Gold, Inflation, and Cryptocurrency – 1 (Trading and currency)

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In this series of articles, we will discuss the evolution of currency from the very beginning to date. And then we will try to figure out if paper money is serving well as a currency and whether cryptocurrency will take over paper money.

Trading:
It all started when the society became a little complex and people began to feel the necessity of what they can not make or gather by themselves. They were ready to pay other for those things.
Say our friend X is good at catching fish and our friend Y is good at collecting fruits. (This complexity hadn’t existed before people started gathering in larger groups and individuals started developing skills in certain tasks).
If our friend X wants the taste of freshly picked fruits and at the same time, our friend Y wants to get some fish then they can swipe their food. Then society became more complex and people started exchanging goods for services and vice-versa. Trading got more and more complex when people became aware that there’s a way of getting something previously which was unavailable to them. Then their simple grab eat society became trad base society. Such complex trading can be traced back to prehistoric time.

Why currency:
In time trading got messier. Say our old friend X gets bored of eating roasted fish which he catches from river. wants to eat cooked fish mixed with spice. So he goes the master chef, our new friend Z. But Z has no interest in giving X cooked food (or as a service cooking for X) because he already has plenty of fish. But he might be interest in fruits. So, X reach out to our another old friend Y to trade some fish for fruits and goes back to Z for the cooked fish exchanging the fruits.
Then the necessity for some change rose. The idea of currency emerged. They started trading against something everyone commonly values. As complexity maxed people needed something more universal to trade with. Something which is valued by not only their tribe but other tribes as they started roaming places to places and meeting new people. The first very complex and long-distance trade is believed to be found in Mesopotamia. There’s written evidence of trade between Mesopotamia and Indus Valley (near Pakisthan) around 3000 BC.  Long-distance trade, in that early time, was limited almost exclusively to luxury goods like spices, textiles, and precious metals.

Characteristics of currency:
The idea of currency matured and after trying out a lot of alternatives they came up with the criteria of a good to be valued currency. One thing to keep in mind, these 6 criteria didn’t emerged overnight and they are not unchangeable. But people made them from trail and error of thousands of years.

  • Durability
  • portability
  • divisibility
  • uniformity
  • limited supply
  • acceptability

One thing for sure people tried out foods at first and they were there for long. Foods are acceptable, uniform, and good of limited supply. But they not not durable and often not portable.
Then people started tilting to more unusable things, like metal. They are unusable in the sense, that you can not eat them. The only thing you could use metal for is making tools. I am sure people didn’t value gold because they used gold to make tools like shovel or saw. As these metals fulfill other criteria like durability, portability, divisibility, uniformity and limited supply people started accepting them as currency and they found the missing piece, acceptability.
Something makes valued currency when it have these characteristics. Then later we will see some well valued currency started losing some the characteristics.

This ends the first part of Gold, Inflation, and Cryptocurrency series.
In the next session, we will discuss the Gold and other precious metals as currency.

63 thoughts on “Gold, Inflation, and Cryptocurrency – 1 (Trading and currency)”

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