We the human beings, from prehistoric days, have been exchanging goods and services for survival. Such a trade is called barter. With the passage of time, we started living in small communities along the river beds like Nile and Indus valleys. The human beings in these small communities were highly dependent on one another. Whether it be the group hunting trips for securing food or farming and livestock for growing food, human societies evolved to be more and more interdependent as it maximized the individual and collective survival prospects.
Growing livestock and storing farming produce, such as grain, in a common place in these small communities naturally brought the problem of uniquely identifying an individual’s assets. From prehistoric days, human beings had started identifying their livestock with unique identifiers such as special kinds of stones, or seashells (special cowrie seashells along the coastal areas in sub-continent, Mexico and Middle East). The first prerequisite for such identifiers was very low commonality (uniqueness) and rare availability to avoid corruption and inflation. The second natural prerequisite was their intrinsic stability in nature, that is, these identifiers do not decay with time or can not be consumed by human beings or others. Let us call this property as consumability. The lower the commonality and consumability the better the identifier for asset management. This was the initial form of modern day money.
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Over the thousands of years human beings have used several types of such identifiers as money. We have used copper and gold coins, paper notes and more recently credit and debit cards. Looking at gold, it is one of the most chemically uninteresting heavy metal. It barely reacts with other elements hence its consumability is very low. Moreover gold is a soft metal, it can not be used to make utensils and it can not be forged to make other stuff like building materials or swords and spears. If we talk about commonality of gold it is close to rare earth metals.
If you were to collect together every earring, every gold sovereign, the tiny traces gold in every computer chip, every pre-Columbian statuette, every wedding ring and melt it down, it’s guesstimated that you’d be left with just one 20-metre cube, or thereabouts. Why do we value gold? (BBC World Article)
Based on very low commonality and consumabilty properties, gold is one of the best candidates for currency. This is the reason it has been used for thousands of years as money. Just to complete our thought process with another example, moon soil retrieved from multiple Apollo missions in 60’s and 70’s proved that moon was once part of our planet and it’s soil is not much different from the soil on earth, except that moon’s surface has been cooked for millions of years in sun’s direct radiation. This moon soil due to its extremely low commonality and consumability is very highly valued. A few grams of it has been sold in million of dollars. In one of the cases a US court estimated it’s value at 50 thousand US$ per gram.
Above image shows how various entities in nature, based on commonality and consumability grounds, have been used as money. With the advent of bank notes and credit cards, on one hand the commonality and consumability has further reduced but on the other hand the commonality has come under human control. Now the individual bodies like banks and governments can manipulate currencies and cause artificial economic instabilities by playing with commonality.
The modern day economic manipulation by banks and governments can only be stopped by putting the commonality of money back in the hands of nature. One such promise is provided by the digital currencies like Bitcoin in the last decade. Such digital currencies are based on blockchain technology which ensures that the commonality and security comes from the distributed nature of internet and the computational power of computers. The commonality of these digital currencies is controlled by the millions of distributed internet users, scattered around the globe in different cultures, religions and societal backgrounds, empowered by extremely fast and inexpensive computers. However, still time has to test and prove the future of such digital currencies.
Muhammad Usman Majeed, firstname.lastname@example.org
What is money? was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.