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 



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

Homo Sapiens displaced Neanderthals 37000 years ago despite being physically weaker. Both had a similar brain size and used the same hunting tools. But, Homo Sapiens took pleasure from collecting shells, making jewellery out of them, showing them off and trading them. H. Sapiens had a collecting instinct, Neanderthals did not.

Which attributes made an object valuable?

- Its cost could be accurately approximated by simple observations (easily verifiable scarcity). It often served as a mnemonics representing privileges (symbolic value).

- It was easy to wear and to hide, which provided portability and storability, and enabled it to be used as ornament.

Thanks to his hobby, the H. Sapiens unconsciously created a proto-money that provided him the ability to store and transfer wealth, which enabled: 

-Mitigation of aggression. After a battle, tribute was a more lucrative form of exploitation for the victor, than the use of further violence against the defeated.

-Delayed reciprocity which increased food sharing.

-Specialization which increased production.

This proto-money meant a first step towards civilization and a social coordination advantage that made H. Sapiens to prevail.

Collectibles functioned best as money where their relative scarcity implied density of value while also allowing their divisibility and fungibility.


The Neolithic era (10,000 BC until 1,200 BC) meant an intermediate phase for money between jewellery and coins, when some collectibles/jewelry increasingly took a divisible and fungible form (commodity). Standard sizes and assayability were often valued over beauty.


Around 700 BC, the lydians, inhabitants of modern Turkey, invented coinage.

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


Until then, money still consisted in collectibles made out more of precious metals but still with a lack of uniform value. Only large merchants could assay metal, as it was too costly for retail.

Coin mints plus harshly enforced laws against counterfeiting coins enabled easy assayability at the cost that the mint could itself "self-counterfeit", i.e. debase coins.

*Debasement is the process in which a new coin with the same denomination was issued by a mint although it had less content of precious metal.

Coins led to the growth of existing markets (Lydia was a trading centre) and helped tax collectors to estimate value. The greater wealth flowing through markets, now available to be taxed, boosted the king’s revenues. Tax collectors had (almost literally) hit a gold mine.

Abuse in the debasement of centralized issued coins frequently caused hyperinflation of prices, civilizational decline and societal collapse (e.g. Roman Empire).

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

Fiat money appears:

First paper claims on coin deposits emerged in the 7th century, in China. Private agents began issuing paper receipts redeemable for entrusted precious metals. In the 10th century, the Chinese government limited the service of issuing these notes to specific establishments to which it granted licenses. In the 12th century, Song dynasty decided to take direct control of the system and price inflation appeared (caused by monetary inflation). In the 13th century, the paper became issued exclusively by the government and not backed by any precious metal. It was a system of pure fiat money. Fiat printing (the equivalent of coin debasement) abuse ended up collapsing the system. In the 15th century, monetary metals became the main form of money in China again.

Towards the 16th century, in the West, paper receipts began to assume money 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 (hopefully).

During the 18th century, the technological advances of the industrial revolution made easier to counterfeit coins. Even the death penalty for counterfeiting was insufficient to prevent widespread counterfeiting of high-denomination coins. As fake coins spread, use of bank notes grew.

Thanks to advances in communication and transportation such as the telegraph and the train, banks improved their ability to make transfers, so monetary became held in centralized vaults.


Private vaults committed fraud by issuing more certificates than metals they held (fractional reserve banking), which in turn led to a even further centralization of metal that was stored on the largest banks. These banks became controlled by governments and eventually became paper note-issuing monopolies of precious metals. 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 banknotes for gold, in order to fund their operations by printing at will. The gold receipts that currencies consisted of, turned into fiat; which, by the end of the war in 1918, had lost most of its value (to different degree depending on the country).

The US dollar was pegged to gold at 20$ per ounce. 

In 1925 the British pound managed to return to its pre-WWI value.

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):


Immediately thereafter, the USD depreciated by almost half, 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, whose trade balance surplus was enormous, and was considered the best custodian for the gold reserves of the allied countries. 


Near the WWII end, in 1944, the victors designed the Bretton Woods system as the new economic order: the participating countries would peg their currencies to the US dollar that would be backed by the majority of the world gold reserves located in the US, setting a fixed exchange rate of 35$ per ounce of gold.  

In practice this would have required the pegged currencies to increase their total units at a similar rate to the US dollar, whose total supply should in turn not increase at a higher rate than gold reserves. However, most currencies were printed at a higher rate than the US dollar, which also increased at a higher rate than the stored 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 also increased at a higher rate than the stored gold.

It is not possible to keep a fixed exchange rate under these 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.

Since then, Central Banks print pure fiat money.


*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. 


In 2009, bitcoin appeared. A digital and easily verifiable scarce good. Integrated in a censorship resistance peer-to-peer network that enables it to be transferred without permission in a trust-minimized way.

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



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


Prehistoric humans' joy in collecting rare items allowed them to store and transfer wealth between tribes and generations. 

During the neolithic age jewellery became increasingly more fungible, which facilitated exchange.  

Around 700 BC the invention of coins provide money with complete fungibility and expanded its adoption, which enabled the measurement of economic value. 

The poor verifiability, storability and transferability of coins fomented the use of receipts representing metals that were accumulated in a centralized way, which made easy for governments to monopolize the system and abuse it by creating receipts without any backing of metal.

That situation led to pure fiat money. 

In 2009, bitcoin appeared, a digital gold that improves greatly the verifiability, storability and transferability of physical gold.