History & Evolution of Fiat Money To Digital Assetsby@alyzesam
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History & Evolution of Fiat Money To Digital Assets

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Understanding the history of money opens the door to a deeper appreciation of digital assets and commodity-backed digital currencies. The primary form of currency in today’s financial system, Fiat money, does not have use-value. Use-Value or value in use is a concept from classical political economy; it refers to the tangible features of a commodity or, more specifically, the features that fulfill human needs. A shell economy led to the use of metal money around 1000 B.C. when the Chinese formed metal into small shapes resembling cowry shells.
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Currency is a vast subject, but understanding the history of money opens the door to a deeper appreciation of digital assets and commodity-backed digital currencies.

The primary form of currency in today’s financial system, Fiat money, does not have ‘use-value.’ Use-Value or value in use is a concept from the classical political economy; it refers to the tangible features of a commodity or, more specifically, the features that fulfill human needs.

A simple definition describes fiat as a form of currency without intrinsic value that has been declared or widely recognized as money or a commodity, often by legislation or government regulation.

As we trace the contours of the financial past, we discover that the use of fiat has not had a normative part in the historical monetary system.


This ecosystem began forming at the dawn of humanity when trading or bartering was a standard before the invention of currencies for exchanging goods and services. Soon after humankind began breeding domestic livestock for survival, bartering emerged to further facilitate specialization.

When bartering cattle, sheep, goats, vegetables, and grains commenced, the 5,000-year journey from agricultural trade to digital assets also began.

Shell Economy

Barter served civilization until more efficient means of exchange were required.

As this need grew, different cultures developed unique currencies, with the earliest known example dating back to 1,200 B.C.

Archeologists believe cowry shells were first used in China because their intricate designs made them difficult to forge. Decorative shells have been discovered worldwide, suggesting that many cultures have used cowry shells as currency throughout history.

Metal Money

A shell economy led to the use of metal money around 1000 B.C. when the Chinese formed metal into small shapes resembling cowry shells.

In 500 B.C., Rai Stones, or large limestone discs measuring up to 2.6 meters in diameter and weighing up to 4 metric tons, were used in Micronesia as a form of currency.

King Alyattes most likely minted the first form of currency acceptable by today's standards in Asia Minor, present-day Turkey.

In the 7th century B.C., the Lydian Stater was originally issued as an electrum coin consisting of naturally alloyed gold and silver. Staters were the first stamped currency, originally featuring an image of a roaring lion's head.

In the succeeding centuries, gold and silver have been almost universally acknowledged as currency in every advanced nation. Precious metals are also recognized as commodities of value in more aboriginal societies.

Minted coins, food, and other representations of money evolved into today’s fiat currency after many cultures around the world developed the use of money whose value was based on the worth of the material from which it was made. This type of money is known as “specie money,” and its value is guaranteed or backed by the precious metal it contains. (See Commodity-Collateralized Stablecoins.)

It’s interesting to observe, between 500 A.D. - 1600 A.D., salt, cheese, rice, tea, and other consumable commodities were used as mediums of payment and exchange. This state of affairs continued until the 17th century.

Paper Currency

During the Tang Dynasty, 618- 907 A.D., the Chinese were the first to use folding money. These notes were generally privately issued bills of credit or exchange notes. They were used for nearly 500 years before Western societies aligned their cultures with a paper-based economic structure. Another two centuries passed before paper money was globally accepted.

During that time, China underwent a fairly advanced financial crisis due to the overproduction of paper notes, destroying their value and fostering inflation.

Consequently, China eliminated paper money entirely in 1455 and wouldn't adopt it again for several hundred years. Numismatists, scholars who study currency, believe this economy was a byproduct of block printing.

Paper money fascinated Marco Polo during his travels through China and he shared his research after returning to Europe.

According to Marco Polo, one of the most constructive innovations throughout history was the implementation of paper currency as a substitute for older means of exchange.

From 1260 onward, after Kublai Khan completed his conquest of China and took the title of emperor, the issue of paper money became a permanent feature of the Mongol government's financial policy. Records were preserved showing the yearly amount of notes issued through Kublai's reign and his successors for ninety-seventy years (1260-1356).

Paper folding money was the first form of Chinese printing met by European travelers. The unique currency was independently discussed by at least eight pre-Renaissance European writers and, so far as is known, is the only form of printing described by a European before Gutenberg.

