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About Money

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The Evolution of Money

20 second video

The Future of Money

60 Minutes Story of M-Pesa in Kenya

13 minute video

The Real Truth About Fiat Currency and the Banking System

30 minute video

Money vs. Currency
Hidden Secrets Of Money

26 minute video

The Story of Money

How Digital Currency Will Change the World

65 minute video

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The History of Money

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What is money? By definition, it's something of value. But over the last 10,000 years, the material form that money has taken has changed considerably—from cattle and cowrie shells to today's electronic currency. Here, get an overview of the history of money.

History of Money

Today we value gold Kruggerands and paper Franklins, but cattle and cowrie shells have also served as currency. Photo credit: © Steve Sucsy (coin), Skip O'Donnell (bills), narvikk (cow), Steve Goodwin (shells)/iStock

Editor's Note: The dates below mark the approximate start of use.

In the Beginning: Barter

Barter is the exchange of resources or services for mutual advantage, and the practice likely dates back tens of thousands of years, perhaps even to the dawn of modern humans. Some would even argue that it's not purely a human activity; plants and animals have been bartering—in symbiotic relationships—for millions of years. In any case, barter among humans certainly pre-dates the use of money. Today individuals, organizations, and governments still use, and often prefer, barter as a form of exchange of goods and services.

9000 - 6000 B.C.: Cattle

Cattle, which throughout history and across the globe have included not only cows but also sheep, camels, and other livestock, are the first and oldest form of money. With the advent of agriculture also came the use of grain and other vegetable or plant products as a standard form of barter in many cultures.

1200 B.C.: Cowrie Shells

The first use of cowries, the shells of a mollusc that was widely available in the shallow waters of the Pacific and Indian Oceans, was in China. Historically, many societies have used cowries as money, and even as recently as the middle of this century, cowries have been used in some parts of Africa. The cowrie is the most widely and longest used currency in history.

1000 B.C.: First Metal Money and Coins

Bronze and Copper cowrie imitations were manufactured by China at the end of the Stone Age and could be considered some of the earliest forms of metal coins. Metal tool money, such as knife and spade monies, was also first used in China. These early metal monies developed into primitive versions of round coins. Chinese coins were made out of base metals, often containing holes so they could be put together like a chain.

500 B.C.: Modern Coinage

Outside of China, the first coins developed out of lumps of silver. They soon took the familar round form of today, and were stamped with various gods and emperors to mark their authenticity. These early coins first appeared in Lydia, which is part of present-day Turkey, but the techniques were quickly copied and further refined by the Greek, Persian, Macedonian, and later the Roman empires. Unlike Chinese coins which depended on base metals, these new coins were made from precious metals such as silver, bronze, and gold, which had more inherent value.

118 B.C.: Leather Money

Leather money was used in China in the form of one-foot-square pieces of white deerskin with colorful borders. This could be considered the first documented type of banknote.

A.D. 800 - 900: The Nose

The phrase "To pay through the nose" comes from Danes in Ireland, who slit the noses of those who were remiss in paying the Danish poll tax.

806: Paper Currency

The first known paper banknotes appeared in China. In all, China experienced over 500 years of early paper money, spanning from the ninth through the fifteenth century. Over this period, paper notes grew in production to the point that their value rapidly depreciated and inflation soared. Then beginning in 1455, the use of paper money in China disappeared for several hundred years. This was still many years before paper currency would reappear in Europe, and three centuries before it was considered common.

1500: Potlach

"Potlach" comes from a Chinook Indian custom that existed in many North American Indian cultures. It is a ceremony where not only were gifts exchanged, but dances, feasts, and other public rituals were performed. In some instances potlach was a form of initiation into secret tribal societies. Because the exchange of gifts was so important in establishing a leader's social rank, potlach often spiralled out of control as the gifts became progressively more lavish and tribes put on larger and grander feasts and celebrations in an attempt to out-do each other.

1535: Wampum

The earliest known use of wampum, which are strings of beads made from clam shells, was by North American Indians in 1535. Most likely, this monetary medium existed well before this date. The Indian word "wampum" means white, which was the color of the beads.

1816: The Gold Standard

Gold was officially made the standard of value in England in 1816. At this time, guidelines were made to allow for a non-inflationary production of standard banknotes which represented a certain amount of gold. Banknotes had been used in England and Europe for several hundred years before this time, but their worth had never been tied directly to gold. In the United States, the Gold Standard Act was officialy enacted in 1900, which helped lead to the establishment of a central bank.

1930: End of the Gold Standard

The massive Depression of the 1930s, felt worldwide, marked the beginning of the end of the gold standard. In the United States, the gold standard was revised and the price of gold was devalued. This was the first step in ending the relationship altogether. The British and international gold standards soon ended as well, and the complexities of international monetary regulation began.

