This article is an analysis of the historical and current use of money and how cryptocurrencies can fit into the financial future. Therefore, the material does not mention specific forecasts for the future.
"Humanity has created money throughout its existence. This is not a technological breakthrough, but exclusively a mental revolution. Money creates a new intersubjective reality, which exists exclusively in the general view of people."
The Beginning of Barter (remember your school lessons)
Presumably, money appeared in the heyday of hunting and gathering. The alleged first form of trade is barter, the practice in which the caveman exchanges rabbit fur for what he needs. Such an exchange can be considered the earliest type of a transaction.
At the end of the Pleistocene epoch (commonly called the last glacial period, which ended about 10,000 years ago), people cultivated grains and tamed animals. It was then that humanity settled throughout the world. The appearance of agriculture increased the density of the population and society became more centralized. Everyone concentrated on their work. Items were still exchanged for necessary things. At that time, however, barter worked only if all the participants in the transaction received what they wanted.
How They Became Rich with Money and Who Invented Metal Coins
The first known large form of currency is shells. The demand for a controlled transactional system paved the way for the appearance of money, which was used both for measuring value (money for accounting) and for transactions (currency exchange).
There was a problem with using seashells because everyone could increase their capital in a simple way by going to the nearest beach and collecting a lot of seashells, and eventually, people became rich. But how do you trust such an economic system? Coins made of noble metals were invented to denote value. The first known coins minted in about 600 BC were found in the territory of the state of Lydia (present-day Greece). Lydians, unlike other peoples, could no longer simply go out and find more gold and silver, which was yet to be melted and minted into a coin with complex stamps. Each coin bore a seal of approval in the form of government officials and national symbols. This confirmed that the currency is valuable and that with its help you can buy something that you do not have. A new era of metal coins had begun.
The invention of coins solved many monetary problems, but shortcomings still existed. First, coins were cast from precious metals, so growth in circulation and supply was limited by the availability of these metals. Secondly, the coins occupied a lot of space and were heavy, which made their storage inconvenient.
In the year 100 BC, the Chinese invented paper. Soon, this invention was applied in an economic environment as people left their valuables in a bank, and in exchange received a banknote issued about the possession of this money. Thus, the first bills appeared. The flourishing and expansion of paper money occurred only after 1440 when Johannes Gutenberg invented the first printing press, which was used for mass printing of money. Each state began introducing its own money and backing them up with precious metals to confirm the value.
The Russian Empire and the USSR
Money circulation in the Russian Empire and the USSR consisted of bills and coins.
Formally, the paper ruble was called a credit bill (a banknote exchanged for coinage) and was considered silver, and its rate to gold was fixed, that is, the monetary system was legally bimetallic. In reality, the state has not exchanged the ruble for gold or silver, and full weight silver coins have gone out of circulation. The paper ruble was supplemented by an auxiliary, partial silver coin and a copper coin.
The purchasing power of the ruble remained fairly stable in Soviet times, being almost at the prerevolutionary level. The binding of coins to noble metals ceased in 1931. During the Great Patriotic War, a card system for the distribution of essential goods was introduced. In the territories occupied by German troops, special "occupation money" was presented in local currency. For many years, up to 1991, numerous monetary reforms were carried out, but despite this, there was a gradual increase in prices, while market prices were far ahead of the state.
Prior to the 1930s, every dollar in the United States was backed by $0.40 worth of gold. And it turned out to be utterly illiquid as the reserves of precious metals began to decrease. The Great Depression then stormed America with its economic hardships. As the treasury was faced with a limited supply of gold, authorities could no longer print large sums of money. There was a crisis; the population was poor. The Great Depression turned people into gold miners. Because of this, the whole economy could collapse, so in 1933, President Roosevelt made private property in the form of gold illegal. Citizens were instructed to return the metal to the Federal Reserve System in exchange for paper money.
The Era of Digital Currency
We have reached a practice where almost all money has become digital, and paper notes remain as a form of "real" currency, which can be touched. In his book Sapiens, anthropologist Yuval Noah Harari states: "The total amount of all money in the world is about $60 trillion, the total amount of coins and banknotes is less than $6 trillion. More than 90% of all money, and that is more than $50 trillion that appear on our accounts, exist only on computer servers. In other words, 90% of the world's currency is digital."
