History of Money: From Fiat to Crypto, Explained

Money’s history is extensive, yet modern currencies are primarily supported by the state’s management of the economy and inflation through fiat currency. Albeit, these currencies, controlled by central governments, may have been around for centuries, their days are numbered in the advent of digital currencies and the rise of cryptocurrency.

The History of Currency and Money

Money has been around since ancient times. In fact, there is evidence indicating bartering and trading occurred around 8,000 BC. At that time, it was understood that cows, goats and other animals were money, and were used as forms of currency. Eventually, metals, such as silver and gold, became the most commonly accepted form of currency.

As civilizations developed more complex economies, paper money was introduced, followed shortly by coins. Yet, even with coins and paper money, the worth of this currency was linked to gold and silver.

Fiat Currency, Central Banks and Inflation

Fiat currency is issued by a central government and is not backed by anything, such as gold or silver. Fiat currency is heavily regulated and, in some cases, subject to inflation by the central bank. This form of currency is what is in circulation today, adopted during the 20th century.

Central governments are responsible for managing the economy and inflation, which is why they are primarily in control of the money supply. In order to increase the money supply, they will print more currency, therefore flooding the market. This brings a decrease in the value of the currency, resulting in inflation.

Inflation affects the purchasing value of goods and services, as the amount of money needed to purchase these goods and services increases, while wages increase at a slower rate. This can affect currencies significantly, as the exchange rate of fiat currency will be determined by its purchasing power.

Cryptocurrency and the Future of Money

Cryptocurrencies are digital currencies that are created and managed through blockchain technology, making cryptocurrencies decentralized and open for everyone. Cryptocurrency does not require the control of a central bank or government and the worth of cryptocurrency is determined by the market.

Central banks, banks and financial institutions may eventually adopt decentralized and digital currencies through the use of blockchain technology, which is already being implemented in some cases. This could bring in a new era of money that is not subject to the same regulations or fluctuations as fiat currency.

Conclusion

Money’s history is extensive, yet modern currencies are primarily supported by the state’s management of the economy and inflation through fiat currency. Albeit, these currencies have been around for centuries, their days may be numbered in the advent of digital currencies and the rise of cryptocurrency.