Origins and evolution of money


Money acts as the foundation for all trade and savings, so the adoption of a superior form of money has tremendous multiplicative benefits to wealth creation for all members of a society. — Vijay Boyapati.

Money is the tool that transports economic value through time and space. 

Through history, only those goods with better monetary properties have spontaneously emerge as money.

Listed according to their importance, the monetary properties are:

1. Verifiable Scarcity

2. Storability

3. Portability

4. Fungibility & divisibility

5. Saleability

1. Verifiable Scarcity is the monetary attribute that enables the representation of value:

Humans enjoy collecting, displaying, storing and trading rare items because of genetically evolved instincts.

37000 years ago, homo Sapiens took pleasure from collecting shells, making jewellery out of them, showing them off and trading them; Neanderthals did not.

Thanks to his hobby, the Homo Sapiens unconsciously created a proto-money that provided him the ability to store and transfer wealth, which meant a social coordination advantage that made Homo Sapiens to prevail over Neanderthals despite being physically weaker.

The cost of those collectibles could be accurately approximated by simple observations, some of them even represented privileges by mnemonics. They were used as Stores of Value, being only exchanged for generations at "life events".

2. Storability is the feature that provides the ability to protect value from theft or loss:


Those "luxuries" were durable and easy to hide.

3. Portability provides a monetary good the ability to transfer value to different locations:

Most collectibles were also wearable, used as ornaments.

The adoption of those "whimsys" implied a first step towards civilization as it enabled to mitigate aggression, since tribute was a more lucrative form of exploitation for the victor of a battle than further violence against the defeated. It also facilitated delayed reciprocity, which increased food sharing.

4. Fungibility enables different instances of a good to be treated as equivalent, while divisibility enables to split a good into different equivalent instances. Both enable to exchange with a higher degree of privacy and accuracy:

The collectibles that end up working best as a Medium of Exchange were those whose supply provided a tradeoff between being enough rare to imply density of value, while diversified enough to provide fungibility and divisibility.  


During the Neolithic era (10,000 BC until 1,200 BC) money still consisted in collectibles made out more of precious metals with a lack of uniform value, so only large merchants could assay metal, as it was too costly for retail.

Jewellery increasingly took a more divisible and fungible form until around 700 BC, when the lydians, inhabitants of a what was a trade hub in the current Turkey, invented coinage.

The kings of Lydia, through government mints, became the first issuers of gold and silver coins.


Coinage also largely improved the verifiability of money, which led to the growth of existing markets.


5. A wide social adoption of gold provided it saleability , i.e. the ability of a good to be exchanged; and as adoption increased, the supply of coins became more distributed.  

A wide supply distribution tends to stabilize the monetary value, which facilitates its stage as Unit of Account for economic value.

Counting on a standard of value helped tax collectors to measure economic value, which boosted the king’s revenues by facilitating the taxation of the greater wealth that was flowing through markets.

Harshly enforced laws against counterfeiting made possible for the public mint to"self-counterfeit" by issuing new coins maintaining the same denomination but less content of precious metal, i.e. debasing coins; which when abused like the Roman Empire did, always caused hyperinflation of prices, civilizational decline and societal collapse.


Outside of this western Eurasian area, many non-coinage forms of money persisted.

The origins of paper money:  

First paper claims on coin deposits emerged in China in the 7th century when private agents started to issue paper receipts that were redeemable for entrusted precious metals.

In the 10th century, the Chinese government limited that service to only authorised establishments. 

The system became progressively more centralized, so during the 12th century, Song dynasty decided to take direct control of the system and abuse it, so price inflation appeared.

In the 13th century, the paper ceased to being backed by any precious metal.


Image: fiat money from 14th century

Printing huge amounts of paper ended up collapsing the system. Monetary metals became again the main form of money in China again in the 15th century.

Towards the 16th century, in the West, paper receipts began to assume monetary functions through bills of exchange and promissory notes which allowed trade across hostile lands, and from the 17th century, through bank notes representing a certain amount of precious metals stored in vaults.

During the 18th century, the technological advances of the industrial revolution made easier to counterfeit coins. Not even the threat of death penalty could prevent the widespread counterfeiting of high-denomination coins. As fake coins spread, the use of the much easily verifiable bank notes grew.


Banks improved their ability to make transfers thanks to the advances in communication and transportation such as the telegraph and the train, so most monetary metals ended up in private vaults.

Vaults frequently committed fraud by issuing more certificates than the amount of metals they were storing, so most metal ended up guarded in a few large banks which end up controlled by governments that established restrictions to competition. So the issuance of paper notes, supposedly backed by precious metals, became a monopoly in each country. 

The first country was Britain, which advised by Isaac Newton, introduced the "gold standard" in 1717.

By 1900 around 50 other countries adopted the same standard.

At the beginning of WWI, in 1914, the major European powers decided to suspend the convertibility of bank notes for gold, in order to fund their operations by printing at will. By the end of the war in 1918, those currencies had lost a big part of their initial value; nevertheless the British pound managed to return to its pre-WWI value in 1925.


