From Cocoa Beans to Cryptocurrency – The Evolution of Money and the Rise of Crypto

From Cocoa Beans To Cryptocurrency – The Evolution Of Money And The Rise Of Crypto

picture by Studio Bermix to Unsplash

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Many find the notion that crypto is a legitimate currency questionable, and others find it downright ridiculous.

A retrospective look at the evolution of the currency can dispel these prejudices. Many things determined by civilization that would become currency could be considered far more outrageous than a digital coin.

For the Aztec and Mayan empires, cocoa beans were a popular form of currency. Beans were often exchanged for food and goods and were readily accepted as tribute. In the 14th century, cowries — the shells of sea snails — were used as currency throughout Africa, Asia and Europe. Everything from cattle and camels to salt saws and squirrel skins have been used as a form of currency, and some of these “strange” currencies aren’t that obsolete.

In 2005, Cameroonians used beer bottles pay taxi fares, and in 1997 the Democratic Republic of the Congo used faceless bills to designate legal tender.

As history has shown, silver is one of civilization’s oldest shape-shifters. Contrary to popular belief, it’s not uncommon for new forms of currency to emerge and disrupt others, and now, according to blockchain proponents, it’s one of those rare moments in time when it can happen.

In April 2021, the market capitalization of Bitcoin (CRYPTO: BTC) changed to $1 trilliondwarfing the market capitalization of most companies listed on the NASDAQ Capital Market and the gross domestic product (GDP) of many countries.

Companies like Marathon Digital Holdings Inc. (NASDAQ: MARA), Riot Blockchain Inc. (NASDAQ: RIOT) and Bluesky Digital Assets Corp. CN:BTC (OTC:BTCWF) has placed millions on these emerging currencies and the nascent technology that supports it.

But what determines whether a currency is, in fact, money, and does crypto meet those criteria?

Cryptocurrency: can it be considered money?

Of the many examples of money listed above, they all met, in their time, three criteria: They acted as a store of value, medium of exchange and account unit.

1. Store of value

All forms of money should act as a store of value. They must retain their value over time without the risk of significant and sudden depreciation. Many will use Bitcoin and Ethereum (CRYPTO:ETH) volatility to make the case for cryptocurrency’s weak store of value, but the emergence of stablecoins like Attached (CRYPTO: USDT) and USD coin (CRYPTO: USDC), which are pegged to an underlying asset, provide a strong rebuttal.

2. Means of exchange

For a currency to become mainstream, it must be widely accepted. Both parties to the transaction must share a perception of value. Cryptocurrency has come a long way since it was introduced as a form of payment in 2009. Giants like PayPal Holdings Inc. (NASDAQ: PYPL) and Microsoft Corp. (NASDAQ:MSFT) accept cryptocurrency as a form of payment, and there were more than 68 million blockchain wallets Last year.

3. Unit of account

“To function as a unit of account, money must be able to set the price of financial transactions by effectively exposing the value of different products and services across the economy against each other. For example, a $500 mattress is worth more than a $20 hat,” says Cryptopedia.

Cryptocurrencies comfortably fit into this category. Bitcoin, for example, can be split into units as small as one satoshi (one-hundredth of a bitcoin) and Ethereum can also be split into partial units.

Fiat: lack of intrinsic value due to uncontrolled supply

A major criticism of fiat currency is that it has no intrinsic value and derives its value from its status as legal tender. The term “fiat” is a Latin word that is often translated as “it will be” or “let it be done”. The value of fiat money is inextricably linked to decisions made by central authorities, i.e. central banks and governments. Interest rates, money printing, and other fiscal policies directly influence the value of fiat currencies, a process that relies heavily on trust in government officials and banks.

In 2008, when it was discovered that banks had an important role to play in the global financial crisis, confidence in these central figures declined significantly. Many believe that this mistrust continues to fuel the blockchain movement and its derivatives to this day.

Unlike fiat currency, cryptocurrency derives its intrinsic value from its native blockchain, where monetary policy is determined by protocol, consensus mechanisms, and aggregate supply. Unlike fiat currencies, many coins have a limited supply, which helps solidify their intrinsic value.

money evolves

Cryptocurrency does not exist in a bubble; it is a “movement” motivated by the need for economic security and personal independence. Thanks to blockchain technology, the movement brings with it many derivatives. Non-fungible tokens (NFTs), decentralized finance (DeFi), Web 3 and many more are part of the disruption to today’s dominant form of money.

For the master shape-shifter that is money, cryptocurrency might just be its next form.

This post contains sponsored advertising content. This content is for informational purposes only and is not intended to be investment advice.