Why does cash exist? How was the concept of money implemented on a global scale?

 

Let’s go back to the barter system of ancient times. If someone had a chicken and needed a goat, they could exchange them. But then an issue arose — what if someone wanted to sell a chicken, but the buyer had nothing that the seller wanted? The buyer could go try to find what the seller wanted to make the trade, but that was cumbersome and inefficient.

So the concept of an intermediary currency of consistent value was formed. A person could sell their chicken for “gold” coins and then use those same “gold” coins to buy something they needed, or store them for a later date, without worrying about an expiration.

 

This worked for a long time, but then as fortunes were amassed by saving these “gold” coins, there became a need for a secure way to store them. This gave birth to banks. But why would someone trust a stranger to hold onto their coins? Well they often didn’t, so the government or ruling authority was needed to endorse these banks and offer their protection in the form of military defense and financial backing. This process monopolised currency and gave rise to extremely powerful governing bodies.

Over the centuries, these governing bodies became more and more trusted and as a result, much more powerful. So powerful, that nearly all societies slowly phased out the “gold” coin and replaced it with a government note.

If you take a step back and analyse this, it is quite interesting. Over 1,000 years ago, there was the equivalent of a single global currency (gold) which was not controlled by any one governing body. Then due to not being easily divisible, portable, and easy to secure it was phased out and replaced with monopoly money, government-backed notes controlled by small groups of people. Cryptocurrencies solve these ancient issues and pave the way for how value should be stored moving forward.

 

In today’s world, fiat currencies are needed as trusted intermediaries for storing value. For example, if someone owns a share of Apple stock and wants to purchase a pizza. They must convert that stock into cash and then use the cash to purchase the pizza. In our previous blog, “The Future of Tokens. Do they have any value?,” we discussed how a process such as this is cumbersome and inefficient in the token economy, but it also directly applies to the fiat economy.

As the world becomes more digitalised, connected, and tokenised, it opens up the door for a cashless society. When someone in the near future is able to purchase a pizza directly with Apple stock, there no longer becomes a need for the trusted intermediary of cash.

What is the value of hoarding cash?

 

We commonly hear the phrase, “cash is king.” Why is this the case? Because cash is liquid and can be used to purchase things instantly. What happens when any asset can be used to purchase anything instantly? Does cash still hold its title as “King?”

We do not believe so because storing cash actually loses money due to inflation. On a global average, for every $100,000 held in cash, $3,000 per year is lost due to inflation. If assets which generated returns could be used to instantly purchase anything, why would anyone store value in cash which loses value the longer it is stored?

In the upcoming years it will be very interesting to see how this unveils. Will cash lose its value? How will this affect governments and ruling bodies? How will this affect businesses and economies? What impact will this have on the average person? Only time will tell, but there is potentially a once-in-a-thousand-year shift already underway.