The evolution of money
Cashless transactions have dramatically increased since the onset of the pandemic, leading many to wonder if the days of coins and notes are numbered. But what is the history of money?
What do we mean by money?
We need it for anything from getting on the bus to buying a motor car. Economies rely on it and individuals work hard to earn it. We even compile lists of those who have the most of it. As the song goes, “Money makes the world go ‘round”. But as an object, money is actually worth very little. Whether it is a metal coin or a piece of paper, its value is purely symbolic; it carries whatever importance that we place on it. In other words, our money is only valuable because we trust that it is.
How did it come about?
Before there was money, there was bartering. As early as 9,000BC, early humans would exchange goods they had in surplus fo goods they needed. But this quickly became difficult; bartering is inexact and complicated, and when multiple transactions take place, it is impossible to know who owes what and where.
Eventually, people began exchanging precious items for goods. The Aztecs dealt in cacao beans, while traders in Africa, South Asia and East Asia exchanged shells. The first official coins were minted by King Alyattes of Lydia – now modern-day Turkey – in 600BC.
What about banks?
Banks in some form existed almost as soon as we had currency. Many wanted places to keep their money safe and would deposit it in public buildings in exchange for a receipt.
As well as having stores of cash, today’s banks also lend and exchange money. This began in the 11th century. By this time, there were hundreds of currencies, making life difficult in Italy, the trading centre of Europe. Merchants were constantly exchanging coins with other merchants. These exchanges commonly took place outside while sitting on a bench. Eventually, merchants set up buildings where they could do their work more easily. These were the early versions of our modern banks. We even get their name from the Italian word for bench – “banco”.
What is bitcoin?
It is an entirely digital currency. In other words, it only works in computer formats. Bitcoin is created electronically and held in digital wallets. It is a cryptocurrency, meaning that computer code makes it secure. As a result, it is nearly impossible to forge.
Coins are mathematically generated using a complex process called “mining”. The system was set up to make it progressively more difficult to “mine” bitcoins over time. As a result, there is no way for excessive amounts of new coins to be generated, thereby devaluing the currency.
Unlike normal currencies, bitcoin has no central authority like a central bank. This independence makes it, and other digital currencies, popular with many people because governments have no control over them.
Is it safe?
As it is almost impossible to trace the ownership of a bitcoin wallet, payments are equally hard to trace. That makes it an attractive form of currency for criminals. It is also a common way to purchase illegal goods.
Fortunately, most bitcoin payments are not suspicious. And they’re getting more common. You can now buy a Burger King and an Xbox with bitcoin. Even the British lifeboat charity RLNI accepts bitcoin donations.
So, will cash disappear?
Maybe. More and more people use their credit cards, phones and watches for cashless payments. Meanwhile, digital currencies like Bitcoin have become so popular that central banks are designing their own, with China already trialling its digital yuan.
According to experts, though, it seems unlikely that countries will go completely digital any time soon. What we can be sure of is that money will continue to develop with the times, as it has throughout history.
- Is the future of all money digital?
- Design an app to help you manage money. Give it a name and a logo. Then come up with three simple ways it could help you save on a regular basis.
- The World's Billionaires is an annual ranking by documented net worth of the wealthiest billionaires in the world, compiled and published annually in March by Forbes magazine.
- This would act as an IOU, promising to pay back the owner, and was a form of early banknote. British notes still have a phrase written on them promising to pay the bearer the amount of money stated.
- Bitcoin is the original and largest cryptocurrency. The word “crypto” means secret or hidden.
- If a country prints money and causes inflation, then the currency will devalue against other currencies. An extreme example of this was the hyperinflation after the First World War in Germany, during which people would need thousands of banknotes to buy a single loaf of bread.
- Central bank
- An institution with functions usually established by national law to manage monetary policy, issue bank notes and cash, and regulate commercial banks.