If you think about it, the concept of money is an interesting one since it doesn’t have any intrinsic value. The money in your pocket are just pieces of metal or paper, yet we use it for our basic needs, things we want to buy, or services that enrich our daily lives—but what gives money its value? How did it get to where it is today? What steps did it need to take to advance?
To answer those questions, let’s go all the way back to the beginning.
Barter (the beginning)
The history of money begins with barter. Before the concept of money was invented, people directly exchanged goods and services with one another. For example, a farmer might trade their vegetables for lumber while other people might want livestock (cows, sheep, camels, and other animals) in exchange. As agriculture became more popular, people also started bartering wheat and other produce.
Sea shells (1200 B.C.)
What people soon realized was that barter could, at times, be inconvenient. For example, what happens when a farmer needs horseshoes but the blacksmith who makes them doesn’t want crops in return? The farmer could either look for another blacksmith or trade their crops for something the blacksmith wants. In hopes of simplifying the process, people started using cowries as a medium of exchange.
Cowries are the shells of a mollusk widely available in the shallow waters of the Pacific and Indian Oceans. They’re considered to be one of the longest-used currencies in the history of money, originally popping up in China. Some societies in Africa have even used them as recently as the middle of this century.
Metallic coins (1000 B.C.)
Because of how fragile cowries were, coins made out of bronze and copper began to replace them by the end of the Stone Age. Some of the earlier ones were manufactured by China as early as 770 BC and are considered to be the earliest forms of metal coins in the history of money.
Additionally, metal tools such as spades or knives were also used as a form of currency. These are the ancestors of the round-shaped coins we see today. They often had holes in the middle so that people could string them together into a chain.
The King of Lydia, Alyattes, minted what is believed to be the first official currency in history. Created in around 600 B.C., Lydian slaters were coins made out of electrum, which is a mixture of gold and silver that occurred naturally. They were stamped with pictures, serving as denominations, and were the first that took the round form we’re familiar with.
Paper money (994 A.D.)
Modern coins, as sturdy as they were, became a danger to carry around—especially when carrying a lot (which could also attract bandits). Instead of taking the risk, travelers gave their money to trustworthy merchants for safekeeping.
These merchants would store the coins in lockboxes, take note of how much was deposited on a piece of paper, and sign it. This served as an IOU, a signed note acknowledging a debt, which can be redeemed for coins from other affiliated merchants. Over time, people started using these notes as a medium of exchange and banking was born.
The first known paper banknotes were created in China during the Song Dynasty in 994 A.D. These notes were heavily produced until 1455 when their value rapidly depreciated and experienced a high rate of inflation.
Paper money caught up in the west in the 17th century, when Sweden also established the first national bank—the Stockholm Banco.
The gold standard (1816-1930)
Banknotes started becoming common in England and Europe during this time. However, their worth was never tied to any precious metal. In 1816, the gold standard was adopted in England where a certain amount of gold can be redeemed with each banknote. In 1900, the Gold Standard Act was officially enacted in the United States—which eventually led to the establishment of a central bank.
The Great Depression of the 1930s, which was a significant event in history, eventually led to the end of the gold standard. In 1930, the United States had the gold standard revised, leading to the devaluation of gold—which was the first step in ending the relationship completely. Soon after, the British and international gold standards ended and the complexities of international monetary regulation began.
Fiat (present day)
The next evolution of money happened in 1971 when US President Richard Nixon officially abandoned the gold standard and made it so that the dollar was no longer convertible into gold. Instead, they turned to fiat, a government-issued currency that isn’t backed by any commodity but rather by the government that issued it.
Because the government could control how much money is printed, central banks have more power over the economy. Additionally, since it isn’t tied to an amount of gold the government held in reserve, fiat is susceptible to inflation. This means it can lose its value in times of economic uncertainty and if too much money is printed, the value of the currency drops.
Electronic cash and online wallets (present day)
Because of the technological innovations of the 21st century, mobile payments with electronic cash (e.g. Visa, Mastercard, credit/debit card) and mobile payments (e.g. Apple Pay, Google Pay) rose in popularity.
These were also backed by financial institutions but made payments easier by allowing people to make transactions through their personal computers, smartphones, or tablets.
Bitcoin (the future)
Bitcoin was created in 2009 by Satoshi Nakamoto and quickly became the standard for all cryptocurrencies. As of November 2022, all of the world’s Bitcoin (fully diluted market cap) is worth over 347 million USD.
Because it has no physical form and is decentralized, Bitcoin lives solely on your digital wallet— giving you full control over your own money. No bank or government can take it away from you as long as you have your private keys.
Although its market was mainly niche at the beginning—mainly appealing to investors—Bitcoin adoption is beginning to rise with El Salvador as one of the early adopters of Bitcoin as a legal tender. Now, it’s more than just an investment tool. Bitcoin can be used for everyday transactions, cheaper remittances, wealth preservation, and more.
The evolution of money
It’s safe to say that the evolution of money has come a long way. With the steps it’s taking today and knowing what happened during the history of money, we can only imagine what’ll happen in the future. But if Bitcoin’s popularity can be used as an indicator of where money is going, we can rest easy knowing that it’s going in the right direction—back in the hands of the people.