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The history of money: everything leads to Bitcoin

4


The origin of money, and how we got to the present time, with Fiat money and cryptocurrencies fighting to become the medium for exchange, is an issue that attracts everyone. For this reason, and within the framework of the conference Decentralize, transmitted through YouTube. The Moonquant Capital Co-Founder and professor at CEMA University, Alfredo B. Roisenzvit, tells us what the history of money is, and how it led to the emergence of Bitcoin.

The Beginning of Money: Barter

The first step towards shaping money as we know it today is barter. As this is the simplest type of merchandise exchange of all. A person, family or community that has a surplus in the production of an item, will seek to change that product that they have left over for one that they require. Thus, a person could exchange ten chickens for a cow, or a cow for a chair.

However, this system has three problems that make bartering an impractical method, and certainly less than money. The first problem being the fact that the products that participate in the barter are not very divisible. That is, if we have 5 chickens and not 10, it is impossible for us to sell half a cow.

, The history of money: everything leads to Bitcoin, Forex-News, Forex-News

The second problem of barter is the mismatch in preferences. And, although I have a cow and my neighbor has 10 chickens, it may be that I do not need chickens at that time. So the mismatch in preferences would prevent barter from taking place.

Finally, the third problem that led to the end of the barter and its replacement by money, is intertemporality. Well, we don’t all need the same thing all the time. Thus, we all need to eat daily, but we do not need a chair a day. So, if we produce chairs, we might get bread the first day, but on the second day the baker no longer needs any more chairs.

Gold: Bitcoin’s predecessor

In this way, a process described by Roisenzvit begins, but explained for the first time by Carl Menger. Who presents evolution, from barter to the emergence of money, as a natural process within history. Based on the need to make financial and commercial transactions impersonal.

That is to say, although in my trade with my neighbor I can trust him, and for example sell him a chair in exchange for a daily bread for a year, I cannot be so trusting with people from another village. So I need something impersonal that can be given immediately, and that represents value to both people in the transaction.

, The history of money: everything leads to Bitcoin, Forex-News, Forex-News
Alfredo Roisenzvit tells us the history of money and how it got to Bitcoin.

This is how money is born for the first time. Which consists of tokens of an element that has value in a generalized way, such as salt in ancient times, and that is therefore universally accepted. This money should serve as a unit of account, means of payment and store of value. And possess qualities such as being reliable, useful, portable, transferable, expendable, divisible, and treasurable.

In the early days, the product that best adapted to these characteristics was gold, the world’s first trial of money. And, this precious metal has a unique quality that gave it value, and that is to be scarce. As Roisenzvit comments, all the gold ever mined in the world fits in four Olympic pools, and only 20% of that gold is in the hands of central banks.

The move to paper money and fiat money

However, gold also has a problem. Well, although it is an excellent value reserve, thanks to the shortage in its supply, precisely because of its quality as a refuge it loses capacities as a unit of account and means of payment. Therefore, another element is required that can make financial and commercial transactions worldwide simple.

In this way, paper money was born in the history of money, with the first trial taking place in the city of Stockholm. In 1656, the Bank of Stockholm issued interchangeable paper notes representing a certain amount of silver. An attempt that failed when the savers tried to withdraw their money at the same time without the Bank’s owner, Johan Palmstruch, being able to satisfy everyone’s demands, being sentenced to death.

However, what Palmstruch did was nothing more than a representation of a need for the modern economy: leverage. Which arises along with the division between real and financial assets. The latter being those that can be granted without a physical asset to back them up. However, they still serve as a means of payment and unit of account, and therefore, as a mechanism for investment and generation of real wealth.

In this way, paper money that represented real wealth without actually providing it, became the cornerstone of modern leverage-based loans. A business that was quickly taken over by governments, who with the creation of central banks ended the private issuance of money, and centralized that function in their own hands, giving way to Fiat money.

The rise of Bitcoin

In this way we reach today. When the consolidation of Fiat money, based solely on the trust of citizens in the institutions that support it, has become the normal instrument for the exchange of goods and services. Allowing governments to print the money they need to meet their growing public spending, even if this sometimes leads to inflationary crises.

Reason why Bitcoin and other cryptocurrencies were born in 2008. And it is that, Bitcoin is nothing else but a return to the principles of the history of money that led to the emergence of the other in ancient times, but solving their problems .

Creating, in Roisenzvit’s words “a decentralized, incensible asset with global supply and traceable scarcity, but also very easy to store and move” This not only has the effect of creating a new type of real asset that serves as a haven of value, based on the scarcity of Bitcoin.

It also opens the doors to a new era in world finance. With the emergence of decentralized finance or DeFi, driven by the Ethereum chain, but in which more and more large companies like Binance are involved. What would allow to maintain the advantages of the leverage of the Fiat money. But ending the state’s discretionary control over money, as Bitcoin did with its birth.



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