Paper money was introduced to the West by Marco Polo in a chapter of his Travels book entitled, "How the Great Khan Causes the Bark of Trees, Made into Something Like Paper, to Pass for Money All Over His Country."

Marco Polo described the use of currency notes throughout Kublai Khan's Yuan dynasty:

"With these pieces of paper, made as I have described, he [Khubilai Khan] causes all payments on his own account to be made; and he makes them to pass current universally over all his kingdoms and provinces and territories, and whithersoever his power and sovereignty extends. And nobody, however important he may think himself, dares to refuse them on pain of death. And indeed everybody takes them readily, for wheresoever a person may go throughout the Great Kaan’s dominions he shall find these pieces of paper current, and shall be able to transact all sales and purchases of goods by means of them just as well as if they were coins of pure gold. And all the while they are so light that ten bezants’ worth does not weigh one golden bezant.

"Furthermore all merchants arriving from India or other countries, and bringing with them gold or silver or gems and pearls, are prohibited from selling to anyone but the Emperor. He has twelve experts chosen for this business, men of shrewdness and experience in such affairs; these appraise the articles, and the Emperor then pays a liberal price for them in those pieces of paper. The merchants accept his price readily, for in the first place they would not get so good a one from anybody else, and secondly, they are paid without any delay. And with this paper-money they can buy what they like anywhere over the Empire, whilst it is also vastly lighter to carry about on their journeys. And it is a truth that the merchants will several times in the year bring wares to the amount of 400,000 bezants, and the Grand Sire pays for all in that paper. So he buys such a quantity of those precious things every year that his treasure is endless, whilst all the time the money he pays away costs him nothing at all.

Moreover, several times in the year proclamation is made through the city that anyone who may have gold or silver or gems or pearls, by taking them to the Mint shall get a handsome price for them. And the owners are glad to do this because they would find no other purchaser to give so large a price. Thus the quantity they bring in is marvelous, though these who do not choose to do so may let it alone. Still, in this way, nearly all the valuables in the country come into the Kaan’s possession"

"Now that you have heard the ways and means whereby the great Khan may have, and in fact has, more treasure than all the kings in the world; and you know all about it and the reason why."

Some claim Polo's extreme description of the Chinese minting money was both amusing and tragic. It may have influenced the financial state of the world, his and ours.

Banknotes Modern banking was born in medieval and early Renaissance Italy. One of the world's most famous banks from this period was the Giovanna Medici, founded in 1397. The first

European banknote was issued by the Bank of Stockholm in 1661.

After banknotes became convenient, Britain pegged its currency to gold to curb inflation. The Gold Standard was established in 1816, which is a monetary system in which a country's currency is directly linked to gold.

With the Gold Standard, countries agreed to convert paper money into a fixed amount of gold. America joined the Gold Standard in 1900.

Britain discontinued the Gold Standard in 1931. America followed in 1933. All remaining countries had abandoned the remnants of the Gold Standard ecosystem by 1973, and the Gold Standard is not currently used by any government. Modern money systems are not typically pegged to an asset (though, a number of small nations have pegged their currencies to the U.S. dollar), but insurance is added when an asset is backed by a tangible item.

Evolution of Financial Technology

Plastic Representations and Electronic Transactions

Many economists predict the use of physical cash and cheques will continue to decline as digital payments become more pervasive. As of 2020, Sweden, the United Kingdom, and China are all almost completely cashless economies. Digital payments are transforming retail and bringing numerous benefits to consumers, businesses, and the public sector.

This journey has taken 5,000 years and involved breakthroughs and innovations that gradually saw the use of physical cash make less and less sense.

Internet and The World Wide Web

Digital transactions are inextricably connected to the birth of the internet. The online interface you see today is a descendant of ARPANET, which was constructed by the United States Defense Department during the Cold War and launched at the end of the 1960s.

In 1982, cryptographer David Chaum applied the idea of blind signatures to money in his paper “Blind Signatures for Untraceable Payments.” Blind signatures are a form of a digital signature where the content is disguised before it is signed and sent. Blind signatures can be publicly verified while remaining anonymous.

Eight years later, Chaum took these cryptographic protocols to market with DigiCash, a company that ultimately went bankrupt in 1998.

In 1989 Tim Berners-Lee came up with the concept of web pages and sites that could be linked together using blind signature hyperlinks, giving birth to the worldwide web. Digital payments were now a realistic proposition.

