Why Bitcoin is more similar to the monetary system of the ancient Sumerians, rather than the Fed

The newest form of money - ultramodern blockchain-based cryptocurrencies - is very similar to the very first and ancient forms of money.

Throughout the last millennium, money acquired many different forms. For more than seven thousand years, gold and silver have remained unchanged favorites, but the nature of money is very dependent on context. Precious metals, grain, ax butts, beads, animal skins, rum, cigarettes — all these things were once used as money. This suggests that money can be called everything that people collectively agree to use as such, and the choice of a specific measure of value depends on the availability and usability of certain things in the current situation.

Currency economists agree that money can serve at least three different purposes: as a unit of account, a means of accumulation and a medium of exchange. In other words, you can use them to keep track of who should owe what and to whom, and how much, for later occupation and trade.

A number of properties simplify these functions. Money must be resistant to wear and falsification, portable, divisible, rare (but not too) and replaceable. In addition, every monetary unit must be in every sense completely identical to other such units. In practice, various forms of money meet these criteria to a greater or lesser extent. Micronesian rai stones , for example, are huge limestone discs weighing up to 4 tons. What they definitely lack is portability and divisibility, which, however, more than compensate for the increased durability and complexity of the forgery.
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Stones of paradise

The stones of paradise are an interesting precedent for new forms of money. They have a lot in common with digital currencies, such as Bitcoin, information about the monetary units of which is recorded in registries distributed over the nodes participating in the network. When the paradise stone was used (and sometimes is used now) as a means of payment, usually for an important operation, such as the transfer of a dowry or the formation of a political union, it was very rarely physically moved. Instead, the community organized a meeting in which its members collectively agreed that a new owner appeared at the stone. The same thing happens in the Bitcoin network: the registry is updated to reflect the changes about who belongs to whom.

Origin of money

In spite of the fact that during the last millennium, money took on various forms, people always felt gold and silver. Attractive, scarce, ductile and resistant to oxidation, they began to play the role of money by default, at least since the times of the Sumerians. Anthropologist David Graeber, author of the book Debt: The First Five Thousand Years (English Debt History: First Five Thousand Years), notes that some of the earliest written texts are devoted to establishing a fixed exchange rate of silver for barley, that is, in fact, the silver standard of that time . Money was invented in the process of building huge and very complex from the point of view of architecture and construction of temple complexes of the ancient Middle East as an accounting tool that simplifies wages and other expenses. There is a competing theory that claims that money was the result of a desire to eliminate the shortcomings of a barter economy.

Anyway, the money at this stage of the story, as a rule, was silver bullion, weighed at the time of the transfer to the new owner, and the determination of the purity of the metal was carried out with the help of a certain weight standard. Perhaps this system was not highly efficient, but it worked and was accessible to all social groups. Thanks to her, the money of that time could actually be used as money. It was a technology that people created for themselves. Market forces could increase or decrease the value of silver in relation to other raw materials, such as grain or textiles, but no one could control it or change its reserves unfairly.

Then, about 2600 years ago, the production of the first coins was carried out in Lydia (modern Turkey). The seigniorage, or the right to make money, was quickly appropriated by the king. After that, money became an instrument of the state, not people. The king could reduce the precious metal content when minting coins, replacing it with cheaper metals such as copper and appropriating the difference to himself. This profitable source of income was more than once used by the Roman emperors to finance wars. Of course, such actions depreciated the currency and often caused hyperinflation, as it happened under the rule of King Henry VIII, who received the well-deserved nickname “the old copper nose”. The monarch so greatly reduced the value of the English penny that the silver surface of the coin was quickly erased, exposing the copper base, and most often this occurred in the area of ​​the protruding outline of his nose.


Coin 619-561 BC, Lydia

The growing influence of free money

The effect of seigniorage and the inflation that often accompanies it was to transfer part of the value from the end users of money, ordinary people, to those who created them, that is, to the state. Of course, the approach in which the precious metal ingots were used as a means of exchanging goods and services can hardly be called “technology” or even less compared with modern decentralized concepts. However, this idea should not be underestimated. By the standards of the fifth millennium BC, it was a real Fintech, which quickly turned into a means of retaining power.