The Present:

Today, currency continues to change and develop, as evidenced by the new $100 U.S. Ben Franklin bill.

The Future: Digital Currency

In our digital age, economic transactions regularly take place electronically, without the exchange of any physical currency. Digital Currency in the form of bits and bytes will most likely continue to be the currency of the future.

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Why Money Is Broken and What Can We Do About It

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Broken Money

Published on October 21, 2015
Andreas Freund, PhD
Professional Tweener, Digital Business Reimaginer, Exponential Strategist & Blockchain Practitioner

First off, and to set the record straight from the beginning, no, I am not a Libertarian, and, no, I am not an Anarchist either. I actually agree with Paul Krugman more than I disagree with him. Sorry, Milton! On the question of money though, I believe, Prof. Krugman and I are in different camps. And that is quite ok.

So why am I writing about money? Well, in a recent series in Pulse, I wrote about the Digital Revolution and its societal consequences in the developed and the developing world. In that series, I identified global wealth concentration as being primarily driven by the Digital Revolution today, and overcoming this global wealth inequality as the defining question for humanity in the first half of the 21st century, besides Global Warming. However, despite bringing more than a billion people as consumers and entrepreneurs in developing countries online since the turn of the century, this inequality persists. The question is why? Diving deeper into the root causes, I identified the current state of money as it exists today, and the systems managing it, as one of the primary culprits of this inequality. So why is money broken? And even if it were, why bother fixing it, it still kinda works, doesn’t it? Good question! Let me give you a simple example of why money is broken: If Kamal wants to send $500 a month of the salary he earns in the US working for a large IT service provider to his family in India, he will pay on average $40 to send it, or about 8%. India receives about $250 Billion of remittances every year. Based on an average monthly salary in India of $295 a month, this means that the current money system deprives India of nearly 56.5 million annual incomes. Nearly 4 times the size of the capital Delhi!

In order to make sense of this astounding fact, let’s start by reviewing a few things about money.

  1. Money has been around for about 10,000 years, give or take – it is an old technology!
  2. Money was invented to solve a problem with bartering: You want my horse, but I do not need the five sheep that you are offering in exchange. In essence, money solved a trade problem – Coincidence of Wants Dilemma, for academics.
  3. The main criteria of money are that it needs to be:
    • scarce
    • portable
    • divisible
    • easily stored
    • durable
    • fungible
    • verifiable
    • difficult to counterfeit
    • widely accepted
  4. Money was backed for the longest time by gold – the only element to fulfill all money criteria amongst all elements, at least more or less.
  5. Paper money is the only real technological money innovation in the last few thousand years.
  6. Only over the last 40 or so years do we have Government-backed paper money – effectively, a lot of little Government IOUs. If you trust a government, you accept their currency, even outside their country, see the US Dollar. Or, you do not trust the government, and that has devastating consequences for currency and economy, see the Bolivar and Venezuela.
  7. The idea of money being something physical is, therefore, an illusion. It is all based on trust and that is based on perception only!
  8. Our money has been primarily digital for about 50 or so years … and very hackable as the first $1 Billion bank heist in history in February of this year clearly demonstrated.

Ok, so what, you say? Well, this all would not be so bad, except the bank heist, of course, if money, which was invented to make trading easier, would not actually hinder trading. But why would money hinder trade and thus economic growth?

Because today, we have a programmable infrastructure medium called the Internet that allows us to exchange data with anyone, anywhere, anytime, almost instantly. This is what Tom Friedman in his famous book The World Is Flat called the “flattening of the world”. This “flattening” was made possible by all the fiber optic cables that were laid, and then had to be written off after the dot.com bubble bust, making communication a virtually free commodity. Bad for investors, but a boon for almost all businesses that embarked on doing business over the Internet after the bubble.

As a consequence of this flattening, much trading became faster and borderless, or so it seemed. And this is where the rub lies. The Internet allows me to receive from or provide to you any service or good in pretty much real time, except for money! We do not have a real-time value exchange protocol as we have for information with the Internet! Therefore, moving money is neither fast nor borderless, unless you live in a developed country like the US or Europe, are the proud owner of a Visa or Mastercard or similar Credit or Debit Card, and buy and sell goods and services within the country. And even then, it takes days for payments or money transfers to fully settle. Yes, even though you pay Amazon right away, your money does not hit Amazon accounts until a few days later and it incurs a payment fee, for example 2%-4% for credit cards. Guess who pays for these fees? Yes, you guessed it right, it is you, through higher prices. These payment fees make the payment banking function the most profitable function of all banking. In fact, McKinsey in a 2014 study estimated that global payment revenue for banks will reach approx. $2.3 Trillion in 2018 or 43% of all banking revenues!

