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The only certainties in life are death and taxes, according to legend. On the other hand, shift has existed since the beginning of time. It's difficult to stop transition. Every new thing follows closely behind something similar, with the goal of making our lives easier than ever before. Money has traveled a similar path so far. Since its establishment, it has come a long way and undergone continuous evolution. The creation and application of monetary systems has had a significant influence on the evolution of human society and culture over time.
Bitcoin and other cryptocurrencies are currently playing out the latest chapter in the changing face of money. However, in order to comprehend how and why we have arrived at the age of cryptocurrencies, it is important to study the history of money and address the major turning points that have shaped its evolution.
Bartering is the practice of exchanging goods or services for other goods or services rather than cash or coins. Its history stretches back many centuries, at least to 6000 BC, and possibly further, and it must have had a huge impact on how early humans interacted and communicated at the time. Let's assume you were fortunate enough to have a surplus of some valuable product such as food, animals, or firearms as a result of your own creativity, hard work, tolerance for the risk of being killed by the food source you were hunting, or just plain good fortune.
You'd be able to exchange or barter your surplus goods (or service) for anything else you didn't have or couldn't get your hands on.
Imagine the value of this system to early man, enabling the creation of an economy that allowed products and services to be exchanged outside of the local tribe or nation, and eventually across the globe, as traders and explorers sailed the trading routes in search of amazing new goods to carry home and trade. Of course, the barter scheme has a number of flaws that have led to alternative approaches to valuing goods and services. The first problem, known as the 'Double Coincidence of Wants,' simply means that if you have a cow to sell and need a goat, you must find someone who wants a cow and has a spare goat, which isn't always simple or convenient.
The lack of divisibility is the second problem. What if the other party only has five pairs of shoes and you assume your spare cow is worth ten pairs of shoes? Cutting the cow in half is obviously not a good idea, not least because you'll need to find someone who wants the other half of the cow (and everything you need in exchange) and complete the transaction before the remaining half deteriorates.
Other issues include the lack of a simple or manageable way to store the excess value you've generated or gained, as well as the lack of a standard measure of value, which will eventually lead to disputes about the worth of your cow. As a result, a more versatile trading mechanism was needed, allowing value to be stored more efficiently and safely.
If your tribe or community had access to, or could produce, a particular bead, stone, jewel, or other similar artifact, you would have had the ability to attach a worth to it that was appropriate to other tribes or communities. This value may be justified based on utility, availability, or aesthetic appeal, and the rarer the item, the higher the value you may assign. These commodities-based monies could then be exchanged for other items of similar value that you may need. In that sense, early monies were somewhat fungible– but only in the most specific sense. For example, an item that one tribe accepts as currency can be considered worthless by another.
Precious metals rose to prominence as the primary commodity-based forms of payment over time. Different metals would be assigned different levels of importance: copper, silver, and gold would each have their own value. These forms of currency had both an intrinsic and a market value. Copper, for example, could be melted down and turned into something else (presumably to be sold later), or it could be saved and used to pay for something else in the future.
Metal coins were first introduced around 600 BC, when precious metals were stamped into a standard size with a fixed value. Coins had the advantage of being much more compact, easier to store, and they retained their value, much like the precious metals from which they were derived. The Lydians, who lived in modern-day Turkey, were the first to use gold and silver coins, according to Herodotus. Metal coins, which were used as trading instruments and units of measure, meant that the value of commodities was better known and embraced. It became easier to compare the prices of various items; they were also lightweight and recyclable.
Metal coins facilitated and stimulated trade and economic development in the Mediterranean region and beyond. Metal coins were a huge improvement over barter, but they came with their own set of issues. To begin, coins could be tampered with by removing some of the metal, lowering their value.
Exchange rates between gold, silver, and copper coins fluctuated due to supply and demand, and some societies valued silver more than gold, creating significant exchange problems. At the end of the 17th century, national banks started to pledge that silver money would be exchanged for gold at a fixed rate – the beginnings of the gold standard.
As expected, our ability to make it easier to achieve what we want and need propelled the money game forward even further with the introduction of paper money.
During the Tang Dynasty (618–907), Chinese merchants started to entrust their heavy hoards of metal coins to a trusted agent, who would record the sum of money on deposit on a piece of paper. The document, which acts as a promissory note, could then be exchanged for merchandise, and the seller could redeem the note for coins at the agent's office. With no need to cart around bags of heavy coins, this significantly improved the storage of value and the method of conducting trade. These privately printed promissory notes, however, were not true paper money.
The concepts of paper money were continually perfected over the next few hundred years of the Song Dynasty (960–1279), and in the 1100s, the Song government published the world's first proper, government-produced paper money. Jiaozi was the name given to this type of currency.
