Evolution of Money - 6 Stages of Money from Barter to Cryptocurrency

 

Source: Evolution IRA

Money is any commodity that is universally acknowledged in a certain country or socioeconomic setting as payment for goods and services as well as debt repayment. 

It has evolved a lot in the past few decades. From the barter system to paper currency to cryptocurrency, the monetary system has taken many different forms. 

Stages of Money

Stage 1: Barter System

Before the introduction of money, transactions took by means of an exchange system, known as the barter system. 

Barter is the exchange of products or services between two or more persons without the use of money or a monetary means like a credit card. In essence, trading entails one party providing one item or service in exchange for another party providing another good or service. 

For example, an individual had wheat flour and another individual had sugar. And if the first individual wanted to get sugar, then the only way he/she could do it was by exchanging wheat flour with sugar. But the major catch was that the trade could take place only if even the other individual was willing to get wheat flour. 

This was the problem of double coincidence i.e. both the individuals would have to agree upon a trade settlement in which they both would feel that they are better off.

However, this kind of coincidence was difficult to figure out.

Stage 2: Coins

Due to the problematic barter system, currency was introduced in the form of coins. Initially, coins were made in the form of gold and silver. The coins were composed of electrum, a naturally occurring alloy of silver and gold, and were embossed with images that served as denominations. 

If the earlier example is considered, even if the second individual did not want wheat, he/she could give sugar to the first individual in exchange for the coins. 

Because it was a precious material, people were assured that if they take the coin and give it to someone else, then they would be able to trade it for something they wish to buy. 

Even if the coins were better than the barter system, they are delicate and precious pieces. It would cost an individual very much if he/she would lose the coin. Thus, the next stage was brought into effect.

Stage 3: Paper Currency

After trying out the precious metals, paper currency was introduced. 

As banks became established, governments had control, trust was developed in the system that instead of carrying precious blocks of metals, something more convenient could be used. This is when the currency in the form of paper was introduced.  

Unlike before the currency was believed to have value because the government claimed that the paper had value and not because it contained gold or silver. The notes are kind of receipts that the bank or the government owes us that sum of money. 

Stage 4: Plastic Cards 

With the advancement in technology, there was also improvement in the way of using currency. Along with the paper currency, credit and debit cards were brought into the system.

With many people buying their stuff online, they could now use credit or debit cards to make payments. The money could not be seen in its actual form, it was just entries in a spreadsheet. 

With one important distinction, both can make shopping in shops or online simple and convenient. Debit cards allow you to spend money by withdrawing funds from your bank account. Credit cards allow you to borrow money from the card issuer for purchases or cash withdrawals up to a set limit. Both these cards are still used widely. 

Stage 5: Digital Currency/ Electronic Money 

Along with the paper and card currency, came into effect the digital currency. The online transfers of money could be done in just a few clicks. Many companies like Paytm, BharatPe, PhonePe, etc. started offering the services of money transfer. These transfers could be done via application wallets or by means of bank transfers. 

In today’s era, people across the globe are widely using this payment mechanism. The major plus point of digital currency is that it can be done from anywhere at any time of the day. 

Stage 6: Cryptocurrency

What is also the talk of the town nowadays is cryptocurrency. Cryptocurrency, which is a 100% virtual currency is simply the transfer of digital assets. Cryptocurrencies are digital assets developed using technologies for computer networking that allow for safe data flow and ownership. Virtual currencies are supported by blockchain technology. There are over 10,000 listed cryptocurrencies of which Bitcoin, Ethereum, Binance Coin, Cardano, dogecoin, and tether are some main types. Depending on how they are utilized, cryptocurrencies' individual units are referred to as coins or tokens. 

Conclusion

Money has evolved a long way from the barter exchange to cryptocurrency. From trading things to trading virtually, the currency has been fully transformed. 

Cryptocurrency is the future of the money world and people from all across the globe are taking interest in the exponentially growing market. 

Written by-Srishti Kumar