Before cryptocurrency, people had other ways of making payments.

Look at a clay tablet from the Late Uruk period of 3200 BC, and you see one of the earlier forms of written language. The cones, spheres, and tetrahedrons pushed into clay conveyed special meaning, through much the same principle as the lines, loops, and dots used to communicate this article.

Like language, financial transactions weren’t always written down. They were often spoken, or stored in the head. What’s special about the Late Uruk tablets is that they’re not only the earliest forms of written language, but the earliest forms of financial ledgers too.


When our ancestors first evolved to the point of wanting to exchange items, they had no currency.

Of course, that’s the reason we have the word “exchange”. Whatever commerce there was would have been akin to exchanging favours: borrowing someone’s weapons for now; giving them some of your firewood later. This idea of trading, also known as “bartering”, was the foundation of our modern economy — and is, indeed, still often used today.

By itself, though, bartering is far from perfect. There was  the obvious problem of you wanting something another person has, but them not wanting any of the things you have to offer in exchange — known in economics as the “coincidence of wants”.

As commerce expanded and the stakes rose higher, the limits of this memory-based ledger would have started to show: settling disputes would have been a matter of one person’s word against another, and there would soon be so many trades piled up that you wouldn’t have the ability to keep track of them anyway.


Eventually, about ten thousand years ago, someone intelligent had an idea. They said, “give me your weapons, and I’ll give you some cattle”. Cattle was so popular that, even if the other person didn’t want cattle themselves, they could use it to exchange for something else later on.

The final outcome of the transactions remains unchanged, but memory has now been eliminated from the system. Instead, we are using cattle as a form of “currency”. But why stick with cattle, if you’re going to exchange it anyway? From animal teeth, to seashells, to coffee beans, different groups of people started using their own forms of currency.

Note that their is a slight difference in some of these. Animal teeth, coffee beans, and cattle can all be useful, making them a “commodity”. Seashells, on the other hand, largely have no use. They simply serve as a representation of value, known as a “token”.

The fundamental idea of this monetary system was that, as a community, we agreed to let a certain item represent value, even if it has no intrinsic value itself. Seashells and coffee beans may never be used, but they are continually exchanged, allowing for commerce to occur without the need for memory. Get it?

Wealth also became far more measurable. Sticking with the seashells example: the more seashells you have, the wealthier you are. This also introduced the notion of buying. Rather than trading one item for another, you can use your spare seashells to just buy an item you want. The seashells became “money”.


From the earliest forms of currency to the ones today, economists agree there are six qualities that define the success of a type of money.

Firstly, it must be scarce. Imagine if a tribe used grass blades as their currency: anyone could make themselves incredibly rich, so the currency is meaningless! Remember, a token itself can have no value, but as a community we’re agreeing that it represents a value. For this to be the case, it must be difficult to obtain, or scarce.

Secondly, it must be durable, since there’s no point in holding your wealth in a form that decays away. It must be reasonably divisible, to allow more exact valuations of items. Being transportable is important: ideally something that fits in your pocket, although cows may have worked at a pinch.

Money should also be easily recognisable, preventing counterfeit and making transactions swifter. And finally, it must be fungible. This means one quantity of the currency can be exchanged for the same exact quantity of that currency. This seems obvious, but it’s highly important. For example, a £5 note can be swapped for another £5 note, or perhaps, for five £1 coins. There is no discrepancy, the same quantity is always worth the same amount.

What’s important is that a good currency needs to have all these traits, not just some of them. Pieces of bread may be fungible, but they also attract fungus.


As currency became more common trade began to spread, giving rise to merchants whose only job was trade. But this meant currency wasn’t enough to keep track of how things moved. People made deals — to pay a certain wage every day, or to pay back later what they didn’t have on them at the moment.

To keep track of all these things, people went back to remembering who owed what — this time in the form of ledgers, such as the Uruk tablets of Mesopotamia.

Currency kept track of how much wealth people had at the moment; ledgers kept track of their history and future.


The growth of trade also gave rise to the problem of currency exchange. Despite the many criteria like scarcity and fungibility, there are many possible candidates for a perfect currency — and different populations of people went with different options.

As populations grew, people from all around the world wanted to engage in commerce, but every culture had their own currency. We needed a way to store value that met the six criteria everywhere across the world.

Metal coins became the standard type of currency, with it first arising on a large scale in around 1000 B.C. China. As this grew in popularity, several different metals were used such as bronze, copper and silver. Eventually, gold rose above them all.

First dating back to 600 B.C., gold has long been humanity’s best way to store value. It’s universally scarce, durable, reasonably divisible, transportable, clearly recognisable, and fungible. If you have generated some wealth, the safest way to protect it is to keep it in gold.


At this point, there are two types of currency. First, there’s commodity money. These are things like cattle, salt, or even gold, that do have an intrinsic value but are much harder to source and exchange. Since it has a value, this kind of currency can often be “used up” by someone, making it much harder to maintain since someone has to keep making more of the stuff to offset how much is being used. A currency that can be used itself is somewhat similar to one that is not durable: it disappears over time.

When you measure trade in cattle, the “you can’t eat money” argument gets turned on its head — because you actually can.

The other kind of currency is tokens, such as animal teeth, which are much easier to source and exchange. These can’t be “used up” since they have no intrinsic value. As I touched on earlier though, the problem of a currency having no intrinsic value is that the whole community must agree to use this random token to represent value; to treat seashells as money even though they couldn’t be eaten.

That’s when people figured out how to get the best of both worlds by combining the two options and getting commodity-backed money.


Heaven is round and the earth is square — or so the ancient Chinese thought, which is why their round copper coins had square holes in the middle. But the holes also had a practical purpose: to make it easy to string a bunch of coins together.

