Barter to Bitcoin and the Future

This was originally published on shivendramisra.com/blog

Money. Money is what we all want. Money is what we all need. Money decides how we live. Money decides what food we eat.

“All money is a matter of belief” — Adam Smith

While money seems so common today, humanity did not start with money. As we all know, we started with barter. People used to take what they want by giving what the other person wants. In basic economic theory, we call this “double-coincidence of wants.

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Fiat Currency enters

Soon after the second world war, the Bretton Woods Agreement decided to shift from the gold standard to fiat. Which simply meant that instead of pegging their currencies to gold, the countries would peg their currencies to the US dollar. The US government had also severed all links between the US dollar and gold by 1971.

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A Quest to Find a New Form Of Money

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Left: David Chaum, Right:Wei Dai
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Left: Nick Szabo, Right: Dorian Nakamoto

“I do sense that the financial system is under the gun. In order to keep our system and economies moving globally, there’s the need to create new money” — Henry Kaufman, President of Henry Kaufman & Co.

David Chaum, in 1982, gained a doctorate in computer science and business administration from the University of California, Berkeley. Little did he know that he would go on to be an influential personality in the cryptography industry by inventing the Blind Signature Technology.

  • In 1998, Wei Dai published a description of “b-money” — an anonymous, distributed cash system. Satoshi Nakamoto has also referenced b-money while creating bitcoin. When originally published on Cypherpunks mailing-list in 1998, Dai proposed two protocols out of which the first one used a proof-of-work function for creating money, similar to what bitcoin uses today.
  • Soon, Nick Szabo, a computer scientist, and cryptographer made bitgold, which was an electronic currency system which required users to complete a proof of work function with solutions being cryptographically put together and published to the network. Though bitgold was never implemented it was called a direct “precursor to the Bitcoin architecture.”

Satoshi’s Gift

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“The reason we’re all here is that the current financial system is outdated” — Charlie Shrem, BitAngel, BitPay, Bitcoin Foundation

In 2009, a cryptography enthusiast and researcher (or researchers) released a white paper called titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” The paper outlined Satoshi’s vision,

Can Bitcoin Replace Fiat?

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  1. Unit of Account — It is a standard measure of value to determine the value of goods and services in an economy. Barter made this impossible.
  2. Store of Value — As the name explains, money should be something in which people can store value and something which does not deteriorate or fluctuate over time.
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  1. Durability — Money needs to be something which can be used repeatedly and not wear after some time. With fiat, notes can get torn pretty easily and I don’t think you’d like all your cash in the form of coins. With Bitcoin, nothing is physical! It exists forever since it is recorded on the blockchain and cannot be changed since the data is immutable.
  2. Uniformity — Though notes in the fiat currency look the same, they still can be distinguished on the basis of their number. With bitcoin, you cannot tell if the bitcoin you sold to someone has come back to you after some trips. All of them are completely identical.
  3. Divisibility — While fiat can be divided, there is a limit to it. Plus, as I mentioned above, you wouldn’t like to use 400 coins of 25 cents to make a purchase of $100. With Bitcoin, you can divide it up to 8 decimal places and other cryptocurrencies stretch it even further. The flexibility that crypto offers far outweighs that offered by the traditional currency.
  4. Limited Supply — The government prints currency at its own discretion. If there are not enough taxes received, it is not a big deal for them to get some more money printed. Bitcoin, on the other hand, is limited to 21 million coins. This scarcity makes it extremely valuable.
  5. Generally Acceptable — Now comes the interesting part. Fiat is accepted because we have governments who enforce it. They make laws for its acceptance and also demand taxes in the same currency. With bitcoin, no one can force anyone to accept bitcoin. Though many governments have not made it a legal tender and merchants in crypto-friendly nations have not yet started to accept crypto-payments at a large enough scale, the landscape is changing rapidly. The situation might turn out to be completely different 5–10 years down the line (People might laugh at us for using cash to pay for a cup of coffee)

But, why is bitcoin so volatile?

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Conclusion

We’ve come a long way from barter to blockchain and bitcoin.

“The financial system has been turned over to the Federal Board. The Board administers the financial system by authority of a purely profiteering group. The system is private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people’s money” — Charles August Lindbergh, ex-U.S Congressman

Bitcoin has given us an alternative way to transact, but the fall of fiat still seems too big of a task to be accomplished.

About Me

I am passionate about making products and building businesses. I’m highly interested in upcoming technologies and the business opportunities that follow. I like sharing my thoughts with like-minded people through speaking and writing on my blog. Have something interesting to work on? Let’s collaborate! LinkedIn

Rethinking human growth through meditation and spirituality. Join me: bit.ly/reinventnewsletter 🙏🏻

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