In this post, we will talk about what is money, the history of money and how we have evolved from Barter to Bitcoin. I estimate the world population to be about 7.6 billion people with a different race, language, religion, belief, culture, government but despite all of our differences, the only thing we all have in common is money.

Everyone uses the money, we all want money, we all work for money, it is not out of place to say money is the only language everybody understands.

WHAT IS MONEY

Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a country or socio-economic context. I distinguish the main functions of money as a medium of exchange, a unit of account, a store of value and sometimes, a standard of deferred payment. we can consider any item or verifiable record that fulfils as money.

Fiat money, like any check or note of debt, is without use value as a physical commodity. It derives its value by being declared by a government to be legal tender; They must accept it as a form of payment within the boundaries of the country, for “all debts, public and private”. Counterfeit money can cause good money to lose its value.

They enact legal tender laws to require people to use the government’s money in payments of lawful debts among its citizens.

Money supply is the form in which money is available in the economy which is always in form of currency. It is grouped into coins and banknotes. Coins were the earliest form of currency after barter trade and were later followed by bank notes.

HISTORY OF MONEY

Money as a medium of exchange has been part and parcel of human history since the ancient days, the origin of money can be traced back to the ancient bartering system whereby people directly trade goods and services These included livestock and grain, things directly useful in themselves but also merely attractive items such as cowrie shells or beads were exchanged for more useful commodities.

According to Adam Smith, who is regarded as the father of modern economics, sought to show that markets (and economies) pre-existed the state, and hence should be free of government regulation. He argued (against conventional wisdom) that money was not the creation of governments. Markets emerged, in his view, out of the division of labour, by which individuals specialized in specific crafts and hence had to depend on others for subsistence goods.

These goods were first exchanged by barter. Specialization depended on trade, but was hindered by the “double coincidence of wants” which barter requires, i.e., for the exchange to occur,each participant must want what the other has. To complete this hypothetical history, craftsmen would stockpile one particular good, be it salt or metal, that they thought no one would refuse. This is the origin of money according to Smith. Money, as a universally desired medium of exchange, allows us to separate each half of the transaction.

THE BARTERING SYSTEM

What barter means is that an individual possessing any surplus of value, such as a measure of grain or a quantity of livestock, could directly exchange it for something perceived to have similar or greater value or utility, such as a clay pot or a tool. It limits the capacity to carry out barter transactions because it depends on a coincidence of wants. The seller of food grain has to find the buyer who wants to buy grain and who also could offer something the seller wants to buy. There is no agreed standard measure into which both seller and buyer could exchange commodities according to their relative value of all the various goods and services offered by other potential barter partners.

THE EVOLUTION TO BRONZE AND COINAGE

As people’s needs became more refined, the indirect exchange became more likely, as the physical separation of skilled labourers (suppliers) from their prospective clients (demand)required the use of a medium common to all communities, to facilitate a wider market.

Many cultures around the world developed the use of commodity money, objects that have value in themselves and value in their use as money. Ancient China, Africa, and India used cowry shells.

The Mesopotamian civilization developed a large-scale economy based on commodity money. The shekel was the unit of weight and currency, first recorded 3000 BCE, referring to a specific weight of barley, and equivalent amounts of silver, bronze, copper, etc. The Babylonians and their neighboring city states later developed the earliest system of economics as we think of it today, in terms of rules on debt, legal contracts and law codes relating to business practices and private property. Money was not only an emergence, but it was also a necessity.

Aristotle’s opinion of the creation of money as a new thing in society is: When the inhabitants of one country became more dependent on those of another, and they imported what they needed, and exported what they had too much of, money came into use. the historical use of metals provides some of the clearest illustrations of how the barter systems gave birth to monetary systems.

From about 1000 BCE, money in the form of small knives and spades made of bronze was in use in China during the Zhou dynasty, with cast bronze replicas of cowrie shells in use before this. The first manufactured actual coins seem to have appeared separately in India, China, and the cities around the Aegean Sea between 700 and 500 BCE.

