STORY OF MONEY: FROM BARTER SYSTEM TO BITCOIN
Money is anything that people commonly accept as a medium of exchange. Money facilitates trading goods and services, aids in setting commodity prices and provides people with a way to reserve their riches. Though ‘money and ‘currency’ are generally used interchangeably, they hold substantial differences; money is a broader concept than currency. Money is an intangible asset, and the value people place on it represents its utility, while the currency is in the tangible form issued by the nation’s Government.?
THE BARTER SYSTEM?
The history of money dates back to 6000 BCE when Barter System was likely to be used. A simplistic idea underlies bartering: two parties bargain to assess the relative worth of their goods and services, then offer them to one another in an equal trade. But there were a few setbacks to the Barter System. For instance, A trades his cow with B in exchange for a pair of shoes, but how is a cow equivalent to a couple of shoes? When again A wants to purchase goods, he is required to search for a different exchange valuation each time. The barter arrangement didn’t have a standard unit of measurement. The traded products cannot be considered wealth or used to cover future financial needs because they are perishable. Additionally, the movement of the products was inefficient, making them vulnerable to theft.
GOLD COINS?
During 650 BCE, actual coinage began. It was created by the Lydians, who were “the first to strike and use coins of gold and silver,” according to the Greek poet Xenophanes of the sixth century, as cited by the historian Herodotus. The foundation deposit of the Artemisium (temple to Artemis) at Ephesus reveals that King Croesus of Lydia (reigned around 560–546 BCE) produced a bimetallic system of pure gold and pure silver coins. The earliest coins of King Croesus were made of electrum, sometimes known as “white gold” in Greek. This type was later applied to his bimetallic pure gold and silver series. They were stamped on one side with the confronting heads of a lion and a bull.
Gold coins solved a solution to the shared unit of value, which was the main issue with the barter system. Everybody acknowledged and accorded equal value to gold coins throughout the world. Gold coins could be easily carried and were not perishable. The coins were non-inflationary since their value was backed by gold; as a result, demand will always be high, and supply will be constrained. However, gold coins had flaws, which is why we don’t use them. Gold coins were expensive to mine, cumbersome to transport, and readily stolen like goods.?
PAPER CURRENCY?
During 1260 CE, China’s Yuan dynasty moved from coins to paper money. However, the Chinese emperor had a firm hold on the money supply and its many denominations by the time Marco Polo—a Venetian merchant, explorer, and writer who travelled through Asia along the Silk Road between 1271 and 1295 CE—visited China in roughly 1271 CE. In reality, the Chinese inscription from that time threatened that those who were counterfeiting would be decapitated, where the phrase “In God We Trust” now appears on modern American currency.
Until the 16th century, metal coins were the only form of money in some parts of Europe. However, the conquering of new lands by Europeans opened up fresh supplies of precious metals and allowed European countries to continue minting more coins.
Banks ultimately replaced the metal coinage that depositors and borrowers carried with paper banknotes. These notes could be exchanged for their face value in metal coins, often silver or gold, at any time by taking them to the bank. One could make purchases using this paper money. It functioned similarly to how money operates in the contemporary world. However, it was not issued by the government, which is currently in charge of doing so in most nations; instead, it was issued by banks and other private institutions.
Paper money was preferred over gold coins because it is lighter and cheaper to produce, and its value was initially backed by gold before being back in the trust of the Government. However, it has drawbacks because it is simple to steal, which has been a major problem for money since the Barter System. Furthermore, Fiat currencies are prone to inflation because the government can print as many notes as it likes, which depreciates their value. Additionally, there is no method to track the notes, which encourages the use of illegal money and the parallel economy.
CHEQUES?
The cheques came into use in Europe’s middle of the eighteenth century. Goldsmiths and Scriveners aspired to simplify and lower the risk of payment transactions. Customers could now make payments using paper instructions, leaving their gold and silver securely stored in the vaults, thanks to a system they established. By doing this, they opened up a service that was previously solely accessible to international businesspeople through bills of exchange.
As its use increased, so did the format of the cheque. Samuel Smith & Co. of Nottingham received the first provincial English bank’s check that survived, which was written in 1705. Vere, Glyn & Hallifax produced the first pre-printed cheque form (aside from the Bank of England’s) in the 1750s, and the Commercial Bank of Scotland produced the first checks with the customer’s name pre-printed in 1811.
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The cheque improved security by establishing the sender and recipient identities and using cryptography as a signature for validation. Although it has flaws, bearer cheques can be stolen, cryptography can easily fake rudimentary signatures,?and transaction verification is done later. The sender hands the recipient the check; the recipient deposits it at his or her bank. Then the receiver’s bank connects with the clearance authority, which then connects with the sender’s bank to confirm that the sender has the required amount of money in his or her bank account.
After this, the transaction is approved. While taking the cheque receiver needs to know whether the sender has money in his bank account to fulfil the transaction.?
MOBILE PAYMENTS
We then moved to the system of e-wallets with the launch of PayPal’s electronic money transfer business in 1999. Early on, PayPal’s user base increased by around 10% every day. Co-founders included venture capitalist Peter Thiel and Tesla CEO Elon Musk.
Mobile payments seem to be the best option. Every mobile phone has fingerprint sensors and iris scanners. They don’t need paper money which makes it impossible to steal. The transactions are quick, effective, and practical. Regulation is aided by tracking who has money and where it is being spent.?
Despite e-wallets being pretty perfect, there was still a need to search for other alternatives because they are tied to the same financial system. Our financial affairs are not directly under our control, and third parties are involved in our transactions to ensure their accuracy.
BITCOIN?
In 2009, a person or group of people under the pseudogene of Satoshi Nakamoto released a white paper titled Bitcoin. Since then, Bitcoin (BTC) has remained the most widely used and valuable digital money worldwide. Bitcoin is a decentralized digital currency built on the blockchain that is supported by a network of users who verify and log transactions independently of a central authority or middleman.
The U.S. dollar and other fiat currencies managed by governments and central banks are alternatives to Bitcoin. Instead, an approach known as a proof-of-work consensus technique is used to validate transactions. By employing powerful computers to solve complex mathematical problems, bitcoin miners compete to validate transactions.
Several other cryptocurrencies were developed after the invention of Bitcoin; digital money has revolutionised money and is a step toward changing the current financial system and decentralising money.
BOTTOM LINE?
Money has seen a remarkable evolution; goods were traded, coins were minted, paper money was printed, and a significant shift to electronic transactions is just around the corner. The development of technology has given people optimism that the current financial system will fundamentally alter, and this change will continue in response to human demands. The monetary system will alter as long as people need a means of exchange.