China did not print paper money again until the 1890s, when the Qing Dynasty started producing yuan, following the fall of the Song dynasty to the Mongols led by Kubla Khan in 1279 and a return to silver as the preferred currency during the Ming Dynasty (1368 – 1644).
Travelers such as Marco Polo introduced the concept of paper money to Europe in 1290, and he explored it extensively in his book, "The Travels of Marco Polo." His visits to Kubla Khan's court provided him with insight into how paper money was used in China at the time. Private commercial banks issued the first European banknotes as legal tender in the 1660s, and this trend persisted in Europe and later in America until the 19th century. These banknotes were a type of representative currency that could be exchanged for gold or silver at a bank. Since banks issued far more notes than the gold and silver they held on deposit, a sudden loss of public trust in a bank could result in mass banknote redemption and bankruptcy. Also fractional reserve banking isn't a brand-new concept.
Of course, this activity culminated in a proliferation of various banknotes. There were over 5,000 different types of banknotes issued by different commercial banks in America at one time. Only banknotes issued by the largest and most creditworthy institutions were generally accepted. The issuing of banknotes approved and regulated by national governments has gradually replaced the use of banknotes issued by private commercial banks as legal tender. Following its establishment in 1913, the Federal Reserve Bank was given exclusive authority to issue banknotes in the United States.
Until recently, all of the world's government-issued currencies were technically convertible into gold or silver. There are no national currencies today that are backed by gold; instead, they are all ‘fiat,' or made legal tender by a government and recognised as such.
The gold standard is a monetary mechanism in which the value of a currency is directly related to the value of gold. A gold-standard nation can't increase the amount of money in circulation without raising its gold reserves. Being on the gold standard will potentially keep government overspending and inflation in check because the global gold supply rises slowly.
In the early 1930s, the United States government found itself unable to boost the economy due to increasing unemployment and spiraling deflation. The US and other governments had to keep interest rates high to prevent people from cashing in deposits and depleting the gold supply, but this made borrowing too costly for individuals and companies. As a result, President Franklin D. Roosevelt broke the dollar's ties to gold in 1933, enabling the government to inject money into the economy and reduce interest rates.
International governments were allowed to exchange dollars for gold until 1971, when President Richard Nixon suddenly ended the practice to discourage dollar-rich investors from draining the country's gold reserves.
The first credit cards appeared in the early 1900s, when large hotels and department stores started issuing paper cards to their high-end customers. Diners Club was famous for being the first to introduce a general merchandise credit card in 1949, for which it paid a whopping 7% transaction fee. The idea of digital money became a reality with the introduction of the internet in 1990.
Online payments became widespread with the advent of the World Wide Web. In 1999, European banks started providing smartphone-based mobile banking services. Then, as an alternative to conventional paper methods such as checks and money orders, Paypal allowed its members to make digital money transfers and payments. It's worth noting that the concept of digital cash is far from novel. In 1992, the first digital money, DigiCash, was released. Others such as CyberCash (1994), E-gold (1996), and Liberty Reserve followed (2006).
However, prior to Bitcoin, all attempts to build digital currencies had a major flaw: they all needed a middleman to win the confidence of consumers and ensure that no funds were double spent. In the end, these intermediaries were no different from the financial institutions that today's fiat currencies necessitate.
Following the publication of the white paper Bitcoin: a peer-to-peer electronic cash system the previous year, an individual or individuals using the pseudonym Satoshi Nakamoto launched Bitcoin on January 3rd 2009, which, among other things, solved the double spend issue that had plagued all previous incarnations of digital currency.
Bitcoin Cash is a fork of Bitcoin and a computer protocol that is regulated by a consensus algorithm, as well as math and game theory. Bitcoin Cash is, at its heart, a decentralized peer-to-peer network that is censorship-resistant. Bitcoin Cash enables value exchange without the intervention of a trusted third party, government, or central bank.
The defining characteristics of Bitcoin Cash are that it is:
If we look at the short history of money, we can see that many of its inventions have attempted to solve the problems of previous incarnations, with some success and others failure.
Now, with Bitcoin Cash, we have a system of money in which transactions are registered in an unfalsifiable ledger that is based on the strength of a large public computer network that everyone is free to enter, rather than the authority of banks or governments. The Bitcoin Cash network has never been hacked and has proven to be extremely stable.
Bitcoin Cash's supply is eventually fixed, so no bank or government can devalue it by printing more. As a Bitcoin Cash owner, you have full power over your coins; no one can block you from accessing them, no one can take them away from you, and you are the only one who can lose them or the data associated with them.
All of this means that Bitcoin Cash is not only here to stay, but it is already on its way to replacing the dollar in your wallet!