Episode 157- Evolution of Money and Economy!

Welcome to Crypto Nights, where we help you finally make sense of the trending world of crypto currencies. So get your virtual piggy bank and let's get started. Money means different things to different people. Most people don't think too deeply about it because it is so embedded in our daily lives that we take it for granted as a fact of nature. You know, it just has existed

for a long time and will continue to exist and it powers its a threat stream. It's a blood of the whole economy. If you think of like a circular system, what blood is to the whole body? So money and money flows are like that. And so it's August present underneath every transaction and every grouping but rarely accepted. Very deeply. So if you talk about money, I

believe that money is one of the first technologies of human civilization. And there before there was written history, there was money. And in fact, the first writings that discovered the Egyptian hero graphics that were discovered do deal with a lot of money stuff because it was an accounting and entry system. You know, that was a lot of money. It was being used. So that shows you

how ancient money is. It's more ancient than what most people think. So what was the necessity for money? What was the reason for it? If we think about it. So, you know, we have a let's take a simple example on a deserted island. There are a few people are there and they have division of labor come through. Right. But arises automatically. Maybe somebody is good with

fishing. Somebody is good with turning to garden and growing some vegetables. Somebody builds a shelter, a hut, some kind of dwelling. And somebody builds a boat maybe. So, if different people are engaged in different activities, but as human beings, we need a lot more stuff for our daily lives. Right. We need to eat. We need to have some kind of shelter. We need to drink water

or something else. Then entertainment and you know, all that stuff. So, if you see there are many activities and many goods produced as a result of these activities. And so, when we produce these goods, there's enough for us and there's a self-press. And since we want to specialize and they keep doing and producing water producing and others are doing the same thing. So, they will come

at time where we need to barter. Right. We need to exchange groups because we can only specialize so much. We need to do many things in one or two things. So, we need the goods produced by other people as a result of their specialization. They're specializing. So, that was a barter system. But barter system is so complex because you need to find the right match. And

if I produce a good A and somebody else produces D. And the person who is producing B doesn't need my goods. But I need B. So, I need to find a match. I need to find a C. My goods A and this we see and hopefully B like C's are exchange it. So, you see how complex it gets even if we go to three or four

transactions. I want bananas. You have potatoes. That guy wants potatoes but he wants strawberries. Right. And so, market making is so complex because we need to constantly go out there and buy stuff that other people might need an anticipate. So, curiously, when metals were discovered. So, before metals there were other things tokens used or something that's where something that everybody wants. So, the first characteristic of

something that emerges is the currency or money is a coveted goods that some everybody wants. So, if everybody says that I like metals for their ornamental value, things we can make, flexibility, all the stuff. So, naturally metals emerge in the market as coveted goods that are more there are all the things that are always in demand. So, that's first criteria. So, that's how metals came into

being and so, enough everybody knows that people will take metal at any given time. Some metal. Right. So, that particular metal becomes money. So, that's the origins of money. Just to give a very simple view of how money came to be. So, in a sense, the goods that become money have to be in demand by everybody at any given point in time. So, everybody will accept

it. So, as time goes on, the network effects get set in and everybody knows they can accept a certain metal. Say gold, silver, there were many competing metals, iron, whatever it was. But then we are safe in taking those metals as a payment for our goods. Because we know that we want something else from somebody and they will be more than happy to take our metal

and exchange. So, naturally as a result of the market, some metals become money and it's giveable, it's fungible, durable. It has to last for a long time. That means it has to be easy economy of storage. Right. You have to be able to store it without too much of a thing. You have to be able to secure it well enough so that you can claim position

to the metal. And a fast, you can lay claim to it that if you have it in your house, you have it and you should not take too much of space. So, there are many characteristics like this that metals have and over time, some metals we call them pressure. Because pressure is criteria, it's a characteristic. So, pressure is to whom for everybody. So, that's how money

came to be. And not only that, I think there is actually a term, right. The way water transitioned over the call it coincidences, double coincidences. That means I want something that you have and you want something that I have and then we can exchange. If that's all that happened, if there was series of double coincidences throughout the day, it would have been very nice. But because

double coincidences are happening so rarely, we needed some way of saying, yeah, I know you want strawberries, I don't have them, but I'll give you these green dollar bills instead. And trust me, that guy will take the green dollar bills and give you strawberries. That's a great way to put it. So, it's a very simple to understand once we go to the fundamentals. So, you're right.

