Today’s world gives us several different options when it comes to paying for goods and services. You can use physical cash, a credit or debit card, and in some cases, cryptocurrencies like Bitcoin. It hasn’t always been that easy, of course. Just 14 years ago, cryptocurrencies didn’t exist, and before 1966, we didn’t even have debit cards.
So, how exactly did we get to this point? Find out in this AAG Academy guide, which looks at the evolution of money from bartering thousands of years ago, through the arrival of paper notes and digital currencies, all the way up to today.
It seems strange to think of a world in which money does not exist, but up until around 5,000 years ago, when the Mesopatomian people created the shekel — which we believe was the world’s first currency — that’s exactly how things were. Without a more appropriate store of value or unit of account, people simply exchanged goods and services instead.
If a farmer needed lumber, for example, he might trade it for livestock, grain, or vegetables. If a shoemaker had a desire for fruit, he might exchange it for a pair of shoes. People traded whatever they were growing, making, or services they could provide for whatever they required. While this system was somewhat effective, it had some obvious flaws.
This system of exchange was only possible because of what economists call the “double coincidence of wants,” in which two parties each possess an item that the other wants. When that coincidence didn’t exist — either because one party needed something that was not readily available, or their own goods were not appealing to others — the system didn’t work.
Bartering and exchanging still exists today. People frequently trade goods and services rather than using money, but humans recognized thousands of years ago that a more effective system was required to make transactions fairer and simpler, and to make goods and services more accessible. They also needed to solve the problem of the double coincidence of wants.
Transition from bartering to money
That’s why, in around 1,000 BC, humans began using the earliest forms of money. These weren’t coins initially, but rather small knives and spades made of bronze that were first used by the people of China during the Zhou dynasty. These items could be made or earned, and then exchanged for whatever goods or services the holder required.
In around 770 BC, the people of China and India then began manufacturing actual coins made of bronze, silver, and gold. The coins were stamped or punched with insignias, each of which represented a different denomination. For the first time in human history, the world had a proper medium of exchange with a clear value that everyone could recognize.
By 500 BC, the concept of coins had spread among Greek cities and islands, and to the south of Italy. In the years that followed, it would slowly but surely spread to other parts of the world before eventually becoming widespread.
Paper money and minting
The adoption of coins was aided by official minting, the first of which occurred in around 600 BC when King Alyattes of Lydia started issuing coins made from electrum. Alyatte’s successor, King Croesus, is believed to be the first monarch to issue coins made from gold. They spread to Persia when Croesus was captured in 546 BC.
China wasn’t just the first to recognize the need for coins; its people were also ahead of others in realizing that a lighter alternative was needed for larger transactions. In the early 600s, during the Tang dynasty, merchants and wholesalers began issuing paper credit notes that could be used in place of bulky coins for bigger commercial transactions.
In the 11th century, the Song dynasty made paper banknotes more widespread, and they were used alongside coins rather than in place of them like they are today. In an effort to prevent unofficial reproduction, the notes featured an inscription in Chinese that read, “Those who are counterfeiting will be beheaded.”
Other early adopters of the paper banknote include Afghanistan and Tibet. Thanks to travelers like Marco Polo and William of Rubruck, who spread the word of their experiences in foreign lands, paper banknotes were later adopted in Europe. The first notes used in Europe were actually issued by North American governments, which used them to buy European goods.
Digital money and international trade
International trade of this kind was made significantly simpler with the advent of digital money. This occurred during the second half of the 20th century when computer technology had become sophisticated enough to allow money to be represented in digital form. By 1990, all money transferred between the central and commercial banks in the U.S. was digital.
This allowed for significantly faster, more efficient, and more flexible payments and paved the way for a new generation of international trade. Going into the 2000s, the majority of money existed digitally in bank databases, and around a decade later, between 20% and 58% of all transactions were digital, depending on the country.
Cryptocurrency and the future
Long-time cryptocurrency fans will know the significance of 2009 when Bitcoin — the world’s first cryptocurrency — made its official public debut. Its creator, Satoshi Nakamoto, designed it to be an alternative to fiat currencies, which solved many of the problems that Nakamoto recognized in traditional currencies and banking systems.
Bitcoin popularized not only digital currencies, but also decentralization, which took the power and control away from governments and other central entities, and blockchain technology with cryptographic security. Today, there are more than 12,000 cryptocurrencies in existence — all of which are built upon the foundations laid by Bitcoin.
13 years on, Bitcoin is accepted by more than 15,000 merchants, including some of the world’s biggest brands like AT&T, Microsoft, Twitch, and Wikipedia. It perhaps isn’t as widespread as its creator hoped it would be by now, but adoption is certainly on the up. Furthermore, Bitcoin is by far the most valuable cryptocurrency in the world.
It’s still too early to tell whether cryptocurrencies will ever be as widespread as traditional currencies, but they’re certainly not going anywhere for the foreseeable future.
Cryptocurrency has a number of advantages over traditional fiat currencies. It is near impossible to counterfeit, more flexible, and more affordable for international transactions. In most cases, it is also completely decentralized and free from regulation.
An unregulated cryptocurrency industry has lots of advantages, but some experts have warned that because of how valuable it has become, it has the potential to cause significant macroeconomic consequences if it is mismanaged.
Cryptocurrency certainly has its advantages, but there are disadvantages, too. So, while using cryptocurrency is better in some scenarios — like transferring money between different countries — it is worse in others, like when you want to buy goods and services from merchants and providers that do not accept cryptocurrency.
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About the author
Senior content writer
Senior copywriter for AAG Marketing team with the focus of educating our community on all things web3, blockchain and Metaverse.
This article is intended to provide generalized information designed to educate a broad segment of the public; it does not give personalized investment, legal, or other business and professional advice. Before taking any action, you should always consult with your own financial, legal, tax, investment, or other professional for advice on matters that affect you and/or your business.