Money. People worry about it, think of ways to get more of it, and dream about how to spend it. But how much do we really know about money?
First of all, despite its size, money doesn’t always have value. The total global value, currently estimated at about $420 trillion, depends on the importance people place on it as a medium of exchange and as a unit of measurement.
Money allows people to trade goods and services indirectly; it helps communicate the price of goods and provides individuals with a way to store their wealth.
Exchanges
Money—in one form or another—has been a part of human history for at least the past 5,000 years. Before that time, historians generally agree that a barter system was used.
Barter is the direct trade of goods and services; for example, a farmer might exchange a sheaf of wheat for a pair of shoes from a shoemaker.
Over the centuries, easily tradable items such as animal skins, salt, and weapons were used as currency, although the value of each item was still negotiable in many cases. This trading system spread throughout the world and still survives today in some parts of the globe.
Seashells
Some of the earliest money was objects from nature: people have used shells, animal teeth, and livestock as tokens of exchange for thousands of years.
One example is cowrie shells, first used as money around 1200 BC. They had a number of advantages: they were similar in size, small, and durable. While the mollusks that produce the shells are found on the coasts of the Indian and Pacific Oceans, some European countries also accepted cowrie shells as currency as a result of expanding trade.
Another natural currency was whale teeth, which were used by the Fijians: eventually, they became currency and remain a part of the island's culture.
Coins
Coins were a revolution in simplicity and changed money forever. They eliminated the need to weigh and test the purity of each piece of metal before a transaction.
They were made of metals that were considered precious, durable, and rare. Gold and silver have been used as money for thousands of years, so having coins made from these metals guaranteed that there would be a natural demand for them.
The idea of fungible money was another revolutionary step. When two things are fungible, they have equal value and can be exchanged for each other. Coins from the same mint were identical and uniform, making them perfect accounting items.
Leather Money
Around the 6th century BC, animal skins began to be turned into currency. Early Rome is said to have used this type of money. It has also been found in areas such as Carthage and what is now France. Russia is also believed to have used leather money during the reign of Peter the Great (1682–1725 AD). The Chinese Emperor Wudi (reigned 141–87 BC) created currency from the skins of his personal collection of white deer. It was fringed and decorated with elaborate designs. Although it is no longer used, leather money may have left a lasting legacy.
Credit Cards
Credit has existed for centuries, but it was not introduced until 1950: that year, Ralph Schneider and Frank McNamara, two Americans, founded Diners Club. Other cards soon followed, and in 1959 American Express debuted a plastic card.
IBM introduced the magnetic stripe on credit cards in the 1960s to store account information. This was a major step forward because merchants no longer had to make phone calls to get authorization from credit card companies.
In the 1990s, cards began to have chips embedded in them to encrypt their information, providing even greater security. Other changes included account balances. At first, credit card users were required to pay off their balances in full at the end of the month. Later, American Express allowed consumers to carry a balance (although interest was charged), and other credit card companies quickly followed suit. Consumers benefited from this development—perhaps a little too much. In 2017, American consumers carried $1 trillion in credit card debt.
Cryptocurrency
Cryptocurrency is a digital currency system created in 2009 by an anonymous computer programmer known as Satoshi Nakamoto, who originally called his invention Bitcoin. The currency is not issued by a central bank, although a decentralized network of computers keeps track of transactions.
The value of cryptocurrencies is determined by supply, similar to how stocks are valued. Users are anonymous, known only by their digital wallet ID. How are cryptocurrencies created? In a process called “mining.” This involves a race between computers to solve complex mathematical problems and thus verify blocks of transactions.
While this may seem easy, it is not. It is estimated that it may take nearly seven trillion attempts before a solution is discovered. In the end, the owner of the winning computer receives the newly created cryptocurrencies, and the system becomes more secure. The limit on the number of Bitcoins that can be created is 21 million, and so far more than 17 million have been created.