From Barter to Bitcoin: The Evolution of Money and the Rise of Cryptocurrencies

iampritamg

From Barter to Bitcoin: The Evolution of Money and the Rise of Cryptocurrencies

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Pritam Gembali

3 min read·December 29, 2024

Hello! My name is Pritam! I live in Bangalore, India. I currently work at BitGo which provides secure and scalable solutions for the digital asset economy. I joined this company in Sep 2024.

Bangalore: the hub of IT and traffic in India

I was new to the cryptocurrency space and had to weigh my options carefully. I wasn't a cryptocurrency enthusiast, but I decided to take a chance and join BitGo. I'm excited to share my journey so far in this article and in future articles to come.

Before I joined BitGo, I invested my savings in Indian equity, mostly index funds, and some short-term debt funds for immediate expenses. I didn't have any allocation toward crypto, but my wife did. When we got married, some of her friends gifted her some cryptocurrency that they thought was going to the moon. Three years later, it's at one-third the value. I ignored Bitcoin because I didn't understand it and thought it was just a bubble. But when I accepted the offer to work at BitGo, I decided it was time to learn about the history of this space and what it has to offer.

To understand Bitcoin, you need to first understand money and it’s history.

What is money?

At its core, money is simply a way to transfer value. Consider a common scenario: buying popcorn at the movies. You pay ₹400, whether in cash, by card, or through UPI. But why does the merchant accept your payment, whether it's a physical note or a digital bank account entry?

The answer lies in mutual agreement. The merchant accepts it because they trust that someone else will accept the same form of payment in return. As Indians, we collectively recognize the Indian rupee as valuable and use it as a convenient medium of exchange. This shared trust is what gives money its power to function as a tool for economic transactions.

History of money

https://en.wikipedia.org/wiki/History_of_writing

Joe from Be Smart explains this very well

If you want a bit more longer story and if you are familiar with Hindi(with english subtitles), you can check out this LLA playlist:

The history of money is a fascinating journey that reflects humanity's evolving social, economic, and technological needs. Here's a concise overview:

Barter System (Pre-Money Era) Before money, trade was conducted through barter—exchanging goods or services directly. Challenges: Lack of a common measure of value. Difficulty in finding matching needs (double coincidence of wants). Indivisibility of certain goods.

Commodity Money (Circa 3000 BCE) Items with intrinsic value, such as cattle, grains, and salt, were used as money. Metals like gold and silver became popular due to durability and divisibility. Example: In Mesopotamia, silver was used as a standard measure.

Coins (Circa 700 BCE) The first coins appeared in Lydia (modern-day Turkey), made of electrum (a natural alloy of gold and silver). Coins were standardized for weight and value, simplifying trade. Governments started minting coins to establish trust and prevent counterfeiting.

Paper Money (Circa 800 CE) First used in China during the Tang Dynasty, but became widespread under the Song Dynasty. Paper money allowed for easier transport and storage of wealth. It spread to Europe through travelers like Marco Polo and later developed into banknotes issued by banks.

Banking and Credit Systems (Circa 1400–1600 CE) The Renaissance period saw the rise of banks like the Medici Bank in Italy. Promissory notes and bills of exchange enabled long-distance trade without moving large sums of cash.

Gold Standard (19th Century) National currencies were pegged to gold, ensuring stability in exchange rates. This system dominated international trade until the 20th century but collapsed during the Great Depression and World Wars.

Fiat Money (20th Century) Money not backed by a physical commodity, such as gold, but by government decree. The U.S. officially abandoned the gold standard in 1971, making fiat currency the global norm. Fiat money relies on trust in government and central banks.

Digital Money (Late 20th Century–Present) Electronic banking introduced digital transactions. Credit cards, online banking, and digital wallets like PayPal emerged.

Cryptocurrencies (21st Century) Bitcoin, introduced in 2009, became the first decentralised digital currency. Blockchain technology enabled secure, peer-to-peer transactions without intermediaries.

But why do we need decentralised money?

Unlike fiat money, whose value is backed by governments that can print it at will, Bitcoin was designed to challenge centralized monetary control. Its creation was a direct response to the injustices of traditional financial systems, such as the government bailouts for "too big to fail" banks, which allowed those responsible for the housing crisis to avoid accountability.

This connection is emphasised in Bitcoin's genesis block, which includes a reference to a newspaper headline about bank bailouts, symbolising its break from conventional banking systems.

Genesis block refers to the first ever block of a Blockchain

If you haven't already, I highly recommend watching The Big Short. It provides an eye-opening portrayal of the events leading up to the crisis, shedding light on the greed, risky financial practices, and lack of oversight that caused a global economic meltdown. This context makes Bitcoin’s decentralised, transparent approach to money even more significant as a potential solution to such systemic failures.

More to come in the future

My motivation for writing comes from a desire to document my journey and track how my understanding of blockchain evolves over time. By capturing my learnings, I can reflect on how my knowledge grows and deepens. Additionally, I want to share these insights with others to help them better understand the rapidly changing landscape of blockchain technology. It's exciting to be part of such an innovative space, and I hope that by sharing my experiences, I can inspire and educate others to appreciate the potential and impact of blockchain on various industries. Watch out for more in this space!