But why is there so much friction in the movement of money in the age of the internet, you might ask? The answer is basically a combination of control and desire to maintain, if not expand, current revenue flows causing immense resistance to change -- $2.3 Trillion is not exactly chump change!

The bottom line of the current situation is that today’s global money system has so much inherent friction (cost and speed) and risk-averse, conservative behavior (regulations) that it shuts out most of the developing world and a significant majority in the developed world. Therefore, we are not tapping into the economic potential of billions of people who could improve their lives through doing business with one another in a frictionless way, even at the smallest of scales. For example, if it costs less for a farmer in Africa to sell goods in the market, he or she can sell more. In other words, we leave trillions of dollars of global GDP growth on the table.

An innovation in how money works and how it flows could unlock tremendous global economic and human potential. A simple, back-of-the-envelope Econ 101 calculation shows this clearly. If one could reduce the friction in global payments and remittances by a factor of say 10x and, therefore, keep approx. $2 Trillion+ in people’s pockets and local economies, it would amount to a de-facto global economic stimulus! The economic stimulus or multiplier effect of $1 in additional spending in a developed country is about $2 - $3 and in a developing country about $5 - $10. This means that $2 Trillion less for banks would stimulate between $4 Trillion to $20 Trillion worth of additional global GDP growth. An economic no-brainer in my opinion!

So what should this money innovation look like to enable this economic stimulus? Of course, it needs to fulfill all the money criteria mentioned before, but also needs to be:

  • Digitally exchangeable in real time – a value exchange protocol similar to the current TCP/IP internet protocol for data exchange
  • Programmable – the rules of how a digital currency works have to be encoded in software
  • Backed by its participants
  • Shared by its participants
  • Managed by participant consensus
  • Trustless

The first criteria is straightforward in the age of the Internet. The other require a bit of explanation:

  • Programmable means that the rules of the currency are enshrined in software. In other words how it is created, how fast does supply grow, how do you make it safe and secure, what are the penalties, if you behave in a manner that is not in the interest of currency stability are turned into bits and bytes. This program or protocol is then automatically enforced by computers running the digital currency software. There are other benefits such as predetermining how funds can be spent.
  • Backed by its participants means that rather than relying on a central entity such as a government backing the value of a currency through its reputation and the economic soundness of the country’s economy, the currency value is backed by, at least a large number, if not all, of its participants through a stake in the currency itself. This would ensure participants in the currency to behave rationally since they have something to loose, if they misbehave. A stake could for example be an effort in maintaining the currency system as so called Miners do in the cryptocurrency Bitcoin or staking aka bonding a certain percentage of any value exchange transaction into the currency for a period of time – bonding period.
  • Shared by its participants in this context means that everyone in some form or another holds an encrypted digital copy of everyone’s money – collective security. In other words, if you manipulate a copy in a nefarious way for your own gain, it is not worth anything unless you change a copy not from just one, but from a majority of participants, and change it the same way, at the same time.
  • Managed by consensus means that a majority of participants has to approve a change in the way the currency works – currency protocol – before this change can be implemented.
  • Trustless in this context means that someone does not have to trust anyone personally using the currency to know that they will behave in a trustworthy manner because the currency protocol will detect and punish behavior that is not in support of currency stability, such as shorting a currency i.e. selling a currency that one does not currently own or trying to double-spend or counterfeit the currency.

A currency fulfilling such criteria and enabled by the data infrastructure of the Internet would:

  • Reduce economic friction in terms of speed and costs significantly for all participants enabling faster global development and trading relationships
  • Provide a stable trade currency for all participants insulating individuals from bad decisions made by fiat currency governments and lobbyists
  • Allowing stable economic relationships to emerge in developing countries without government interference or corruption
  • Disintermediate the very expensive “last mile” money distribution system, in particular in developing countries where particular entities such as pawn shops in the Philippines have evolved as the de-facto money distributor in lieu of a stable banking system
  • Reduce friction in remittances, returning close to $50 Billion to local economies in particular in developing countries and
  • Make micro transactions by anyone and anything feasible, such as monthly payments on a micro loan, a smart light bulb buying the electricity it needs, or a self-driving car itself paying a small road toll

The last point is important, if we want to realize the predicted global GDP gains from the Internet of Things (IoT) of up to $6.2 Trillion as quantified in a 2014 McKinsey study. Whereas today there are about a billion payment transactions a day, with IoT it will quickly approach one trillion and more. IoT payments is currently truly the terra incognita of payments. In fact, IBM in its 2014 IoT White Paper writes “Centralized approaches to building an Internet of hundreds of billions of things are not designed for business model endurance”.