First Online Payment

Online payments began in the 1990s during the “Dot Com Boom,” the speculative investment bubble that formed around internet companies between the early 1990s and 2000. The Stanford Federal Credit Union was the first institution to offer online banking services to customers in 1994. However, early online payment systems were not user-friendly, typically requiring specialized knowledge of data transfer protocol.

The first digital payment companies were Ecash and Millicent. They offered micropayment systems and electronic alternatives to cash, such as tokens, e-money, and digital cash. In 1994 Amazon added further impetus to these early digital payment efforts.

PayPal pioneered and remains a leader in specialized online payment companies, starting as an online money transfer service in 1999. eBay largely fueled its rise while in its infancy.

PayPal was awarded an EU banking license in 2007; during that time, it had 35 million customers across Europe. PayPal continues to evolve. They have recently spent $2.2 billion to acquire Swedish start-up iZettle, which offers a low-cost card payment device and a point of sale app for small businesses.

Digital Gold

In 1996 E-Gold launched as a digital asset, or a currency backed by precious metals purchased or sent in by users. The project casually built a prosperous operation through the late 1990s. By 2001 E-Gold started running into problems when the U.S. Patriot Act tightened regulations on businesses classified as money transmitters. Gaining money transmitter licenses for all 50 states proved too big of a nuisance for E-Gold and its contenders. Animosity began to mount  against E-Gold, one detractor called it "the coin of money launderers and child pornographers." A federal indictment followed in 2005, which signified the end of E-Gold as a significant alternative currency.

Virtual Economy

In 1999 filed several patents to guard its monetary system based on prepaid cards. They relied on an interface of participating merchants for cash redemption. The organization subsequently raised $10 million in funding and had roughly 70 employees prior to the dot-com crash that drove the company to close in August 2001.

Following the bubble burst, internet startups fell upon hard times. Digital money never appealed to the masses, at least not until Satoshi Nakamoto published the Bitcoin white paper in 2008. Even then, the avalanche of interest would take time to gain momentum. The Genesis Bitcoin Block was mined on January 3, 2009. Since then, Bitcoin and its offshoots have experienced a great deal of success that goes far beyond their predecessors.

The Present and Future of Financial Technology

Central banks are exploring digital assets as sanctioned payment gateways. As we move towards a cashless civilization, the real-world enactment of digital currency does not seem too far out of reach.

In early 2020, The Republic of the Marshall Islands started creating the Sovereign (SOV), a fully compliant digital currency that will act as legal tender on the tiny Pacific Island. The plan is to issue SOV and the USD, which is an official fiat payment solution in the independent country, the Marshall Islands.

In Q1 2020, the Swedish central bank, Riksbank, stated they are also preparing the launch of a stable currency, the e-Krona, a digital form of their currency, Krona.

The People’s Bank of China (PBOC) has been researching and unofficially developing a digital version of the renminbi since 2014.

It is not just the banks launching stablecoins:

Reserve Protocol launched a stable yet decentralized currency designed to reduce financial instability to serve countries with high inflation rates. Reserve launched pilots in Venezuela and Angola, two countries facing economic turmoil in 2020.

The Evolution of Financial Technology

The development of digital payments opened the doors to virtual banking. In 2011, ePayments gave consumers an efficient and cost-effective way to receive and make domestic and international payments. Virtual bank accounts brought money to computers and mobile devices, supporting a cashless approach to personal finance.

The idea of decentralized and encrypted money for untraceable payments has been around for several decades but became practical and widely familiar with the advent of Bitcoin.

Cryptocurrency is regarded as the next milestone in the evolution of money. By utilizing advanced technologies like blockchain, the financial industry will explore uncharted territory and continue to enhance means of exchange.

Want to read more on the history of fiat, crypto, Stablecoins and the future of money? You can check out Stablecoin Evolution, #1 on Amazon Financial Education & Computer and Science.


Alyze Sam is a refreshing blockchain strategist, a novel educator, multi-award-winning author, serial co-founder, and a vehemently driven advocate. Sam wrote the first crypto dictionary and published the first books on stablecoins. Don Tapscott published her book ‘Stablecoin Economy’ at The Blockchain Research Institute in January 2021. Sam’s newest book, ‘Stablecoin Evolution’ is currently the number one new release on Amazon in Computers & Technology. The Bad Crypto Podcast developed a Blockchain Hero NFT inspired by her work: Mz. Stability. After nearly losing her life a few times, Sam is a retired nurse and owns Tech & Authors with her best friends and soulmates, where they spend their days being grateful as they joyfully produce unbiased poetic technical education.