Picture a world without money. A world where you had to live one day after another without any form of money every single day of your life.
What does money look like today? And, why has it changed so much?
Let’s take you on a journey into how society is evolving from primitive money to a cashless society.
To begin, we’ll take a moment to look at the 3 primary features anything should have to pass as money.
Features of Money
Medium of Exchange
As a medium of exchange, money should have the capacity to be given in exchange for goods and services.
Unit of Account
As a unit account, it should serve as a good measure of the value of other goods, services, economic activities, assets and liabilities. For example, one should tell how much value an item has from the unit of money that can be given in exchange for it.
Store of Value
As a store of value, money should be an instrument for wealth to be stored and kept for retrieval at any point in time.
Here’s How Far Money has come
In ancient times, exchange of any kind happened because one person had an item or service which they could give in exchange for another item or service that someone else had which they didn’t. They had to go in search of this “someone else” because they weren’t always that easy to come by. This system was called the barter system. This posed some challenges and they had to come up with another medium of exchange to resolve this already overwhelming situation. It was at this point that the history of money evolved into the use of primitive money.
Primitive money was the first existing form of money. It was anything of value to the people; anything they could use to purchase whatever they needed. Primitive money ranged from little things like cowry, seashells, dog teeth and animal skin to gigantic items like cattle and elephant tusks. Things went pretty well from here except that some of this money like cattle, a rai stone and elephant tusks were difficult to carry about. And others, like dog teeth and animal skin, were not always placed at the same value everywhere they went. In other words, this was unsustainable. Thus, coming up with a more practical system was the only way out.
From primitive money, the world moved on to coinage. The history of coinage can either be traced to ancient China or Ancient Greece as the coinage system originated from these two countries. China already started manufacturing metal cowries that could be used as money from as far back as 1200 BCE and evolved to coinage as at 200 BCE.
In the 7th Century, the first set of clearly recognised coins were made in Lydia, Greece. Coinage was the standard means of transaction in the western world up until the 18th and 19th centuries. It was an effective means of transaction, store of value and medium of exchange. The coinage system pretty much solved the problem. If it wasn’t for the fact that man keeps evolving and trying to find better ways to get things done, we would have probably had a jolly good life with coinage. But, as we all know, that was not the case. Fortunately. Because coinage was not the best level that money could operate at.
Bear in mind that alongside coinage, we had other forms of money like commodity money (which was any money that could be used in other ways asides money like gold), Gold-standard (which referred to types of money that were hitched to other stable commodities. Money that fell under this were only representations of valuable commodities like gold for example), Fiat-money (The difference between fiat money and gold-standard money is that instead of being supported by a commodity, fiat money is backed by the government. This means that the value that the item has is given to it by the government of the country in which it is used), Legal tender (a means of payment backed by the law which a creditor is obliged to accept when offered in payment for a debt owed), Banknotes – bills, notes, paper money (notes) backed by a financial institution (the bank).
Paper money as we know it today can be classified under Legal tender and bank note because it is both backed by the government and the central bank of a country. They give it the value that it has.
The first banknote was issued in China in the 10th century. It began as receipts for deposits and evolved to paper money. A primary advantage that paper money had over other preceding forms of money was the fact that it was light and convenient to carry about. This became how money was used. It was carried about as a medium of exchange, a unit of account and a store of value. This is not saying that paper money has remained exactly the same as it was from the first time it was used. It has evolved in a remarkable number of ways. But, that’s beyond the scope of this post. So, we’ll just stick to analysing the next phase of money beyond paper money.
Paper money, otherwise known as cash, is still in use today. It’s everywhere you look. But, today, you could buy your favourite shoes with paper money at the snap of a finger without feeling crispy sheets of paper in your fingers. With card payments, Paypal, mobile wallet, point of sales (POS), mobile banking, and the like, a transaction can be executed.
The major difference between money today and money decades ago is that it both exists as a physical and a virtual item. This is why it’s more appropriate to describe it as fiat money or currency. Because money has evolved beyond paper to include virtual payment and transaction systems. A near cashless society. But, like earlier forms of money, going cashless comes with some of its own challenges too.
These roadblocks among which are centralization, privacy issues, speed and cross-border transactions are some of the problems that the cryptocurrency system aims to solve.