Is this vision Science Fiction? Not really. A digital cryptocurrency such as Bitcoin has all the traditional required attributes of money such as scarcity, divisibility etc. It can also be exchanged in (quasi) real time, it is (somewhat) programmable and it is backed by its participants, in particular the Miners investing a lot of equipment and electricity in maintaining the Bitcoin network. Furthermore, it is shared by its participants as everyone holds a copy of the bitcoin Blockchain, its public currency and transaction ledger. Bitcoin is also trustless, but not in the sense mentioned above, since the bitcoin protocol does not punish nefarious behavior towards the currency, but rather makes the identity of all participants (pseudo) anonymous.

Is Bitcoin the answer then? Not quite. The bitcoin blockchain that underlies Bitcoin, the currency, lacks some key aspects such as the ability to manage high transaction volumes, extensive programmability, a programmatic way to punish “bad” behavior towards the currency and a consensus mechanism to change the underlying protocol as evidenced in the “hard Bitcoin fork” that happened in September. In addition, Bitcoin, the currency, still lacks wide acceptance. This means that governments and today’s money system’s participants are not embracing Bitcoin as a currency such as the US Dollar because of banking compliance concerns and legal issues surrounding the usage of Bitcoin in illegal activities such as drug trafficking. Even though on closer inspection those fears would be unfounded, if Bitcoin currency exchanges had enforced the proper banking regulation compliance, especially around AML, from the beginning. This is being rectified as we speak, and proper regulation accounting for the unique nature of Bitcoin is under way such as in New York State where the first Bitcoin Exchange license was recently issued.

I remain very optimistic that by combining aspects from different cryptocurrency/blockchain protocols such as Ethereum, Ripple, Bitshares, Tendermint etc. with proper anonymity protocols which already exist such as Hawk and Enigma, one can readily fulfill all the above money criteria from a technology and cybersecurity point of view. In addition, by helping regulators understand the unique value proposition of digital cryptocurrencies, the Bitcoin and other communities will be quickly legitimized, and trust in cryptocurrencies will increase world-wide. The building blocks are all there, they just need to be assembled together properly.

This brings me to the “what to do about it” part. As you might have realized by now, the biggest beneficiaries of a global, open, shared real-time digital cryptocurrency backed by its participants are the ones with the least voice in global affairs, the people in developing countries. Though the developed world would undoubtedly benefit too – just ask Walmart if they would like to not pay 2% to 4% credit card processing fees which, in the end, the consumer pays through higher prices anyway.

In order to advance towards the goal of greater economic prosperity for the planet, our new currency needs a respected global sponsor and early participant – not an owner or single backer, as I explained above. Such a sponsor/participant could be the IMF or the World Bank or the UN. The advantages for such organizations to endorse and participate in a global digital cryptocurrency are numerous:

  • Improved effectiveness of economic stimulus, development or bailout loans such as easier administration and tracking and verification of the flow of funds until their point of use. This prevents corruption and ensures that more of the money reaches actual people rather than disappears in opaque government systems.
  • Stabilization of economies as the currency is not controlled by a single entity.
  • Promotion of open trade to stimulate further economic growth in particular in developing countries.
  • Reduce international money laundering and improve security through the transparency of the money system itself at any point in time.
  • Built-in and programmatically enforced transparency controls from currency inception.
  • Making it easy for an individual anywhere and at any time to participate in the global economy as long as they have a cell phone.

Despite appearance to the contrary, even big banks or large corporations, as sponsors and participants, would benefit from such a currency:

  • Real-time payments increase cash-flows.
  • Wining the 3 billion+ un- or underbanked of the world as new customers.
  • Tap into the IoT economy through payments as a new revenue source and leveraging the constant data stream from devices and sensors together with Big Data analytics to create new on-demand real-time products such as Supply Chain Financing, Asset Financing, Insurance and on and on.
  • Reduce a banks compliance risk and reduce associated costs such as meeting reserve requirements through an open, shared and cryptographically secured currency ledger, where they do not have to hold funds on behalf of clients. This would enable banks to mutate from the steward of your money to your financial advisor that helps you manage your money that you yourself hold and control.

This might sound like a pipe dream. However, it sounds less crazy since in some regions of the world a cryptocurrency such as Bitcoin has become the de-facto currency such as in Bueno Aires. In addition, banks are already under assault from FinTech start-ups that are not necessarily overly concerned with banking compliance and offer compelling value propositions to their customers such as Abra or Xapo. In fact, it would be in the economic interest of banks and large corporations to participate in such a digital currency, if one simply assumes that banks and others are no different than the taxi or hotel industry and that they will be disrupted sooner rather than later.

We can only try to spread this message together, and hope to convince banks and others that we are in this together, and that everyone will benefit, if governments and banks cede currency control to the individual empowered by powerful decentralized technologies.

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