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The History of Money: From Barter to Digital Currencies

Updated: Apr 25, 2022

Talking about money is somewhat subjective, but there is a common sense. The question here is: What is money? The answers can be of the most varied, it will depend on your beliefs and values. Simply put, money is something we exchange in order to get what we need and want.

The value of money is established by the faith of many people in the power of exchange. Without people's belief and trust in them, it would be nothing more than a role or a screen number. So this money that we crave and possess is only valuable because other people believe it, and because it is authenticated by a monetary authority.

Has money always been like this? No, and I believe that we may soon undergo a transformation in the way we represent it. To understand how we got to the current condition, we need to talk about the history of humanity from its beginnings. What does caveman have to do with money?

Initially humans were hunters, gatherers and nomads. He didn't just stay in one region, he lived in one place until the animals, grains, fruits and vegetables ran out. At that time, there was no money, people ate what they sought during the day, the flock shared their food. The social hierarchy, based on the observation of current indigenous communities, is believed to be defined by whoever had the most strength to hunt, the strongest dominated. We are supposed to have the hunter-gatherer mentality even today.

With the passage of time and the end of the ice age, an abundance became available for the biggest predator on earth, homo sapiens. Population growth was inevitable. In the meantime, some began to learn through trial and error the art of planting and cultivating plants, but it did not develop. By going through a short period of cold and drought, after the ice age, that population explosion generated by past prosperity, faced a major problem of food shortages. From there, agriculture and livestock have developed a lot, not as a choice, but as the only alternative to survive. The development of this practice was so great that food came to be seen as something similar to the money we have today.

Those fertile landowners were dominant in the hierarchy. Those who did not own land saw does not have a alternative but to work for those in exchange for food. From there came the specialized services, which is the organization of work that we have until today. The best at their jobs tended to receive more food from the landowners, as they received more than they consumed, they began to accumulate “wealth”. Through this surplus they were able to exchange with other people for something they needed or wanted. The practice of barter was born.

The Babylonians, seeing that this barter was too laborious, created an interesting system. People could store their surplus food in the king's granaries and in exchange received a clay tablet, describing the quantity and location. From this invention came the principle of loans and compound interest. However, as the ballast of the tablets was food, which did not last long, this system was still a little fragile.

Follow the story, it will be important to understand money as we see it today.

To solve this ballast durability problem, some communities used salt, fish bones, shells and rare birds, but nothing worked as well as metals. The metals commonly used were copper, bronze, silver and finally gold. There are records from 10000 BC of Egyptians recording commodity prices through them. What made this practice unsustainable was the need for a balance and, in addition, the possible cheating on the part of seller and buyer.

How could this situation be resolved?

This problem was resolved in 600 BC in Lydia, located in what is now Turkey. The government minted the precious metals in the shape of a nugget with a pre-established weight, degree of purity and its seal of authenticity. It is important to highlight that at this moment the government enters as the one who seals and brings confidence to the money. People with more trust in money trade more, which enriches the community.

However, despite having resolved the trust issue, metals were limited. The money to be minted depended on the availability of metals, which was not always the case. Then, in 594 BC, in Athens in Ancient Greece, Solon, an aristocrat who came to power in the midst of a great economic crisis, came up with a solution that is used by governments in the contemporary era. With the lack of metals, he used less noble metals in the alloy of the coins, but as they had the government seal it was not even noticed. Solon resolved his internal crisis and gave us the current money version.

Like this? After Solon the world had several currencies

Yes, we had several coins, but money has not changed its logic, since then, its value is in the authenticity granted by the government, regardless of the material that is manufactured.

Digital Currencies

The breakdown of this system dates back to 13 years ago when a group of programmers launched Bitcoin, which is a private digital currency that is not controlled by any government. Its value is in free supply and demand, that is, it is in people's belief regarding its value, in addition to being limited to 21 million units. These two prerequisites for being money: all being in demand and being scarce.

Central banks, realizing the increasing strength of this movement and with the intention of maintaining their great power, began to consider the creation of their own digital currencies (CBDC). The main idea is that instead of the mint printing the money, the central bank would create codes that would represent a unit of currency, which would transit through a blockchain-like network. This network would record the entire path of money, since its inception.

The great inhibitor of this evolution is that it would no longer be possible for ordinary banks to deal with loans as they currently do, multiplying them in a virtual way. This modification would cause chaos in the economy. To give you an idea, in Brazil, virtual money represents almost twice the real money or in bits of current accounts, savings and applications. Can you already see this evolution?



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