What is Money?


Throughout history, money has taken on many forms before becoming what it is today. As an investor, it's good to know where money comes from and how its past can influence its present and future.

The Evolution of Money

When currency first came into play, it began as things like shells, whale teeth, and limestone. The first coins, made of a combination of gold and silver, were first introduced as money around the 7th century BCE. It is believed that the development of paper money took place in 11th century China, made from mulberry tree bark, and made its way to other countries by the late 18th century. Although, this form of paper currency was used more as a promissory note, or a commitment to later pay a specific amount of silver or gold.

In the 19th century, the gold standard was introduced. This system attaches the value of any one currency to a set amount of gold, which can keep governments from overissuing money. But, as the gold standard connects the currencies of different countries to one another, this can make it difficult to separate the economic hardships faced on different parts of the globe. By 1971, the US ceased the use of the gold standard, though even today, many states still have gold reserves.

In the mid-1900s, credit cards came into play—this brings us closer to modern times and how we use money in the current age.

Digital Transformation

Online banking became popular in the 90s with the introduction of the internet. With the use of smartphones and banking apps, many people rarely find the need to go to a physical branch for everyday banking needs, though some still prefer this method for things like opening a new account or applying for a loan. Even still, physical banks are now on the decline, seeing many closures in the past ten years, a significant percentage of them choosing to become online-only.

While the USD you have stored in your bank is regulated by the Federal Reserve and investment banks are regulated by the SEC, the newest addition to the monetary world isn't regulated at all—crypto. Cryptocurrency is a completely digital, decentralized currency that is still in its infancy. The very first crypto, Bitcoin, was developed in 2009 by a group called Satoshi Nakamoto. Cryptocurrency is securely stored on something called a blockchain, or public ledger (as opposed to data being stored on a single server, it's stored on a network of devices, providing transparency), and what an individual owns is stored in a digital wallet. While the blockchain keeps a person's crypto safe, the dangers of this have already been observed: if you lose access to your wallet or do not leave your account information behind when you die, these funds are unrecoverable. Crypto has become relatively similar to trading stocks, as the price of a coin fluctuates multiple times a day and can be secured in the same place you may keep your other investments. This shows the evolution of investing, as well, in a way—the introduction and popularity of crypto has become a significant component of the investment community.

While crypto may have been the first thing to be stored with blockchain technology, it won't be the last. NFTs, or non-fungible tokens, recently became popular, and can be bought and traded on the blockchain as well. All of these new efforts in digitizing money are brought to you by something called web3, which is changing how data—including money—is stored.

What Lies Ahead

Just as money has changed time and time again in the past, it will likely continue to do so in the future. So, to answer the question: what is money? Money is, has been, and will be many things, physical, digital, and perhaps something else, used to exchange goods and services. Money can take on many forms, but all in all, its purpose has remained steady. With new technology and the continued transition into a digital world, what's next for money is something we may not yet know.

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