Further intervention was associated with the emergence of the first banks. At the core of their work was a sensible idea: keeping a large amount of gold and silver at home is very risky, so rich individuals were willing to pay the bank for doing it for them. Clients could withdraw funds when needed. After some time, it became obvious that it was not necessary to take the gold out of the vault. The bank could give you a receipt giving you the right to do it when needed. And so the first notes in history appeared. The state applied the same approach to the so-called representative money, that is, banknotes secured by gold deposits. Theoretically, you could get back the gold face value of the banknote. However, both banks and states realized that it was not at all necessary for them to store the entire supply of gold, under which they issued banknotes. They could lend a portion of the stock at interest, or, in the case of government agencies, use it for other purposes. The logical conclusion of this process was the emergence of fiat money, unsecured by any precious metals, but created at will (fiat - let it be so, lat.) From their issuer.

In most countries, the central bank plays a certain role in creating money, delegating most of its responsibilities to commercial banks, with the result that all participants in the process profit from seignorage. Inflation is built into the system, which works more or less well only as long as the population trusts the issuer. If the latter goes too far, rampant inflation or so-called hyperinflation will occur, as has already happened in the Weimar Republic of the 1920s or modern Zimbabwe. Quantitative easing may be an inevitable evil - the worst of the existing solutions of the problem, but to assess the long-term consequences of creating such a large amount of money and the impact of this process on the economic development of the country will become possible very soon.

Blockchain money

This is the context in which Bitcoin appeared 8 years ago. This may sound crazy, but bitcoins are in many ways more like the earliest forms of money than fiat. And this is a very remarkable turn in the history of the development of money.

The Bitcoin registry of accounts exists simultaneously on tens of thousands of computers around the world, as opposed to the full control of modern currencies by a single organization, such as a bank or government. Like the Micronesian paradise stones, ownership of Bitcoins is achieved by universal consensus. Any doubtful or fraudulent registry operations will be noticed and stopped in time. Unlike the Heaven stones, however, Bitcoins can be very well divided even into small parts, even numbers with eight decimal places. Existing in cyberspace, under the control of thousands of computers, such digital money becomes incredibly durable. The same can be said about portability: you can send Bitcoins anywhere in the world in just a few seconds. In addition, each unit of account of such a currency is easily replaceable and at the same time very rare, due to the limited supply of currency. At the same time, it is very difficult to fake bitcoins.

The earliest monetary transactions in history required the buyer and seller to weigh silver bars, checking them against the standard to confirm the purity of the metal. Instead of weights and standards, Bitcoin applies mathematics: the "purity" of coins is verified and guaranteed using cryptographic methods - a kind of binary measure of authenticity.

Bitcoin is the same “tool for the people” as money was in the first 4500 years of its existence, of course, if you do not take into account small technical obstacles in the form of the need to understand how you can create a bitcoin wallet. The process of creating money, though not perfect, rewards those participants who protect the security of the network, while inflation is possible, but has its limitations. Compare this with other digital currencies, the reserves of which are limited from the very beginning of their existence, and they themselves award the custodians of their registry with the help of small fees for conducting and recording transactions.

Probably for the first time since the invention of minting coins more than 2500 years ago, cryptocurrencies, such as Bitcoin, today allow money to return to the fulfillment of its original purpose, excluding from their work the integral factor of power that emerged due to control over their release by the state or banks. Of course, fiat money will not disappear anywhere in the near future, and those Bitcoin supporters who claim that he will soon replace them or national currencies will have to wait a very long time, if only because government currencies have their own advantages, and besides many property rights depend on them. Apparently, in the end, we will see a variety of competing currencies, like the one that was already predicted by the Austrian economist Friedrich von Hayek in his book Private Money. Among others, there will be improved with blockchain versions of fiat currencies and assets. The Waves platform, for example, was created with the aim of bridging the gap between the complex procedures of the modern monetary system and the blockchain, allowing, among other things, to also integrate operations with new financial instruments, such as gold or silver, into it.

Thus, the blockchain technology does not necessarily replace the money in the form in which we know them today, however, it will make it so that they will better meet their original purpose and the needs of the people who use them.