Before cryptocurrency, there was currency, which is simply a medium of exchange for goods and service. But how did currency come to be?
The short answer: It evolved from bartering. As the world grew more advanced and interconnected, it needed a simpler, more portable method of exchange, which prompted the earliest forms of currency. Yet, currency took many forms before we landed on the money system we have today.
In this series of articles, we’ll examine the invention of currency and trace its journey and iterations all the way to modern-day cryptocurrency.
First, There Was Gold
We’ve discussed before that any item can have value if we assign it that value. That’s true with gold; however, it also has an array of characteristics unusual for a single substance. Sure, it catches the eye, and this is likely why early people spotted it in rivers and streams, picked it up, and kept it. Simply put: It was pretty.
But it turns out, it also doesn’t tarnish, like silver, or oxidize, like bronze. Add to that, it’s malleable and easily shaped into jewelry or coins. Later, we learned it even conducts electricity and heat.
An Eastern-European culture in 4000 B.C. is one of the first to shape gold into anything other than the rock substance it was by fashioning it into jewelry. By 1500 B.C., gold became a standard medium of trade, and since Egypt possessed the gold-bearing regions of Nubia, it became an especially wealthy and powerful nation during this time. Eventually, trade center Lydia, a kingdom of Asian Minor, minted the first gold coins in 560 B.C.
Next, Paper Represented Gold
But precious metal is heavy–and sometimes in short supply–so toward the end of the Middle Ages, bills of exchange, similar to traveler’s checks, circulated as a representation of a gold quantity. This was a significant shift in thinking. First, the gold piece itself was valuable. But now paper, which wasn’t considered valuable in itself, represented gold, which was.
In the 1600s A.D., paper currency was widely used, and the early American colonies were particular fans of it, leading them to overprint paper notes called “Continentals” during the American Revolutionary War. In theory, these bills were backed in gold, but not in actuality. So when merchants discovered these bills were, in fact, worthless, paper money plummeted in popularity and, for a time, was prohibited by the U.S. Constitution.
Then Came the Gold Standard
Meanwhile, England became the first country to adopt the Gold Standard in 1821, meaning gold officially backed their money. This protected paper currency from inflation and provided a fixed rate for international trade. Other countries followed suit, and eventually the international gold standard emerged in 1871. As for the United States, paper money started to circulate once again during the Civil War, and by 1873, the United States was on an unofficial gold standard. The Gold Standard Act of 1900 put the U.S. officially on the gold standard, which valued gold at $20.67 an ounce.
And After That?
Our next article will examine how we moved from the gold standard to government-backed money, and, of course, we’ll eventually bring the history lesson back around to cryptocurrency today.