In 1933 Franklin Roosevelt confiscated gold in the US by forbidding the hoarding of gold coin, gold bullion, and gold certificates within the continental United States (Executive Order 6102):


The US dollar was pegged to gold at 20$ per ounce but immediately thereafter, it depreciated to almost half of its previous value, with a new rate of 35$ per ounce.


During WWII (1939-1945), most of the world's gold reserves ended up in the United States, as it trade balance surplus was enormous, and it was considered the most secure location for the custody of gold reserves. 


Near the WWII end, in 1944, the victors designed the Bretton Woods system as the new economic order.

The agreement established that the currencies of participating countries would  be pegged to the US dollar at a fix exchange rate of 35$ per ounce of gold.  

In practice, this would have required the supply of any currency including the US dollar, to not increase at a significantly higher rate than gold reserves. However, most currencies were printed at a higher rate than the US dollar, which in turn also increased at a higher rate than the stored gold.

It is not possible to keep a fixed exchange rate under those conditions, so many states were not able to defend their currency peg, and in 1971, President Nixon announced that US dollar would no longer be convertible to gold.


*Image: the nature of the US dollar changed radically during 20th century. From a gold certificate before 1933, to certificates supposedly backed by gold but not redeemable in it in 1934, to pure fiat money after 1971. 

Since then, Central Banks print pure fiat money.

The word "Fiat" originates in Latin, meaning decree, mandate, order.

Fiat money, also called Political Money or State Money, is any currency exclusively issued and privileged by the state. Governments establish decrees to impose its acceptance and to create costs to the adoption of other currencies; like legal tender laws, which in their most "light" version, declare a currency to be valid for extinguishing any debt when offered ("tendered"), even if it is against the will of the receiver.

Legal tender status also implies that the fiat money is the Unit of Account used by official entities to calculate and impose taxes, which create frictions to the use of other money.


The inherent lack of fiat's verifiability, storability and transferability made necessary the use of third parties like comercial banks and financial entities. 

With the emergence of the digital age, assets became more centralized as the owners were simply granted with online access to software that showed ledger's entries for them.

Trusted third parties are security holes, so data centres were "honey pots" over which the state gained greater control. 

Fiat currencies were progressively less reliable as the use of cash was restricted and they were used to enforce regulation. 

Every time a money becomes more of a medium of censorship, it becomes less of a medium of exchange.

Bitcoin is the only trend away from that. 

Every time somebody gets censored, Boom! they become a Bitcoin fan. It’s almost a binary thing: 

if you haven’t been censored, or have never been strongly sympathetic with somebody who has been censored by the financial system, then you don’t understand the biggest early use cases of Bitcoin. If you have, nobody needs to “convert” you. —  Nick Szabo.

In 2009 Bitcoin appeared, a digital and easily verifiable scarce good integrated in a decentralized network that secures its ability to be freely stored and transferred globally, which makes it a superior form of money. 

Since then, and for the first time in history, financial self-sovereignty is possible.


I don't believe we shall ever have a good money again before we take the thing out of the hands of government, that is, we can't take it violently out of the hands of government, all we can do is by some sly roundabout way introduce something that they can't stop.  —  F.A. Hayek (1984)

Unlike previous attempts to digitize scarcity mainly consisted in businesses like E-gold that ended up being declared ilegal and being easily shut down due to their centralization; by 2020 had become the most reliable and secure monetary base and financial network in the world, with a transaction history that was distributed in over 10,000 of copies located in more than 100 countries. 

Bitcoin's monetary properties enable minimize trust in third parties in order to perform monetary functions, greatly improving fiat and gold as money. 

Verifiable scarcity:

Its authenticity and scarcity is mathematically verifiable just by running a node.  

Unlike fiat money that does not have a creation cost nor any limit of supply, Bitcoin's issuance rate is constantly decreasing and its total supply is mathematically limited to 21 million units.


Ownership is enforced through possession of a small piece of data, so it is extremely difficult to confiscate.

It is the first nonviolently securable property in history.

Gold physicality makes it difficult to protect.  

Fiat monetary base consists both of Central Bank's reserves and paper bills: Central Bank's reserves can not be stored individually, while paper Bills are even more difficult to protect than gold.


Bitcoin can be transferred from person to person globally without intermediaries in a pseudo-anonymous way. Its decentralization makes it censorship resistant. 

Physical wealth, like paper bills or gold, is difficult to transfer over long distances.

Central Bank's reserves can not be transferred directly by the individual, and there are restrictions to its indirect use, like AML laws. 


It does not require permission to be adopted. Unlike digital fiat money, no third-party is required for granting approval. Having access to Central Bank's reserves requires a commercial bank's license, and there are restrictions to its indirect use, like KYC laws.



Economic value: benefit provided by a service. 

Scarcity: relative low availability of something. In absolute terms, it indicates that the supply of something is not limitless.

Medium of exchange: the asset that settles a transaction. "What" a transaction is denominated in. 

Means of payment: the method used to implement a transaction. "How" a transaction is manifested. E.g. credit card payments.

Currency: a generally accepted medium of exchange. 

Sovereign: One that is above the rulership of another (not ruled, not a subject or slave). From latin: super = above, regnam = rulership or control.

Ownership: rightful or legal claim to a property.

Possession: custody or control of a property.