Nature never intended Man to be generous. Well, don’t get me wrong. Humans are generous but only to a point. And only till the generosity massages one’s ego. This lack of generosity is what gave birth to financial transactions. I give you something I have and you want. But what do I get in return? This is the question that is at the heart of everything we do and have ever done.
The Barter System: Exchange of Goods
The earliest transactions involved the exchange of goods. So when George the very first, came out of his cave one fine prehistoric morning to give John (the very first) a spear tip he had been working on last evening, he got a deerskin purse in return from John to keep his tools in. That was the beginning of what is now known as the “barter system,” or the exchange of goods as a means of financial transactions.
While the above story is a figment of my imagination, I’m sure you get the point. As humans turned towards an agrarian age, the earliest forms of barter included grains, vegetables and livestock. When humans started moving about from one region to another, traded goods became a medium of exchange. I’ll give you my salt if you give me your spices.
The Rise of Commodity Money
As human civilization became more complex, there was a felt need for a more uniform medium of exchange that could get things done faster. This gave rise to “commodity money,” objects that have their own intrinsic value as well as have value as a medium of exchange or, money. Precious metals or cowry shells fall under this definition. Gold, silver, bronze and copper became popular as money and coins were minted to give them their specific value. The first recorded minted coins were found in Lydia in present day Turkey. Gold and silver were used by Egyptians and Mesopotamians, respectively.
This was probably a very exciting time in the history of humans when people were making a real effort to transition from goods to money as a medium of exchange. Their attempts at creating coins or bars of specific weights were the first really commendable efforts in trying to create a uniform system of financial transactions. Not only did humans start using “money” for buying and selling goods, but for other transactions as well, like fines for wrongdoing, taxes, interest on debts and compensation for breaking laws.
Between 700 and 500 BC, coins started being extensively used in India, China and cities around the Aegean Sea. At around the same time, money was deified by Romans in the form of the Goddess Moneta, from which words that mean “pertaining to money (monetary)” have evolved.
Development of Paper Currency
The development of the bank note, or paper currency, can be traced back to ancient China during the seventh century. They were officially introduced by the Song Dynasty in the 11th century. While the American bill says “In God We Trust,” the Chinese paper money had a more ominous statement on it – “All Counterfeiters Will Be Decapitated.” Paper money soon became popular in Europe during the 13th century. A paper note was inherently without any value in itself. It was cheap to manufacture and yet it could be deemed to have a set value that was printed on it. The idea was enticing. No more carrying hefty amounts of coins or blocks of precious metals.
Paper money ruled the international financial markets for, like, ages. Paper money made international trade easy and governments started trading in currencies of other nations. The more powerful and stable a government, the more powerful its currency.
Introduction of Credit Cards
The move towards “digital money” was necessitated by a burgeoning economy that was blurring geographical and political barriers. While the concept of using a worthless instrument to denote money dates back to the time of the Mesopotamians, approximately five centuries ago, it wasn’t until 1946 when a smart individual by the name of John Biggins introduced the Charg-It card. Biggins was a Brooklyn banker who in his immense financial wisdom introduced to the world the ancestor of the now ubiquitous credit card.
The first credit card to be introduced was the Diner’s Card, in 1950. Envisioned as a charge card for travel and entertainment, it soon caught the fancy of the general public and by 1951 had more than 20,000 card holders. American Express launched its own card that has the claim of being the first true plastic card in 1959, replacing cardboard and celluloid of the Diner’s Card. Soon, major banks started introducing their own cards in what would become true “credit” cards where they allowed consumers to carry their monthly balance forward for a nominal charge.
Money at Your Fingertips
The late 1990s saw the emergence of “mobile money” and “mobile banking.” Earlier transactions were done via SMS and mobile web. With the emergence of truly smart mobile phones, mobile banking became seamless, effortless and accessible. Bank accounts were synced to mobile phones via mobile apps that allowed people to access their accounts and perform financial transactions. Today, you can visit your friendly neighborhood grocery store, buy items you want and pay with your mobile phone. It’s that simple.
But Money is Controlled!
In all of the above cases, money as a medium of exchange is always regulated and controlled by a central authority. The Federal Reserve System, or simply The Fed, for example, controls money in the United States. A central banking system is the backbone of the global financial system. This has led to financial power being concentrated within a small group. People have no choice but to save their monies within this “financial mainstream” and perform daily transactions within its frameworks. They do not have unfettered access to their own money and often have to pay exorbitant fees for transactions.
The Era of True Democratization of Money
The introduction of Bitcoin in 2008 was nothing short of a miracle. While there was no “flash and bang” moment at the time Satoshi Nakamoto (bless his/her/their soul/s!) published his/her/their landmark paper, “Bitcoin: A Peer To Peer cash System,” the current scenario is for everyone to see and behold. January 2009 saw the introduction of the first bitcoins, a truly democratic, independent and incorruptible currency that has taken the world by storm; literally and figuratively. At last count, bitcoins had increased in value to almost 1000% in the last 12 months.
The source code of this revolutionary new “cryptocurrency” was blockchain technology. So radical and path-breaking is this technology that it can serve to transform almost every field of human endeavor on this planet. Today, people have taken to bitcoins and a variety of other “digital currencies” like the proverbial fishes to water and birds to air. What these cryptocurrencies offer is something that is far greater in value – the ease of accessibility of one’s own money and the ability to use it as and when one likes without any limits and obstacles, both physical and perceived.
Cryptocurrencies, one can argue, has brought the financial system of the world full circle. From the time the very first George and John exchanged the spear tip and the deerskin purse to individuals trading bitcoins in this time, monetary transactions are truly open, trustless, democratic and without any regulation. This inherent nature of money has always enamored humans throughout history and there have been many attempts to stop centralization of finance. The emergence of cryptocurrencies is a brave new attempt to go back to the original idea of money – to be a medium of exchange without being overtly controlled by anybody.
Jitendra Rathod is a Content Strategist and Writer. He is a passionate student of blockchain and believes that this technology can revolutionize human lives for the better.