The Time of Bitcoin
In 2009, someone under the pseudonym of Satoshi Nakamoto presented a document that contained the idea of a decentralized, impartial, peer to peer system called Bitcoin. It has the following qualities:
Decentralized means no central authority, and the participants in the system independently control all processes.
Carelessness is the approach to guaranteeing accuracy and integrity without the need for trust. In traditional centralized systems, the community relies on trust, for example, "I hope that my bank will not lose my money."
In the peer-to-peer network, a transactional approach is used without an intermediary as an exchange is carried out between the parties.
The first document using the Proof-of-Work protocol was written by the system's inventor Adam Back in 1997. In fact, Satoshi Nakamoto redesigned the system and made Bitcoin work.
How to Unite the World
The interconnection of the world and the globalization of human interaction put pressure on the need for a reliable currency on a global scale. Despite the fact that 90% of currency is digital, the process of its transfer is still ineffective and creates barriers that impede the growth of the world economy. Try to send a large amount of money to another country, and you will see state restrictions and understand just how currency transfer is an expensive and slow business.
Despite the existing political restrictions, social barriers are starting to collapse. The desire of a person to unite with society goes beyond state or corporate relations. This struggle for freedom will stimulate the existing monetary system spread by private and political institutions to the point of inflection until the moment when users choose to either continue to trust the electronic economy or abandon it. The latter requires an alternative solution for the transition to the next monetary system.
Cryptocurrency Can Be the Answer
The methodology of the blockchain is one of the solutions to the problem of uniting people around the world. Bitcoin, designed for decentralization, distributes a copy of the transaction history to anyone who wants it. Users can participate in the verification of conducted and future transactions. Thus, the entire system becomes a single whole. Mass participation in the blockchain makes Bitcoin more impenetrable for fraud, and the larger the community, the safer the system.
As the first cryptocurrency, Bitcoin has a reputation and value. These very things laid the foundation for what a decentralized currency should look like. Bitcoin proved that the concept could work. During a decade, it became a global experiment in the digital economy.
In Satoshi Nakamoto's vision, Bitcoin was intended for the needs of ordinary citizens who would participate in the process of creating transactions using a home computer with Internet access and get Bitcoins for it. Some users, however, have guessed that more powerful processors have an advantage in accelerating operations. Bitcoin uses an SHA-256 hashing algorithm that can be parallelized by processors to speed up hashing.
At present, only very expensive specialized computers with integrated circuits (ASICs) have the chance to earn Bitcoins. Therefore, ordinary people cannot participate in the process of creating blocks. At the same time, in order to maintain Bitcoin, approximately the same amount of energy per year is needed as the population of Algeria consumes during the same period. But, in fact, Bitcoin does not need so much power. It is just that people are eagerly pursuing profits and installing more and more powerful equipment, which creates competition for block rewards.
Bitcoins and Illegal Activities
There is an opinion that Bitcoin can be used for illegal, including terrorist activities. But cryptocurrency, like any innovation, refers to a tool that can be used in different hands for both progress and destruction.
In addition, one of the features of the money we are accustomed to is that it is supported by the government. Thanks to this, citizens have confidence in fiat currency, which is used in this or that country. In the world of cryptocurrency, there is no governing authority that can guarantee the value of electronic coins. This is what speculators rely on.
Once Again about ICOs
At the end of 2015, the initial placement of coins appeared. An ICO is a fundraising event in which investors of a new coin can buy cheaply what they think will soon have a high price.
For example, if you want to create a coin, you can launch an ICO and set an early purchase price of 500 of your coins for one Ethereum. Investors who are interested and see the potential value can buy your tokens.
Because of the freedom of action and openness, many scammers raise money at the ICO and do not fulfill the promises given to their depositors. Most projects are not entirely original; rather, they copy existing ideas from the sector of technologies transferred to the cryptocurrency economy.
Whether our future will be connected with cryptocurrencies or what has yet to be created is still unknown. To date, the turbulent path of the crypto market is on track to transforming the market on a global scale. Economically, money has evolved over many thousands of years from the simplest forms of barter to the rectangular plastic of the debit card, where each payment method matched the needs of its time. Today's time affects not the specific population of any country, but all of humanity. As a result, a possible replacement of the monetary system will eventually take place.