It may sound odd, but as time progressed, money became less valuable. Or rather, its intrinsic value became less valuable. Currency was once a commodity in and of itself - a metal that could be physically useful, for example. Eventually, it became something we can legally exchange for such a commodity. Today, it’s neither - it’s a number on the screen that we collectively believe - and hope - has value tomorrow.
Whilst many are looking to understand how to buy bitcoins UK, we must first understand the history of currency. Context is important, and if we want to appreciate the advantages of modern money, we need to know where it comes from.
Barter and Early Currency
A major development in our early economy was the idea of bartering products; swapping some of my grain for some of your livestock. This was functional and intuitive and it helped steer us towards specialization and productive trade.
Of course, it was a little too on-the-nose and awkward. Making a trade to receive a good only so you can swap it for a third party’s good seems inefficient, and so currency was born.
It was in Lydia, Turkey during the 7th century BC that we believe the first standardized coins were made. The material was a combination of silver and gold, a material that had intrinsic value at the time - something people could trust.
Very quickly, nearby cities adopted the idea of using such coins, until eventually, it reached Greece and the Persian Empire in 574 BC.
It was actually the improved efficiency of using coins that was a huge contributing factor in the success of the Athenian Empire during this time. That, and the discovery of silver at Laurium during the 5th century BC, which helped expand the Athenian military.
Paper money
It wasn’t long until the idea of using coins spread around the world. China was an early adopter, though they had opted for copper coins in 210 BC, ridding the economy of other material coins.
It was China that invented the first paper money in the 9th century. Copper coins were still the base unit of currency, but a copper shortage led to merchants turning to paper - 700 years before Europe did.
Some claim that merchants wanted to do this anyway, as it mitigated having to carry lots of coins around. The paper used was essentially trading receipts, denoting a deposit of goods or coinage that had been made. This was the first time we saw a “promise” of money/value being introduced to trade, which was the idea behind the gold standard.
Gold Standard
The gold standard was a commonly used form of money where coins or paper notes were backed by a given quantity of gold. So, people could turn up to a bank and literally swap their money for gold; a legally binding, guaranteed amount.
This was a safe promise, and it led to confidence in paper money. This was the dominant monetary system in the west during the 19th and early 20th century. In fact, it was seen as so established and safe that many other countries, such as British India, pegged their silver-backed currency to the gold standards of the UK and US.
The improvement in the efficiency of money - the speed and confidence in which it can be transferred - went hand-in-hand with the industrial revolution. Trade volumes were rising, as was international trade, and the gold standard offered long-term price stability along with fixed exchange rates.
21st Century - Crypto and Cashless
Today, we couldn’t be further from that reality - and many yearn for a return to gold backing. Exchange rates and volatile, fiat money is nothing but the hope that the public believes in its value tomorrow, and cash is disappearing. Though, we can’t group together fiat currency and crypto, as one is a response to the disadvantages of the other.
Fiat currency came about for many reasons, but one of them is that central banks can better control it. They can induce more supply, inflation, and lending to boost the economy.
However, crypto is a response against this centralized control, as it attempts to displace this manipulation by democratizing the currency. Though, it’s much more similar to fiat currency than fiat is to the gold standard, many would argue. Cryptos’ main advantage is speed and security, with transactions avoiding bank fees and third-party intermediaries.
Regardless of which direction we will take in the future, what we do know is that the future is cashless. QR codes, social media apps, and money transfer companies are taking over online payments. In fact, even very local payments such as bus tickets are now facilitated by online payments, with entire countries experimenting with the extermination of cash.
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