Before the advent of ‘money’ in order to obtain something you needed you’d have to swap something of equal value so if you wanted to buy a loaf of break you might swap some milk or grain. Although this worked for simple goods, it wasn’t practical as the quantity and availability of goods became more extensive and it was complicated to work out how much milk a horse was worth especially if the owner of the horse was lactose intolerant.
So tokens were used instead. These needed to be limited in quantity (for example stones would be of little value because you could dig them up anywhere so massive quantities would be needed for simple transactions), durable and easy to carry about (so elephants were no good). One of the earliest forms we know about are cowrie shells 🐚 from about 1200 BC.
You may think it’d be too early to talk about counterfeiting but there is reason to believe even shells were subject to this and it has always been an issue with some of the earliest Chinese coins warning that counterfeiting would be punished by beheading.
Pressed coins were introduced around 600 BC, and have been used as legal tender ever since. These were made of precious metal and had a value equal to the value of the metal contained. This meant that no matter who made it as long as it was the correct metal and weight it could be used. You could also cut such coins in half and each half would have half the value.
In around the 11th century, ‘fiat’ money was introduced. This enabled the government to print tokens as coins and paper and make a promise that those tokens had a value even though they were made of cheap metals or paper. As long as people trusted their government and the tokens were hard to copy this meant they could be used instead of bullion.
The disadvantages to this system however is it is dependent on faith in your government. You may have seen pictures of wheelbarrows full of paper currency or banknotes with denominations of millions because the economy has collapsed and everyone’s money has now become worthless. Also it is very easy for the government to print more of this money and give it to the banks to distribute and every time they do your banknotes are worth a bit less than before.
So what do you do if you want to protect yourself from such a situation? You can buy other countries currency or bullion, or invest in gold, oil or other commodities, but there are fees to buy them and fees to sell them and it’s not always easy to get hold of your funds quickly should you need them.
So a ‘global currency’ was needed, which is where Cryptocurrency comes in…
(read more in part 2)