What is money?
Money is a medium of exchange accepted by general consent. It is the medium in which prices and values are expressed and circulate from person to person and country to country facilitating trade and businesses. Money has three primary functions; a medium of exchange for goods and services, a unit of account and a store of value. It helps communicate the price of goods and services.
Characteristics of Money
Something to be called money should have the following characteristics:
Durability: Money should be durable, that is, it should not spoil or decay easily. It should be useful over a period of time.
Portability: Anything to be called money should be portable to carry from one place to another; it should not be too heavy for people to carry around.
Uniformity: Money should be uniform, especially in a standard format. It should conform to the standard of the users.
Divisibility: Good money should be divisible into units. This enhances the status of money as a medium of exchange for goods and services.
Acceptability: Anything called money should be acceptable by the people. People should be able to recognize and accept it for services rendered or for the purchase of goods. Money must have value and be accepted by the people.
Evolution of Money
From inception, there was nothing like money in circulation but the people of the time transacted business and services among themselves, though might not be as effective as when money was introduced. The people then made use of a system called bartering; a direct trade of goods for goods and goods for services or vice versa. For example, a farmer may exchange some cups of grains for clothes from the seller. Or he may offer some tubers of yams for the laborers that work on his farm as payments for the services rendered.
However, this system has some disadvantages as it might be difficult to know the number of tubers of yam that would be equal to the quantity of grains to be exchanged with it as explained above. It might also be difficult to equate the work done on the farmer’s farm with the tubers of yam to be given as payment for the work done. In solving this problem then, they look for somebody to testify that the goods to be exchanged for goods or services is equal to the other goods or services rendered.
Gradually, some goods take the place of currency. Items like salt, animal skin, elephant tusks, tools, and weapons. These items vary from region to region. They are adopted as a medium of exchange, though the problem of accuracy is still there, hence the ease of doing business is truncated as it slows the speed of business transactions. This system of trading spread across the world during that period and still exists in some parts of the world.
Money Transition in China (Coins)
About 770 B. C, the Chinese transited from using objects such as tools and weapons as a medium of exchange to a tiny carved replica of these same objects. These items are carved in bronze and any other valuable mineral. The users then risked the danger of wounding their hands with these sharp carved objects. This medium of exchange was later abandoned for objects in the shape of a circle which later metamorphosed into coins. It became one of the sets of coins in the world. China was the first to initiate something that could be referred to as coins by modern people. But the first part of the world to use an industrial facility to manufacture coins that could be used as currency was the region called Lydia, now in Western Turkey, Europe. In the present day, it is called a mint and the process is called minting.
Money Transition to Currency
Alyattes, the king of Lydia minted the first official currency in 16000 B. C. The coins were made from electrum; a mixture of silver and gold that occurs naturally. The coins were then stamped with pictures that represented the denominations. This development helped the country to increase both its internal and external business transactions. The transaction was then faster, hence it became one of the richest empires in Asia minor.
Parts of Europe were still using metal coins as their sole form of currency all the way up to the 16th century. This was helped by their colonial efforts; the acquisition of new territories via European conquest provided them with new sources of precious metals and enabled them to keep minting a greater quantity of coins.
Banks later started using paper banknotes for depositors and borrowers instead of coins for transactions. They could change the paper money at the bank at any time for their face value in metal, usually silver or gold coins. Paper money could be used for goods and services, it was used then like the currency being used today in the modern world. During that period, the authority to issue currency was in the hands of banks and private institutions and not the government as we have it nowadays.
The first paper currency issued by European governments was actually issued by colonial governments in North America. Because shipments between Europe and the North American colonies took so long, the colonists often ran out of cash as operations expanded. Instead of going back to a barter system, the colonial governments issued IOUs that traded as a currency. The first instance was in Canada (then a French colony). In 1685, soldiers were issued playing cards denominated and signed by the governor to use as cash instead of coins from France.
The 21st Century Currency
Money transition continues in the 21st century with the introduction of two forms of currency; mobile payments and virtual currency. Mobile payments have to do with transactions that involve the money kept in the bank with the aid of a portable electronic device such as a cell phone, smartphone, or tablet device. Mobile payment technology is used in business transactions and to send money to family and friends.
Evolution of Cryptocurrency
Cryptocurrency is a virtual currency and a digital representation of value and is only available in electronic form. A cryptocurrency or crypto is a collection of binary data which is designed to work as a medium of exchange. It is stored and transacted through designated software, mobile, or computer applications, which is used to secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership. Transactions involving virtual currencies occur through secure, dedicated networks or over the Internet.
If we study the evolution of money, we shall see that it is in phases. Cryptocurrency is the new evolution of money, and fiat currency/paper money might soon fade away as crypto as it is popularly called has the characteristics of money. It even has some advantages over the fiat currency which shall be discussed later.
The first virtual currency is Bitcoin which was created in 2009 by the pseudonymous Satoshi Nakamoto. Virtual currencies have no physical coinage like paper money and coins. Virtual currency offers the promise of lower transaction fees than the online payment mechanisms; they are operated by a centralized authority and not by the government like the fiat currency.
How it works
Cryptocurrencies typically use decentralized control as opposed to a central bank digital currency. When a cryptocurrency is minted or created prior to issuance or issued by a single issuer, it is generally considered centralized. When implemented with decentralized control, each cryptocurrency works through distributed ledger technology, typically a blockchain, that serves as a public financial transaction database. It uses encryption to authenticate and protect transactions, hence their name.
There are currently over ten thousand different cryptocurrencies in the world, and their supporters see them as the key to a fairer future economy. Some of these cryptos are; Bitcoin created in 2009 by pseudonymous Satoshi Nakamoto, Ethereum(ETH) founded in 2015, Litecoin developed in 2011. Others are Cardano, Polkadot, Stellar (XLM), Dogecoin(DOGE), Binance coin(BNB), Tether(USDT), and Pi which is created by Dr. Nicolas Kokkalis and his team and is still being developed.
As of the time of writing this article, El Salvador has adopted cryptocurrency for business transactions in the country. In the nearest future, this evolution of money (Crypto) is going to rule the world
Folahan Oyelekan is an Author, Publisher, and a Content creator
