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From Cocoa Beans To Cryptocurrency – The Evolution Of Money And The Rise Of Crypto


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Many find the notion of crypto being a legitimate currency questionable, and others find it outright ridiculous.

A look back at the evolution of money may dispel these prejudices. Many of the things civilization determined would become currency could be considered far more outrageous than a digital coin.

For the Aztec and Mayan empires, cocoa beans were a popular form of currency. The beans were often exchanged for food and goods and were readily accepted in tributes. In the 14th century, cowrie shells — the shells of sea snails — were used as currency throughout Africa, Asia and Europe. Everything from livestock and camels to salt saw and squirrel pelts has been used as a form of currency, and some of these “weird” currencies are not that outdated.

In 2005, Cameroonians used beer bottles to pay taxi fares, and in 1997 the Democratic Republic of Congo used faceless bills to denote legal tender.

As history has shown, money is one of civilization’s oldest shape shifters. Contrary to popular belief, it’s not uncommon for new forms of currency to rise and disrupt others, and now, blockchain advocates argue, is one of those rare moments in time when that may be occurring.

In April 2021, the market capitalization for Bitcoin (CRYPTO: BTC) grew to $1 trillion, eclipsing the market capitalization of most companies listed on the NASDAQ Capital Market and the gross domestic product (GDP) of many nations.

Companies like Marathon Digital Holdings Inc. (NASDAQ: MARA), Riot Blockchain Inc. (NASDAQ: RIOT) and Bluesky Digital Assets Corp. CN:BTC (OTC: BTCWF) have placed millions on these emerging currencies and the nascent technology that supports it.

But what determines whether a currency is, in fact, money, and does crypto meet that criteria?

Cryptocurrency: Does It Qualify As Money?
Of the many examples of money listed above, they all, at their time, met three criteria: They acted as a store of value, medium of exchange and unit of account.

1. Store of value

All forms of money must act as a store of value. They must retain their value over time without the threat of significant and sudden depreciation. Many will use Bitcoin and Ethereum’s (CRYPTO: ETH) volatility to argue for cryptocurrency’s poor store of value, but the emergence of stablecoins like Tether (CRYPTO: USDT) and USD Coin (CRYPTO: USDC), which are pegged against an underlying asset, provide a strong refutation.

2. Medium of exchange

For a currency to become mainstream, it has to be widely accepted. Both sides in the transaction must share a perception of value. Cryptocurrency has come a long way since it was first introduced as a form of payment in 2009. Corporate giants like Paypal Holdings Inc. (NASDAQ: PYPL) and Microsoft Corp . (NASDAQ: NASDAQ:MSFT) accept cryptocurrency as a form of payment, and there were over 68 million blockchain wallets last year.

3. Unit of Account

“To function as a unit of account, money must be able to price financial transactions by effectively denominating the value of different products and services throughout the economy in relation to each other. For example, a $500 mattress is more valuable than a $20 hat,” says Cryptopedia.

Cryptocurrencies fall comfortably under this category. Bitcoin, for example, can be divided into units as small as one satoshi (one-hundredth of a Bitcoin) and Ethereum can also be divided into partial units.

Fiat: Lacking Intrinsic Value Because Of Uncontrolled Supply
A major criticism of fiat currency is that it holds no intrinsic value and derives its worth from its status as legal tender. The term “fiat” is a Latin word that is often translated to “it shall be” or “let it be done.” Fiat currency’s value is inextricably linked to decisions made by central authorities i.e. central banks and governments. Interest rates, money printing and other fiscal policies directly influence the value of fiat currencies, a process that relies heavily on trust in government officials and banks.

In 2008, when it was uncovered that banks had a large role to play in the global financial crisis, trust in these central figures diminished greatly. Many think this distrust continues to power the blockchain movement and its derivatives to this day.

In contrast to fiat currency, cryptocurrency derives intrinsic value from its native blockchain, where monetary policy is determined by protocol, consensus mechanisms and overall supply. Unlike fiat currencies, many coins have a limited supply, which helps solidify their intrinsic value.

Money Is Evolving
Cryptocurrency does not exist in a bubble; it is a “movement” driven by the need for economic security and personal independence. Through blockchain technology, the movement brings with it many derivatives. Non-fungible tokens (NFTs), decentralized finance (DeFi), Web 3 and many others are part of the disruption of today’s dominant form of currency.

For the master shape-shifter that is money, cryptocurrency might just be its next form.

This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.

© 2022 Benzinga does not provide investment advice. All rights reserved.

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