That's how it came to be. And so, the original money currency was precious metals and then the coinage came later, right. And then the state came into our controlling about it in that society. And today, this is a nation state. We call it the state, the governments. So, long before money was legislated, money was in demand and it arose as a market made. So, the point

I want to make is, make is, let's say, legislation did not give power to money. The law of the land did not give power to money. Money arose and the law of the land recognized it. So, there's a recognition. Just much like rights. The concept of rights for a man rights are inherent in your existence as a human being. And they're not granted by society. They're

recognized by society and recognized by civilized civilized governments, civilized governments anyway. So, it's very much parallel to that. So, money came to be and then money was retributed as per the state. I want to make it point. Yeah. So, I think that's a very important point. I think we have to, what we have to do, Chuck, is along this discussion, we want to identify some key

elements of what is money. I mean, because when you really think about it, money is only money because you and I agree that it is money. It's a common story that you and I agree on. And hopefully, enough other people agree on it. And therefore, it is a dollar. If it is an Indian rupee called I and R or a US dollar, those are famous or

popular or valuable. Only because you are and I agreed that they are right. And one of the best ways of making sure everybody uses US dollar bill was to give it a very strong use case. And what is the obvious use case that the governments can come up with, hey, you're going to pay your taxes in US dollars. So, now everybody has to pay taxes. So,

everybody need dollars to pay taxes. So, that's a good way of making sure everybody has US dollars. Yes. And I step back, couple of steps back and how that came to be. So, because there are a couple of more steps between that and the pressure matters of coinage that emerged in the marketplace. We can recognize by the central authority that tried the quality of the state,

the government, whatever you call it right. The chiefs. So, there was something that's a couple of steps in between. Because belief that everybody will use it doesn't come like that. It comes to a series of steps. So, we cannot debate. I will release some kind of coin or a token and if I get enough people to believe it and it will become money. So, that's what

most people take that view. But I want to just dig deeper into that. Let's pause and take it back. It's more complex than that. It's more complex because belief is a word. I've seen a lot of people use, educated people use circular belief or whatever they call it in this note dollar bill of the way. Or any other currency. However, let's go back to our pressures.

So, the coinage emerged in the market. And so, this was a metal that wasn't demand always. And the demand is not a belief. It's a real demand. Belief can be subjective. Demand is objective. There is a need for that. And so, people started to end the fact that other people are demanding it also increases the demand. It's secondary. But people have to first have a interaction

to it. It's a coin. And then it helps that other people are also excited about it and attracted to it and they will accept it. So, that's secondary. So, money arose in a marketplace not by a belief imposed. Or everybody started getting together one day and everybody said, okay, going forward. We recognize this paper as our missing. And that's all these things. It's more complex than

that. It doesn't come in like that. So, there was a precious metals of coins, the coinage, state recognize as which. And that was it for a long time. And we know that the coin itself, the metal itself, is in demand by all of us. And then there was an innovation. That was the exchange to the paper. The first paper money, there's certificates. It was certificates of

deposit. So, let's say there was an institution. Let's call it a bank. Okay, that people trust. That if you put your metal here, and then I'm going to run away. That means they have been in business for generations. And they have to be stable. Maybe you know their families, everybody knows them. People can watch for their integrity. So, people went and deposited these coins with this

institution. A bank, we call it. And the bank in turn issued a paper certifying that this paper represents this much of coinage that I'm holding. Okay, let's say gold coin. You went and deposited 1 kilogram of gold. And so, the bank, the institution gives you a certificate saying that this person has this gold deposit here. And this paper is redeemable at any time on demand to

be converted back into gold money. Come and present this paper. So, now this paper is fungivable. I'm not going to question where this paper came from. And I'm going to say, I'm going to go to the bank. The position of the paper is ownership. Right? So, when I go out in the market, I deposit my gold 1 kilogram. And I ask for a paper, a certificate

