Bitcoin and the History of Money
You may have heard a lot about bitcoin in the news lately.
But what exactly is bitcoin? Why does it matter? And why should you care?
Well, it may be the best form of money the world has ever seen,
it’s digital money for a digital age and it’s the scarcest, most divisible, most
transportable, most verifiable and most recognizable form
of money in history. How do we know this?
Let’s take a look at the evolution of money to find out.
One day around 25,000 years ago a hunter killed a mammoth
and everyone in this village wanted some of the meat.
As he began to give the meat to the villagers, he had to keep track of who he gave it to
and how much he gave. For thousands of years this was how people
conducted trade Since there was no ledger to track who owed
what, everyone was forced to keep track of their
own debts. But what if he could come up with some sort
of ledger that kept track of who owed him and how much
the owed? Money
“From now on, if you want meat you have to give me stones as a way to keep
track of your debt.” This was the birth of currency, and it arose
not from barter, but as a way to keep track of debt
This new technology was so successful that before long
everybody began using the ledger system because it greatly improved upon keeping track
of debts. But eventually different villages that use
different ledgers wanted to engage in trade. Unfortunately, there was one problem preventing
this – they needed a universal ledger, something
that could serve as a universal form of money so people could interact with others outside
their own community. But they couldn’t just use anything.
To establish a system that would work on a large scale
they had to pick something that was universally scarce,
divisible, transportable, durable, recognizable and fungible.
Gold What about gold? Gold was almost perfect as
a form of money. About 5,000 years ago, people began to develop
an attitude about gold that has been passed down from generation
to generation. This attitude was based on the fact that currency
had some sort of intrinsic value. But the truth is, aside from gold serving
as a universal ledger, it doesn’t have any intrinsic value.
This attitude continues today, and it’s because at this attitude that people hoard gold,
speculate in it and wear it around their necks. Banks and credit cards
Gold served us well as a currency, but throughout history
people have been constantly seeking to utilize new technology to improve the economic system
Before long people sought to improve upon gold,
and shortly thereafter, banks emerged. For a tidy fee, banks safely stored gold in
vaults and circulated paper bills in exchange. Around 40 years ago, we saw yet another development
in currency when we decided to start using credit cards
and debit cards. Just like previous advances in currency, these
advances came about as a way to use new technology to improve
our financial system. But in the last forty years a lot has happened.
Even though we’ve seen the rise of the Internet and an information revolution, our system
of money has not reflected these changes and still rooted in the past.
Bitcoin Enter bitcoin – the first form of truly digital
money. Bitcoin was designed for the era of information
and solves many of the disadvantages of physical and electronic money.
Bitcoin is the first scarce digital resource to ever exist.
By design, there will never be more than 21 million bitcoins.
Bitcoin is divisible – one bitcoin is made of one million bits.
Bitcoin is frictionless – you can send bitcoin by email,
text message or even paper, for free and in real time.
Bitcoin is verifiable – it uses advanced cryptography and cannot be faked.
Bitcoin is global – like the Internet, bitcoin is decentralized.
It’s not controlled by anyone or any country. Bitcoin is open source – it does not have
a single owner, but we all own it. There’s a pervasive myth that money exists
because the government creates and supports it.
But as we’ve seen over the course of history, money exists because it serves a basic social
need. For over 25,000 years, we’ve utilized the
latest advances in technology to improve upon our system. And even though
bitcoin, credit cards, and paper bills are very different
from the stones used as currency 25,000 years ago,
today’s money serves the same purpose as it has for thousands of years.
It’s a ledger that’s used as a store of value, as a medium of exchange
and as a unit of account. Bitcoin may be the most important social
experiment currently in existence. Over the next couple of decades, we may witness
a phenomenal transformation where we abandon the gold standard after 5,000
years and replace it with bitcoin.
If this occurs, it could be the biggest transfer of wealth
in the history of civilization and the biggest advancement in the democratization
and access of money.