As technology has become an all-encompassing fixture in our lives, the way that money moves around has changed radically. What's interesting is that most people haven't even noticed.
Over time, money has ranged from shells to bracelets, from shiny coins to paper-like bills. Then, of course, credit cards came along – shards of plastic we all now tote containing precious personal information that can be taken with a simple snatch and swipe.
We've gone from commodities as money, commodity-backed money and government-backed fiat currencies to distributed, database money. And now decentralization will make it known to all.
Commodities as money
Before currencies were around, people simply used forms of value to barter for the things they desired.
Since it was impossible to trade, say, a cow for a chicken without one side being left with less value and the other with more, precious pieces of value were necessary.
An example of value-backed money from a time long gone are Russia's glass trade beads. These strings of cobalt blue pieces of glass were used in the late 1700s in order to facilitate trade between the Russians and the native people living in what is now known as Alaska.
The trade beads, which are said to have originated in the modern-day Czech Republic, were eventually used around the world to as a method of exchange.
Of course, glass as monetary value is more about beauty than practicality, as the material is fragile and susceptible to breakage.
The example shows, however, that anything with a generally accepted value can be considered as money in the absence of a legal tender.
How could a person receive a completely fair value for exchange with the use of, say, a glass bracelet, or something more valuable like a jewel?
While some commodities could be subdivided – in the case of precious metal coins, for example – other commodities did not allow this. Furthermore, constantly moving valuable and heavy gold around wasn't at all efficient.
In hindsight, it was just too difficult to advance global economic trade using commodities alone.
Money that represented the value of a commodity was a much more practical instrument than the use of precious objects. It just took time for that revolution to materialize across the world.
Thus, commodity-backed money was formed with the use of tokens – non-precious coins or bills. This way an easily divisible instrument could be used, yet still have value in the form of a commodity. In most cases this was gold, especially after Bretton Woods allowed global convertibility of United States dollars to the precious metal.
Gold had long been a stable and resilient form of value. And some countries, such as India, have always valued it for cultural purposes – increasing its global worth. Gold's scarcity also allowed it to be a great commodity to back money, at least during that time.
The US dollar was famous for being backed by gold – the gold standard, as it is known – and at one point in the 20th century America was one of the biggest holders of the metal. However, things things changed over time, and, in 1971, the US made a decision that drastically changed the concept of money.
Germany was one of the first to leave the gold standard – a move that ended up helping its economy at the time.
When the US opted to do so in 1971, it was to protect its own interests after countries started redeeming dollars for America's gold reserves, thus reducing its stockpile of the metal. To avoid a devaluation of the dollar, the government broke the relationship between the two.
Departing from the gold standard was seen as risky at the time, but looking back it was a necessary move. It also brought forth the idea that fiat money, also known as government-based currency, could thrive simply by being backed by an economy and not a commodity.
Over time, however, this created a brand-new policy mindset.
Fiat was originally understood as a currency being backed by an economy, but it is now clear that when an economy tanks, governments can use fiat money as a lever – for example using central bank bond purchases to produce more money.
So, fiat is essentially government-backed money. In some regions, like perhaps the US or the EU nations, governments are seen as institutions that won't fail. However, it is important to remember there are no guarantees, and this situation really can mean that governments have more control than they, perhaps, should.
Do you carry cash around anymore? If not, where does it come from? It comes from a computer, a system of account. In today's incumbent financial systems, cash never really moves from one back to another; it's just a big database.
And decentralized virtual currencies are like an upgrade from the banking accounting systems that exist today.
The biggest problem with today's banking system is that is so centralized and concentrated, it has effectively left a large part of the global population out of the loop. It's amazing to think that with all the technological innovations in our time, so many people still don't have access to something many take for granted, such as a bank.
Virtual money in the form of bitcoin takes the equivalent of a bank's accounting database and flips it outwards, in the form of the block chain, for everyone to see and for other numerous benefits.
And that may be the most ingenious part of this paradigm shift. Because what's wrong, then, with taking databases of value and allowing everyone access so as to more easily move money?
People know value when they see it
Bitcoin's perceived sordid past as the engine of digital drug trade at Silk Road is really no different than the power that commodities like gold or government-backed money have wielded to fund wars all over the world for centuries.
The point is this: monetary forms simply arise from what people perceive as a thing of value. And over time, bitcoin has become a thing of value. What is also clear is that communities have formed behind cryptocurrencies like bitcoin that will not let them simply fade away.
So, this opens up a new world where decentralization can become a means of access to financial services for billions people who still are using forms of money from the past: the bartering of commodities and government-backed money.
Remember, most people today have lived during a time where a cash-based systems have value largely because the issuing government accepts that money, and only that money, as payment for taxes and fees.
This idea, though, is ageing fast, and even the financial industry accepts that it needs to adapt or die.
This, in the end, should mean more financial accessibility for everyone, even those to whom the bank currently says 'no' – maybe not explicitly, but through exclusion.
Information concept image via Shutterstock
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