saying 1 kilogram of gold. All I can ask for 10 certificates saying 100 grams gold and 10. Okay, 10. And they're all exchangeable, fungivable, diggable. So, so I take this 10 papers in the market. I might use two of these papers. That is 200 grams to buy something, two more to buy something else, one more to buy something else. And those people in turn now possess

this paper, but the paper is a demand on the coin. That's held in this institution. So, anybody that holds a paper and comes through the gates of this institute institution and demands the metal to be paid back will be paid back. That was the original promise. So, banking and money are related. So, that's what paper came. So, that's what paper came to have value. It has

value not because everybody just believed in it. It has value because everybody knew it's backed up and on demand exchangeable to a precious metal. We also demand that we know there's a demand for it. That we all would demand. So, that's that was it. So, and then people forgot about their deposit because the paper was convenient and they can put it in the pocket. Go around.

It's easy to post, easy to store because the downside is it can destroy the easily more than gold. It can be stolen easily or taken position of easily by other people. But you also can you know, you can also convert that same thing to the same thing. So, there was a trend. But then people became comfortable enough. And if you see that US, there were many

currencies in the school. And they were all exchangeable. There was a rate in the market for each currency. So, there was exchange market for its market. For an exchange market because remember the stakes were entities and each state was foreign to other states. So, that's what it came to be. Then came our central banking and the current system we have until the beginning of the 20th

century. 1913 was a federal reserve act. The US was a beginning of government's control on this token. It's token that called US dollar. And over time, US being having an amazing production of goods and become supply of these goods around the world. The dollar became the de facto standard naturally. So, that's how dollar came to be. So, the reason it went to all the stuff is

because the paper came to be accepted. Not because of let the paper be accepted. That's a belief that everybody can't together one day. They started to believe it altogether. But it came to be in circulation and in demand and as a usage. It came to usage. There are series of steps. And one of the important steps was deposit banking and how banks came to be issued

a paper. And then governments then recognize this paper, centralize it and make it one unified currency in the US. That's how US dollar came to be. And the current financial system to be. So, you know, Chuck, I also remember that the original banks were not banks of cash. They were banks of grain. So, and all these certificates. It's hilarious when you think about it. So, I'm

telling you, I have 100 pounds of grain. And oh, by the way, I want your your sheep. So, I'll give you a bag of grain. By the way, let me write you a letter and I'll sign it. I'll give you a bag of grain from there. So, that was the origin of some kind of an asset back. The piece of paper was kind of asset back

in some sense. And then of course, then came paper. I think it came in China. Very poor money was first issued in China probably a thousand years ago or something like that. So, in the beginning, these paper monies were backed by actual physical assets. And then we have seen if you see US itself, you know, it turned out that over time people started believing so much

in the green piece of paper that they forgot. You use the word forgot and I found that interesting. So, people forgot that, oh, I'm actually supposed to take this to the bank and actually can get a piece of gold or at least know that there's a piece of gold backing this up. Over time, you know, I know there's a piece of gold. You know, there's a

piece of gold. Just take this piece of paper. And then you keep passing it on. So, there was a matter of convenience. And then there was a decoupling, you know, just like they say after several generations of doing something people have completely forgotten. So, there was been some kind of manual that found the origin of why we do it. So... Something like that happened. And there

is this detachment of what is the asset that is backing this up. So, we just use this paper. These people now have inherent value because the story is so strong that we don't need the backing of gold. So... gold as standard was decoupled and finally done away with it. So, we literally have worth this of pieces of paper in terms of physical value. Essentially being considered

to be extremely valuable. I like it actually, forgot about it because the economic activity increased and there were many, many goods and produced. In the beginning it was goods, some services. But there were many goods and services. GNS, let's say they produced in a marketplace that there was just simply no time to get back your gold because there were so many items and goods that you

covered and you want. So... So, it became more convenient to just keep holding this paper with certificate of clean, right? On the asset rather than going every time and checking your asset or whatever. So, you know it was there, it's their line secured. Thanks for listening to The Crypto Nights. Never miss an episode. Subscribe now at www.cryptoknights.io