They manufactured other coins made of electrum (a naturally occurring alloy of silver and gold) on a larger scale about 650 BCE in Lydia (on the coast of what is now Turkey). Similar coinage was adopted and manufactured to their own standards in nearby cities of Ionia, including Mytilene and Phokaia (using coins of electrum) and Aegina (using silver) during the 6th century BCE, and soon became adopted in mainland Greece,and the Persian Empire (after it incorporated Lydia in 547 BCE).

Governments typically minted coins and then stamped with an emblem that guaranteed the weight and value of the metal. However, as well as intrinsic value coins had a face value. Sometimes governments would reduce the amount of precious metal in a coin (reducing the intrinsic value) and assert the same face value, this practice is known as debasement.

Metal-based coins had the advantage of carrying their value within the coins themselves they induced manipulations, such as the clipping of coins to remove some precious metal. A greater problem was the simultaneous coexistence of gold, silver and copper coins in Europe. The exchange rates between the metals varied with supply and demand. For instance, the gold guinea coin rose against the silver crown in England in the 1670s and 1680s. They exported silver from England in exchange for gold imports. The effect was worsened with Asian traders not sharing the European appreciation of gold altogether — gold left Asia and silver left Europe in quantities European observers like Isaac Newton, Master of the Royal Mint observed with unease.

THE EVOLUTION TO PAPER NOTES

Another step in the evolution of money was the change from a coin being a unit of weight to being a unit of value. A distinction could be made between its commodity value and its specie value. The difference in these values is seignior age

Paper money was first introduced in Song Dynasty China during the 11th century. The development of the banknote began in the seventh century, with local issues of paper currency. Its roots were in merchant receipts of deposit during the Tang Dynasty (618–907), as merchants and wholesalers desired to avoid the heavy bulk of copper coinage in large commercial transactions.

In the 13th century, paper money became known in Europe through the accounts of travelers, such as Marco Poloand William of Rubruck because of the insecurity and impracticality of transporting large sums of money over long distances, money traders started using promissory notes. In the beginning, these were personally registered, but they soon became a written order to pay the amount to whoever had it in their possession. These notes can be seen as a predecessor to regular banknotes.

The first European banknotes were issued by Stockholms Banco, a predecessor of Sweden’s central bank Sveriges Riksbank, in 1661. These replaced the copper-plates being used instead as a means of payment, although in 1664 the bank ran out of coins to redeem notes and ceased operating in the same year.

Using banknotes issued by private commercial banks as legal tender has gradually been replaced by issuing banknotes authorized and controlled by national governments. They granted the Bank of England sole rights to issue banknotes in England after 1694. In the United States, they granted the Federal Reserve Bank similar rights after its establishment in 1913. Until recently, these governments authorized currencies were forms of representative money, since they were partially backed by gold or silver and were theoretically convertible into gold or silver.

They made this gold standard notes legal tender, and they discouraged redemption into gold coins. By the beginning of the 20th century, almost all countries had adopted the gold standard, backing their legal tender notes with fixed amounts of gold.

These banknotes were representative money which could be converted into gold or silver by an application at the bank. Since banks issued notes far in excess of the gold and silver they kept on deposit, sudden loss of public confidence in a bank could precipitate mass redemption of banknotes and result in bankruptcy.

THE END OF GOLD DOMINANCE

After World War II and the Bretton Woods Conference, most countries adopted fiat currencies that were fixed to the U.S. dollar.

The international monetary system after World War II was dubbed the Bretton Woods system after the meeting of forty-four countries in Bretton Woods, New Hampshire, in 1944. The countries agreed to keep their currencies fixed (but adjustable in exceptional situations) to the dollar, and the dollar was fixed to gold.

Since 1958, when the Bretton Woods system became operational, countries settled their international balances in dollars, and US dollars were convertible to gold at a fixed exchange rate of $35 an ounce. The United States had the responsibility of keeping the dollar price of gold fixed and had to adjust the supply of dollars to maintain confidence in future gold convertibility.

With unemployment and inflation on the rise and a gold run looming, Nixon’s administration coordinated a plan for bold action. From August 13 to 15, 1971, President Richard Nixon and fifteen advisers, including Federal Reserve Chairman Arthur Burns, Treasury Secretary John Connally, and Undersecretary for International Monetary Affairs Paul Volcker (later Federal Reserve Chairman) met at the presidential retreatat Camp David and created a new economic plan. On the evening of August 15,1971, Nixon addressed the nation on a new economic policy that not only should correct the balance of payments but also stave off inflation and lower the unemployment rate.

