Abstract
The history of cryptoassets, like this book, begins with money. In particular, with the established monetary system. Understanding what makes money and how it has evolved is essential to understand the value proposition of cryptoassets—Bitcoin in particular. Therefore, let us start with the basics by going back several millennia to identify the fundamentals of money. As you will see, they naturally make a case for what is coming next.
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Notes
- 1.
This school of thoughts is a branch of economics focusing on the results of individual actions in line with rational decisions following economics incentives. Its early proponents were Austrians, which gave it its name. Nowadays, it contrasts predominantly to the Keynesian school of thoughts, which promotes extensive government control in all economic matters.
- 2.
Menger also identifies five criteria conditioning the geographical limits to the saleability of an asset and seven criteria conditioning its limits through time. Such spatial and temporal criteria are similarly important in assessing the value of an asset as a medium of exchange, but beyond the scope of this book. The interested reader should refer to the original text [5].
- 3.
The number of potential interested buyers and the quantity available of the good in relation to the total unsupplied quantity that the market wants of it.
- 4.
The book Whither Gold? from Antal Fekete provides a more in-depth discussion of the relationship between the stock-to-flow ratio and the saleability of an asset [58].
- 5.
See Chapter 3 of The Bitcoin Standard by Saifedean Ammous [56].
- 6.
Inflation and the Fall of the Roman Empire, J. R. Peden, Mises Daily Articles [66].
- 7.
Money and trust: lessons from the 1620s for money in the digital age, Schnabel and Shin, Bank for International Settlements [72].
- 8.
German Hyperinflation 1922/23, Amankwah, Goulding, Krausbeck, Mwenda, and Schweigert [67].
- 9.
The German word billion counterintuitively means trillion in English, not billion.
- 10.
The Case Against the Fed, Rothbard [57].
- 11.
Putting it Simply, Federal Reserve Bank of Boston [87].
- 12.
In practice, the money is not kept physically in a vault but on the bank’s financial account at the central bank.
- 13.
America’s Great Depression, Rothbard [70].
- 14.
Blockchain Revolution, Tapscott and Tapscott [29].
- 15.
When a country devalues its currency, the price of local goods becomes comparatively more attractive for foreign buyers. Foreigners therefore tend to buy more goods from the country with the devalued currency, which therefore benefits from increased exports, hence a competitive trade advantage.
- 16.
In original French, Trente Glorieuses, by the French demographer Fourastié.
- 17.
The Latin word fiat translates as “let it be done.” Fiat “money” is therefore considered money only by decree, as it has no intrinsic value beyond its function as a medium of exchange.
- 18.
This bias, referred to as the substitution effect, is partially taken into account in the CPI computation within the same “item category” (e.g., “steak”) to reflect consumers switching to cheaper brands. However, CPI computation does not consider consumers changing item categories, such as moving from steak to chicken or from car to bus tickets.
- 19.
The Fed reduced its fund rate from 6.50% in late 2000 to 1.00% mid-2003. Similarly, the ECB progressively decreased its main refinancing rate from 3.75% in late 2000 to 1.00% in mid-2003.
- 20.
Quantitative easing is when central banks buy bonds with newly created currency. It brings more liquidity (currency) to the financial system and maintains bonds’ interest rates artificially low (below their “natural” or equilibrium level) so that they are more affordable by the emitter, typically governments. Governments therefore benefit from artificially cheap financing.
- 21.
The central bank buys bonds (extending its asset side) with previously non-existent currency that is added to a digital account (extending its liability side).
- 22.
FactSet, J.P. Morgan Asset Management, most recent available data as of December 31, 2021 [59].
- 23.
Value of assets on the Fed’s balance sheet from August 2007 to January 2022, Statista [68].
- 24.
The drop in the first half of 2020 corresponds to the increased liquidity brought by the Fed.
- 25.
Only a few examples were covered to highlight the pattern that emerges every time, regardless of geography or time, but history provides plenty more examples along the same lines.
- 26.
E.g., Poland in 1919, United States in 1933, Australia in 1959, United Kingdom in 1966.
- 27.
See for example International Economics Theory and Policy (2023), 12th Edition, Krugman, Obstfeld and Melitz, Chapter 15 [93].
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Jeegers, T. (2023). A Brief History of Money. In: Understanding Crypto Fundamentals. Apress, Berkeley, CA. https://doi.org/10.1007/978-1-4842-9309-6_1
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DOI: https://doi.org/10.1007/978-1-4842-9309-6_1
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