The History of Money

Why am I writing about the history of money in a book about Bitcoin? In my view, Bitcoin is the next evolution of money – let’s call it Money 2.0. That’s why I consider it important to learn more about its predecessors, their advantages, but also their shortcomings, so that we don’t repeat the same mistakes of the past.

It was only after I started following Bitcoin that I realized how little I actually knew about money. Where does it come from? How much of it is in circulation? Why does it lose value every year? How often is new money added or removed? Is its supply limited?

Bitcoin did not just appear out of nowhere. It is a response to long-standing problems that have repeated themselves throughout the history of money. To understand why Bitcoin makes sense, we first need to understand how money came to be – and why, whenever it was controlled by those in power, it eventually lost its value.

The Need for Money

The simplest method of payment humanity used in the beginning was so-called barter trade – the direct exchange of one thing for another without the use of money. If I had grain and needed meat, I went to someone who had meat and tried to convince them to trade with me.

At first glance, this might sound simple, but such exchange had major disadvantages. The other person wasn’t always interested in what I had to offer. If the butcher needed eggs but I only had grain, the trade couldn’t happen. I would first have to find someone selling eggs who was willing to accept my grain, and only then could I offer those eggs to the butcher. This process was slow and inefficient, which made it clear that people needed a better way to trade.

Another problem with barter was the issue of value mismatch. If I wanted to trade my cattle for grain, it might happen that a cow was far too valuable to exchange for just a few sacks of grain. At the same time, I couldn’t divide the cow into smaller parts without destroying its value. This is known in economics as the problem of divisibility – a problem that money would later solve.

Barter also had the disadvantage of requiring immediate consumption. If I was trading eggs or meat, I couldn’t “save them for retirement.” Over time, my goods would simply spoil, and my “pension” would end up being a pile of rotten meat and eggs. Humanity needed a store of value – something that could retain its worth over time and be used for trade in the future.

The Search for a Universal Medium of Exchange

So people gradually began to look for universal means of exchange that everyone would accept, regardless of the goods or services they offered. It was important that these means met several criteria:

General acceptability – they had to be widely recognized within a community.
Portability – they had to be easy to transport from one place to another.
Durability – they couldn’t spoil or degrade quickly.
Divisibility – they could be divided into smaller parts without losing value.
Scarcity – they had to be limited in availability to maintain value.

History shows that different civilizations used various forms of money for this purpose.

The First Forms of Money

Shells – in some cultures they were used as money due to their rarity and aesthetic value. For example, cowrie shells were very popular in China and Africa.
Salt – in ancient Rome it was so valuable that it was used to pay soldiers (the word “salary” comes from salt). Salt was in demand because it could also be used to preserve food.
Furs and livestock – in many early societies they were valuable forms of payment, as they provided people with clothing and food.
Precious stones and metals – gold, silver, and other gems were popular because they were rare, durable, and easy to transport.
Grain and other commodities – in ancient Mesopotamia, grain was used as money because it was considered a basic source of nutrition.

Each civilization gradually found its own way of solving the problem of exchange. All these forms of money shared one common feature – they were widely accepted as a means of trade and a store of value.

The Emergence of Real Money

Although the above-mentioned forms of payment worked, they also had limitations: salt could dissolve, shells could be replaced, and livestock was difficult to transport. That is why metals, especially gold and silver, began to dominate. They were rare, resistant to decay, and could easily be melted into different shapes.

Around 600 BC, in the ancient kingdom of Lydia (modern-day Turkey), the first official coins were minted from an alloy of gold and silver. This created the first real money, which was:

Standardized – each coin had the same value.
Easily portable – they could be carried in pouches and were not heavy.
Verifiable – they were issued by the state, which increased trust.

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