They fixed the U.S. dollar to gold. In 1971 the U.S. government suspended the convertibility of the U.S. dollar to gold.

President Richard Nixon’s action sin 1971 to end dollar convertibility to gold and implement wage/price controls were intended to address the international dilemma of a looming gold run and the domestic problem of inflation. The new economic policy marked the beginning of the end of the Bretton Woods international monetary system and temporarily halted inflation.

 After this development, many countries de-pegged their currencies from the U.S. dollar, and most of the world’s currencies became unbacked by anything except the governments’ fiat of legal tender and the ability to convert the money into goods via payment.According to the proponents of modern money theory, fiat money is also backed by taxes. By imposing taxes, states create a demand for the currency they issue.

THE EVOLUTION TO DIGITAL CURRENCY

The development of computer technology in the second part of the twentieth century allowed money to be represented digitally. By 1990, in the United States, all money transferred between its central bank and commercial banks was in electronic form. By the 2000s most money existed as a digital currency in banks databases. In 2012, by the number of transaction, 20 to 58 percent of transactions were electronic(dependant on country)

THE EVOLUTION TO BITCOIN

In 2008, an unknown author proposed Bitcoin under the pseudonym of Satoshi Nakamoto, it was implemented the same year. Its use of cryptography allowed the currency to have a trust-less, fungible and tamper resistant distributed ledger called a Blockchain. It became the first widely used decentralized,peer-to-peer, cryptocurrency. Other comparable systems had been proposed since the 1980s. The protocol proposed by Nakamoto solved the double-spending problem without the need of a trusted third-party.

see more: A-Z of Blockchain Technology

Bitcoin, first released as open-source software in 2009, is generally considered the first decentralized cryptocurrency. Since Bitcoin’s inception, thousands of other cryptocurrencies have been introduced, many of which use the symbology of former metallic currencies, such as silver for Litecoin.

CONCLUSION

In the early 90s, the internet was a hard-to-explain concept to people. Even though it’s now as simple as ABC to understand, the idea of electronic mail, social networking and being able to surf endless amounts of information with just a click of a button was beyond belief

Digital disruption is inevitable in the financial sector, with Blockchain, bitcoin and social media decentralising the silo-mentality in the financial sector. The Future of Money is vividly transiting from cashless spending and big data to fintech startups collaborating with established banks.

Blockchain technology is just as disruptive as automated teller machines and smartphones were decades ago, the smartphone revolution soon gave birth to another development the explosion of online payment apps that integrate with bank accounts, allowing seamless online shopping, investments, transfers, and mobile-to-mobile payments. The penetration of smartphones provided consumers with an easier way to interact with banks and gain real-time views into their bank accounts. Inevitably, as mobile apps grew in sophistication, so did customer demand for intuitive banking services. Today, digital transformation within banks coupled with mobility has transformed the nature of banking. Customers no longer have to contend with long queues and wait times to deposit money, conduct trades or even request a cheque book.

In this 21st century majority of the world populace can only relate with fiat money and electronic money and from history, we understand that fiat money is money that has value only because a government say it has value. It is not backed by anything

As the ups and downs of cryptocurrencies continue to dominate financial headlines, traditional banks and governments are waking up to the importance of embracing virtual currencies. For customers, blockchain technology provides users with a digital signature and secure identification. Audits of transactions would be unnecessary because the system provides a record of every payment made.

MORE IMPORTANTLY

The rising number of online platforms and applications fuelled the need for faster, smarter and more robust security protocols to safeguard customer data. As Cyber-attacks such as ransomware, malware and phishing become increasingly sophisticated, mere login IDs and passwords are no longer strong enough to thwart intruders. Today,merchants, as well as consumers, need innovative security products that use AI,machine learning and advanced fraud analytics tools to protect their transactions, assets and data. I would like to know if this post has helped you understand better and your opinion on this topic via the comment section.