Money - Past, Present, and Future

Money is not just cash and bank deposits. It includes so much more - art, cryptocurrencies, equity shares, gold real estate, loyalty points, etc.

1. The past

Our ancestors started off with the barter system - something like "I will give you 2 buffaloes in return for 5 shiny new, super-sharp axes". Soon they realized that the barter system had too many limitations:

  • everyone didn't want buffaloes,
  • buffaloes were not divisible (not too many people would want 0.35 buffaloes)
  • buffaloes were not portable (imagine having to carry a buffalo on your shoulders while going shopping!).

So they moved on to more acceptable, divisible, homogeneous, and portable forms of money - cowry shells, salt, gold, silver, and lots more.

The Chinese invention of paper eventually led to the birth of paper currency, which was initially backed by gold or other precious metals. The United States dollar was on the gold standard for many years. That means the dollar was backed by gold. This ended on June 5, 1933.

The US government continued to convert dollars to gold at a fixed value until August 15, 1971.

Today, the entire world has moved on to fiat money - currency that's declared as legal tender by a government but not backed by a physical commodity.

Have a look at an Indian note (anything except a 1-rupee note). It carries a promise signed by the Governor of the Reserve Bank of India (RBI) :

“I promise to pay the bearer the sum of one hundred rupees”.

If you were to take this note to the Governor of the RBI, he would (probably) give you coins or one-rupee notes. (Disclaimer: I haven't tried it :-)

These banknotes issued by the RBI can be used as "legal tender" in India. That means everyone must accept them for all legal payments.

Remember the demonetization of some notes in India in 2016? Well, legally speaking, this is what happened: the "legal tender status" of the then ₹ 500 and ₹ 1000 banknotes were withdrawn.


2. The present

The birth of computers and the Internet has brought in many innovative payment systems such as debit & credit cards, net banking, mobile wallets, UPI, etc.

The cryptocurrency revolution started with Satoshi Nakamoto’s path-breaking whitepaper - "Bitcoin: A Peer-to-Peer Electronic Cash System" in October 2008. This brought the world Bitcoin, the first truly peer-to-peer electronic currency.

Today, there are more than 6,000 actively traded cryptocurrencies!

These cryptocurrencies are of many types - Ready money, Non-Fungible Tokens (NFTs), Public Blockchain natives, etc. In the next lesson, I will be outlining 11 categories of cryptos.

Do you know?

There is a crypto project called Basic Attention Token (BAT) that is monetizing human attention? Yes, that's right, human attention!

3. The future

According to me, money must have at least 1 of the following characteristics:

  • I should be able to buy and sell stuff using it
  • I should be able to maintain my accounts using it
  • I should be able to hold and grow my savings with it

Money is not just cash and bank deposits. It includes so much more - art, cryptocurrencies, equity shares, gold real estate, loyalty points, etc. 

Let's say I have a great idea for a startup. But I don't have the cash to hire a good team. I could pay them using shares of my startup. I could also give them ESOPs (employee stock options). If my startup succeeds, my team would be able to sell their shares at a huge profit. 

This is what I believe the future of money will look like. (Click here for a high-resolution version of the image below.)

To Do:

Make a list of the types of Money you currently have. Make a plan for getting more types of Money. Here's a list to get you started:

  1. Art & collectibles
  2. Cash & bank balances
  3. Commodities
  4. Crypto Assets
  5. Debt instruments
  6. Equity & stocks
  7. Government Securities
  8. Hybrid instruments
  9. Intellectual Property
  10. Invoices
  11. Loyalty points
  12. Real estate

Next: What Are Cryptocurrencies?