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, regardless of its size, money doesn't always have value. The total global worth, currently estimated to be around $420 trillion, depends on the importance that 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 it provides individuals with a way to store their wealth.
Money—in some form or another—has been part of human history for at least the past 5,000 years. Before that time, historians generally agree that a system of bartering was likely used.
Bartering is a direct trade of goods and services; for example, a farmer may exchange a bushel of wheat for a pair of shoes from a shoemaker.
Over the centuries easily traded items like animal skins, salt, and weapons were used as currencies, even though the value of each of these items was still negotiable in many cases. This system of trading spread across the world and still survives today in some parts of the globe.
Some of the earliest currencies were objects from nature: humans used seashells, animal teeth, and livestock as tokens for barter for thousands of years.
A notable example is cowrie shells, first used as money about 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, even some European countries accepted cowrie shells as currency as a result of the expansion of trade.
Another currency from nature was whale teeth, which were used by Fijians: eventually, those became a currency and remain part of the island’s culture.
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 with metals that were considered precious, durable, and rare. Gold and silver had been used for thousands of years as money, so having coins made from these metals ensured there would be a natural demand for them.
The idea of fungible or interchangeable money was another revolutionary step. When two things are fungible, they have equal value and can be interchanged with one another. Coins from the same mint were identical and uniform, making them perfect accounting denominations.
About the 6th century BC, leather and animal hide began to be fashioned into currency. Early ancient Rome reportedly used this type of money. It was also found in such areas as Carthage and what is now France, and Russia is believed to have used leather money into Peter the Great’s reign (1682–1725 CE). The Chinese emperor Wudi (reigned 141–87 BC) created currency out of skins from his personal collection of white stags. It was fringed and decorated with elaborate designs. Although no longer used, leather money may have left a lasting legacy.
Credit has existed for ages, but it was not introduced until 1950: that year, Ralph Schneider and Frank McNamara, two Americans, founded the Diners Club. Other cards were soon created, and in 1959 American Express debuted a plastic card.
IBM introduced the magnetic stripe on credit cards, in the 1960s, to contain account information. This was a big step because merchants no longer needed to make phone calls to obtain authorization from credit companies.
In the 1990s, cards began to have chips embedded in them to encrypt their information, providing even greater security. Other changes involved account balances. In the beginning, credit card users were required to pay the full balance at the end of the month. Later, American Express allowed consumers to carry balances—though interest was applied—and other credit companies quickly followed. Customers took advantage of this development—maybe a little too much. In 2017 American consumers were carrying $1 trillion in credit card debt.
Cryptocurrencies are a digital currency system created in 2009 by an anonymous computer programmer known as Satoshi Nakamoto, who initially called his invention Bitcoin. The currency is not issued by a central bank and is not regulated, though a decentralized network of computers keeps track of transactions.
The value of cryptocurrencies is determined by bidding, similar to the way stocks are valued. The 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 math problems and thus verify blocks of transactions.
While that may sound easy, it isn’t. It’s estimated that nearly seven trillion attempts may have to be made before a solution is discovered. In the end, the owner of the winning computer gets newly created cryptos, and the system is made more secure. The cap for the number of Bitcoins that can be created is 21 million, and more than 17 million have been created so far.