You can argue all you want, the world is ruled by money. It rules everything, every aspect of human life, accompanying almost every step of a modern man. We spend too much time thinking about the money, and we like it too. We think how to get it, how to keep it, how to multiply it and eventually spend. We always think about how much we need it to fulfill our dreams. But at the same time, we never think about the money itself, it somehow escapes our attention. We do not think about where it originally came from and what its real value is. The advantage that it gives us and the troubles that we get from the lack of it – that what occupies our attention so much, that’s why we rarely think about the nature of money. The vast majority of people earn, spend, lose and gain money every day of the week, but who can say what money really is and how it works?
Money in the broadest sense can be defined as a medium of exchange, which is the universal equivalent of the cost of other goods. In fact, it has three main functions: exchange, payment, and savings. Any object or record that performs these functions may be considered money. However, the debate about the functions of money continues to this day. Some argue that the role of money is not fully understood. They believe that its role as a medium of exchange is in conflict with its role as a store of value. As a means of saving money should not be spent, whereas in order to perform the function of the exchange, the money has to be spent. Others argue that there is no contradiction there – savings just represent the deferred exchange.
E Pluribus Unum
Perhaps the easiest way to think about the role of money is to imagine that it wasn’t invented. If there was no money, many of the relationships between people would be reduced to barter or barter economy. Or would it? Aristotle, trying to understand the origins of money, wrote in his work “Politics” (350 BCE) that “every object has two applications, the first – its original purpose, the second – a medium of exchange”. He believed that money has begun as a barter. Barter is a system of exchange by which goods or services are directly exchanged for other goods or services without using a medium of exchange. The seller had to find a buyer who wanted to buy exactly what he had to offer. Therefore, mankind needed a versatile solution, a medium that can be exchanged for anything. Before this happened, many things have been used as money, among them shells, barley, pepper, furs, salt, etc. However, the needed flexibility and a clear system of calculation and division came only with the introduction of metals as a medium of exchange. Precious metals had all the requirements: value, durability and limited supply. All this has made the precious metal more suitable for the role of money than any other medium at the time.
Until recently the gold and silver were the main currencies of humanity. However, metals were hard to transport and inconvenient to use on a daily basis. And so the new solution was found: people carried the precious metals to the banks and started to use the “bank notes” that confirmed ownership of the gold or silver. But over time, even this relationship was broken. Since then, paper money (money without intrinsic value) has become the medium of exchange. From that time on money is just a paper in the wind and only Central Bank to support it. The majority of experts agree on this short history of money, but some still argue that we should read between the lines.
The History of Debt
But the opinion of the famous anthropologist and anarchist David Greber markedly different from the mainstream. In his book “Debt: the first 5,000 years,” he writes, that the money had not been invented to replace barter. He argues that there is no evidence to support the idea. Moreover, his research shows that debt was here first. Initially, there was a “gift economy” when people used complex systems of credit, giving and receiving gifts about the same cost in return.
Money as a unit of account appeared on the history’s horizon at the time when the system became so complicated that the obligations became virtually incalculable. From this point of view, money appeared first as a loan and then acquired the function of the medium of exchange and store of value. As long as this debate remains a moot point, it is safe to say that money was needed in terms of development and increasing complexity of the markets. In other words market development has led to the development of money, not the vice versa. And so as the progress continues, the question stands – what is happening to the monetary system today?
It Shall Be!
Today we all have to deal with a fiat money – a currency which derives its value from government regulation or law. The term itself derives from the Latin fiat (it shall be!). And we just call it paper money. What is interesting though, that paper money is just being printed when “needed”. It happens again and again and again. The central bank creates money
out of thin air through lending. Banks almost do not limit themselves in this. In fact, they may lend an amount many times greater than their reserves. When they issue loans, money appears out of nowhere. And they want to lend as much as possible and for the longest period possible, even if such a model is not sustainable in the long term.
Almost all modern monetary systems are based on paper money. But paper money, like any receipt or record of debt, has no intrinsic value. It gets value only by being declared by the government as a legal tender to be accepted as payment within the country. And in the age of digital technology, even this is not necessary, money has become ones and zeros. The developed countries constituted most of the money supply by electronic records in the bank’s computers.
Bid on the “Coin”
The development of currencies and monetary systems continues today. It turned out that electronic money may not be a simple analogy of existing real currencies, it can also have its own value. And so the cryptocurrency came into existence. Cryptocurrency is a decentralized digital currency, with automatic issuance and registration that is based on the principles of cryptography.
Your crypto funds cannot be frozen or seized without physical removal of your computer and password, and if you lose your money or access to it, it is irreversible. All currently existing cryptocurrencies are tied to a specific person by default. While there are more than 30 different cryptocurrencies, most of them are similar and are derived from the first – Bitcoin. Cryptocurrency first appeared in 2009, in the payment system Bitcoin, which was developed by Satoshi Nakamoto (one or more programmers-anarchists). Today, many companies work with it. You can buy almost any product or service with it, and even invest if you like. Now it is safe to say that cryptocurrency is here to stay and for now it is outside of the control of any government, so it is time to take it seriously.
It is clear that we are entering a new era of development of the monetary system – the era of decentralized trust. Ultimately, it is the same trust that keeps intact any monetary system, but if in the standard system, the trust is supported by the governments and the central banks, the new deal suggests the distribution of trust directly between the users of the system. Much the same as at the dawn of the money as such. In the new system, there is no place neither for the government, nor for the central bank, no one can control or manipulate the new system. And it will function as long as people will believe in it. Albeit it is exactly the way it worked in every previous system.
First published in 2013