automatic scarcity, is distributed decentrally around the world and has no central “publisher”. The trust is based on computer processing power and technology.

39% of people on Earth, nearly 3 billion people do not have access to a bank account.

With Bitcoin, anyone who has access to the Internet can send and receive money. So an incredible number of people are involved in the economy.

An international money transfer can take several days at the bank.

With Bitcoin, this is possible in a few minutes, 24/7, and the whole thing runs directly from participant to participant. No middleman deducts a fee. Another plus point: Bitcoin is a scarce resource, there are a maximum of only 21 million of them. However, these are divided into small individual fractions.

The special feature of Bitcoin and crypto-currencies is not that they are digital, that is as we have learned anyway 90% of our money, the special thing is the guarantee of absolute trustworthiness thanks to encryption (cryptography) and computer processing power.

The “power” goes back to us humans.

From our point of view crypto currencies are a good option, a good alternative to fiat money.