From Bartering to Bitcoin: The Evolution of Money

In October, the price of bitcoin reached an all time high. At $6,306.58, the price of bitcoin has increased more than 500 percent this year alone, making the world's first decentralized cryptocurrency a potentially worthy investment.

Bitcoin is a worldwide cryptocurrency and digital payment system created in 2009. There are an estimated 16 million bitcoins in circulation. And while many have dismissed the cryptocurrency, it’s value is predicted to rise even further.

Currency has certainly come a long way. In the earliest days of civilization, societies didn’t have a currency to purchase necessary goods. Instead they relied on bartering, trading goods for other goods, to obtain what they needed. Here’s a look at how currency has evolved since then.

Early Forms

Historians believe the first coins were created in an ancient Kingdom of Lydia -- a region located in what is now called Turkey -- in 7th century BC. They were made from a combination of gold and silver, inscribed only on one side and were not uniformly shaped, making them look different from the spherical coins used in most countries today. They ranged in weight from approximately 0.15 grams to 14 grams.

Another early form of form of currency was created by the Chinese, who were the first to use paper currency. Their early coins were shaped like tools like knives, spades and axes. Prior to this time, the Chinese used shells as a type of coin. The Chinese had also long written credit notes on various materials, but after creating paper in the year 100, Chinese coins were exchanged for paper notes.

Paper currency made its way to Europe by way of travelers like Marco Polo. In 1150 the first European paper mill was built in Spain. And later Europeans began using handwritten promissory notes. Not until the 1500s were actual banking institutions created where people could deposit currency.

Across the ocean, the dollar was first issued around the time of the Revolutionary War. It was part of the currency known as “the Continental” issued by the continental congress. In 1792 the U.S. government created the U.S. mint to manufacture and circulate coins, but the government didn’t start regularly printing dollar bills until the Civil War began in 1861.

Counterfeit

Almost as soon as soon as coins were created, people began devising ways to counterfeit them. Since the size and shape of early coins was irregular, people would shave them down, melt the filings and create additional coins. In some regions, the value of a currency was dependent on the metal it was made from. Counterfeiters would make coins from less valuable metals and then cover them with a thin layer of the metal they were trying to pass the coin off as. In order to combat this, governments placed restrictions on currency that could be exchanged. For instance, some governments set different weight limits for different denominations to weed out the coins made with inferior metals.

Counterfeiting was also a problem with paper currency. In order to combat this, Italy developed watermarks in 1282. Other governments mark their bills with engravings or other kinds of raised markings. And today nearly all paper currency bills include some kind of hologram or unique ink that is difficult to reproduce.

Digital

Today, currency worldwide is greatly advanced from the crude coins of centuries past. In addition to Bitcoin, other forms of digital currencies are being released everyday. But there are all kinds of other digital currencies that many don’t think of. These include branded currencies like loyalty points that can be exchanged for physical items. Additionally, currency in video games like the online multiplayer role playing game World of Warcraft is used for obtaining goods in the game and can often be traded for money in real life.

But these newer financial markets present new security challenges. Cryptocurrencies like Bitcoin use cryptography to secure transactions. While this currency is believed to be very secure, making it safe from hacking and counterfeiting, it remains unregulated. For this reason many worry about cryptocurrencies being used for nefarious purposes. Cryptocurrency is difficult to monitor because transactions are nearly impossible to track. This makes it a good currency for criminal activities like money laundering and tax evasion.

As our currency evolves, governments must develop new ways for regulating it. Would love to hear your thoughts on how legislation changes will impact the industry.

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