Strung up or not, copper coins can be heavy. The richer you are, the worse this problem becomes. That’s why, during the Tang dynasty of 2500 years ago, merchants began to leave their strings of coins with trustworthy agents, getting a receipt in exchange. They could then trade this paper note for goods, and whoever ended up with it could take it back to the agent to collect their coins.

In the mid 900s, this practice became more official, when the newly reigning Song dynasty began to officially license such exchange agencies. A couple of centuries later, they decided to take direct control, printing the very first government-backed paper money.


Official or not, notes of this kind have no intrinsic value, making them a token. The difference now, is that each token acted as a certificate, representing a certain amount of a commodity such as copper, silver or gold.

So we still exchanged value in terms of metals, but made the system a lot easier by performing the physical transactions using paper certificates which represented the “real” objects.

In the West, the “gold standard” was officially adopted first by England in 1821, where sterling became the global reserve currency; the US followed suit half a century later. There was a legal guarantee that a given note could be taken to the treasury, and exchanged for the amount of gold that the note represented. So people were happy to buy and sell using valueless notes, since they understood that those notes could be turned into valuable gold at any time.

However, in England, after the devastation of the First World War, and the Great Depression sparked by the Wall Street crash, people did not have confidence in the economy.

They started to exchange their paper notes back to gold.

This, combined with the massive spending of the country’s gold reserves, meant the Bank of England found they were actually going to run out of gold. With no other option, they abandoned  the gold standard in 1931.

People could still use the notes directly, they said, but there was no exchanging them back.


The US had similar problems in 1933, when President Roosevelt took the country off the gold standard for domestic transactions: US citizens could use dollars, but couldn’t convert them back to gold.

Other countries still could, through Bretton Woods System of 1944, which made the US dollar a gold-backed global reserve currency. But eventually, countries began to suspect the US was spending more money than they had gold reserves, causing them to exchange their dollars back to gold. Finally, the US suspended the Bretton Woods system in 1971, ending the gold standard altogether.

While gold itself is still arguably the best way to save one’s money, the gold standard system of a country backing its currency with gold has been demonstrated as unsustainable. Governments wanted to control the money supply, and using a finite amount of gold makes this much harder.


The result of leaving the gold standard? Fiat money.

Fiat means “let it be done”, and it’s the standard monetary system today. No longer are currencies backed by any physical commodity; rather, they’re based off legislation. In other words, your money has value because the government says so.

Paper notes are still used since they’re the optimal form of physical money, but now they aren’t actually backed by anything — they’re just that: paper. Your money is worth what someone else is prepared to give you for it, which is largely enforced by the government.

This is actually quite similar to our seashells example from earlier. Rather than having a token which represents some other commodity, we have a token that we must all agree has a value. The only difference with fiat is that the agreement is enforced using legislation.

After centuries of development, the story of currency had come back a full circle — but in an upgraded form.


As explained earlier, the gold standard was abandoned largely  because countries were running out of gold when people hoarded it during difficult times. This prevented governments from being able to spend what they wanted.

The fiat system addressed this, since the currency is no longer bound to a commodity. Countries can now print as much money as they want in order to pay off debts, fund wars, and generally keep things moving. Furthermore, the volatility of the currency decreases, since governments and banks are in complete control of the system.

In general this works, but it means the population has no choice but to trust these centralised institutions with their money. Often, this can end badly, as we enter recessions like in 2008, or a cost of living crisis like we have today.

The spiral of printing more and more money leads to the buying power of the money decreasing. Since there is more money in circulation, the value of the same quantity of that money decreases. This means more money is required to buy the same thing, hence prices increase.

This phenomenon has a commonly known term: inflation.


Another way to think of inflation is in terms of spending. If there is more money available to everyone, people will spend more. To stop things running out of stock, and to increase profit, sellers will increase their prices. As a result, the value of everything seems to keep going up.

The problem is that inflation generally increases the divide between the rich and poor. When new money is printed, it first goes through the governments and banks, then to the wealthy businesses and industries, and only then to the rest of the population.

Those who receive the money first are able to spend before the prices rise. By the time the new money reaches everyone else, the effect of inflation is already present, making it feel like everything is just getting more expensive.


Now, after roughly ten thousand years since the first currency, we have something very different: cryptocurrency.

This idea was introduced by an anonymous person known as Satoshi Nakamoto, who published the Bitcoin paper in 2008 — bang in the middle of the financial crisis. The intention: to create a digital, peer-to-peer monetary system, which is not affected by inflation.

Cryptocurrency totally does away with banks and government control, and emphasises a decentralised system. It’s built on blockchain technology, which is as complicated as it sounds, but the idea is simple: everyone has a copy of the transaction ledger, so they all know who has how much (whilst retaining anonymity) and any tampering with the records can be swiftly detected.

Because everyone has a copy, if you try something funny with the records, it’ll be your digital word against everyone else’s. If someone wants to give give themselves money, essentially, they must have more computational power than all other computer’s in the world combined.

For want of space, I’ll leave the interesting details of Bitcoin and cryptocurrencies for a future article. Suffice it to say that cryptocurrencies are at a very speculative stage right now, and their full benefits have not yet been realised. Many are simply using them as investment instruments in the hope they’ll grow in value later, which leads others to dismiss it as a “get rich quick” scheme.

But this is a long term game, and I think people are judging cryptocurrencies by its state today; not on what it could become. After all, at its heart is an idea that has been tried and tested for thousands of years: the same ledger that is at the heart of the Uruk tablet.


The Author's Notepad

Will Fahie


Money is a difficult topic, and today's piece provided only a glimpse! For a deeper dive, here are some of the better articles  that Will found while conducting research for his own piece.

On the origins of money

On paper money and fiat

On Uruk tablets

On eating seashells (or not)


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