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A Brief History of Currency

In the early stages of human society, we practised the exchange of goods through the barter system. People would exchange items that they possess for other items that they required.

This system was not great because it was not always possible to have the exact item needed by the other person to make the exchange. To solve this, we introduced the concept of currency, an item that would have a fixed value that could be used as an intermediate object in the trade. Now, a person could sell their stuff for a common currency that could then be used to purchase anything they wanted from any seller.

The first currencies we used were in the form of metal coins that were minted by local governing bodies. These coins were backed by the government, which means that they would guarantee that the coin had some value over a similar weight of unmoulded metal.

Modern currency is issued in the form of paper-based bank notes, this time with words and national branding printed on them to showcase the national affinity of the currency and the identity of the government that guarantees it.

In the past few decades we moved a significant portion of these financial transactions to the Internet, allowing people to make exchanges without actually physically transferring the currency from one person to another. This was made possible with the help of banks, that would maintain a ledger book of all the cash balances maintained by their customers and handle transferring cash to other banks.

This placed immense pressure on banks to develop systems to stay accountable about exactly what the current balances are to ensure that no money is lost. The processes that evolved over time were deeply intertwined with different compliance requirements set by the currency issuing body (the government) and the bookkeeper (banks). However, these agreements still remained largely verbal despite frequent audits and implementing computer systems to plug any leaks. It became possible to commit financial fraud, due to the nature of private ledgers maintained by private banks that had clear incentive to show they had more money than they really did.


With the release of the Bitcoin paper by the pseudonymous Satoshi Nakamoto, the concept of currency was revolutionised through a new type of shared database called a Blockchain. Bitcoin was a currency whose value would not be guaranteed by the reputation of the governmental body issuing it but rather by complex math functions that assure some work (known as mining) was done to create it. This new decentralized paradigm enabled a "trustless" world where you don't need to "trust" anyone because you can always verify it yourself.

Cryptocurrency solves a lot of issues faced by fiat currency. By using complex math functions, we ensure that new currency cannot be randomly created at will, but is generated or 'mined' based on some fixed slow supply rate. Creating counterfeit currency is no longer possible because all currency has a unique identifier (similar to a currency note), with the added advantage of each unit being verifiable on the blockchain and unique. Servers were no longer securely stored secret boxes that needed constant protection from hacking and public view. Instead, everyone is encouraged to run their own servers that form the currency's processing network, so they can participate in the validation of transactions and mining of new currency. All transactions are public on the blockchain, making it impossible for secret fraud transactions and more importantly easily auditable by anyone, anytime.


What is a blockchain? Why is it unique?