Changing ‘change’ – Short history of that change in your pocket.

I’ve been hearing about Bitcoin a lot lately and when I learnt how Bitcoins were ‘mined’, it reminded me of how societies change what they value and the concept of money changes with that.

Civilizations value what they deem is the most important and the worth of anything, either a hard day’s labor or a exquisite piece of art is valued with respect to that commodity. The ancients valued food or sustenance above all and long before the great cities rose people were trading using food the grew, meat or hunted. Thus the barter system was born. Slowly as people started settling in agricultural societies started valuing their staple diets more and more, and nomadic communities their herds of cattle.  No sooner, the worth of a man was measured either by the sacks of rice or a the herds of sheep he had.

GOLD!

GOLD!

When the first man saw the bright sunlight gleaming on the yellow metal the history of mankind was forever changed. Cities fell, civilizations wiped out and ordinary humans became gods in the eyes of the beholder, all because of the shiny pieces of gold  they had. Soon precious metals were considered valuable and coins were minted with gold and silver to be used as currencies. These coins had intrinsic value, irrespective of who minted these coins, they were valuable for the materials in which they were made from. This sparked the global trade to flourish in a much wider scale. Although people did not want the commodities you were selling, everybody loved gold!

But carrying something like gold which had intrinsic value had its disadvantages, you were vulnerable to robbery and theft and you could carry only so much and not weighed down by it. So, some renowned trade houses started offering promissory notes that you indeed possessed the amount of gold that was written on that piece of parchment. It was safer now to travel with all your wealth in your pocket. You could exchange the note for the gold at any franchise of the trading house or you could directly trade using the promissory note. Thus the first currency was born. This was a very successful endeavor indeed, some promissory notes issued by large trading houses in India were so popular that they were valued as far as Mesopotamia and Egypt  Even kings did not posses that much influence. Empires rose and fall, dynasties perished, armies clashed but trading houses and conglomerates survived Millenniums.

Gold seemed to be the perfect currency, it seemed flawless but now we know that it also reacts to the forces of demand and supply. When the time of kings and tyrants had passed, governments rose. One centralized authority that promised that it could and would protect your life’s work; the first gold backed currencies were born. Now, these currencies were backed by gold or other precious commodity which the government held in huge lockers in undisclosed locations and printed currencies equal to the value of the commodity that the country possessed.

Thousand rupee note - India

Thousand rupee note – India

Once the evolutionary urge of survival is not necessary anymore, the second most powerful urge, the urge to reproduce kicks in. Humanity grew in an explosive rate.  The number of people kept growing in an exponential pace but the amount of precious metal remained the same. The move away from commodity backed currency was inevitable. Governments started printing money. Neither did this type of money have any intrinsic value nor was it backed by any commodity, it had value because governments said so. This type of money is called Fiat money. This type of currency has value because people say it has value, funny isn’t it? This is called the Tinkerbell effect, something exists or is valuable because people believe that it does! From the salary you are paid to the country’s economy to international trade depends on the one single basic fact that people and governments are trustworthy; ironic isn’t it? That government, which is run by “corrupt” politicians and executives, that we sometimes hate and bitch about is the single  thing that is holding your sh*t together! When you read “I promise to pay the bearer the sum of…” on that bank note, it really is just a promise.

When governments like that are afraid of something then you can bet your money that it is indeed powerful. Yes, I am talking about the internet. It has transcended country, religion and racial lines. It has elected presidents and overthrown dictators. So, when the internet democratizes the playing field, it does not stop for anything. You might have heard this before but Bitcoin which is the currency of the internet has no centralized authority. It is a peer to peer currency that exists on the world wide web. Bitcoin is “Mined” by performing complex calculations using powerful systems. That’s right, Calculation are turned into currency. When the world moves into the new digital age, not commodities, not governments but the power of calculation and intelligence will hold the key.

Bitcoin

Bitcoin

The internet is not some artificial hive mind, it is a network of people and people are unpredictable. This also translates to Bitcoin, but it clearly shows us what has become the valuable commodity of this digital age. Even if it does not become the standard currency it has ushered  us into a new age and has changed our perspectives.

More on Bitcoin here.

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