by Jim Mosquera
Throughout monetary history, we’ve used different forms of money including seashells, feathers, gold, and silver. Later we transitioned to paper certificates representing precious metals — a form of warehouse receipt. Society migrated towards precious metals since they were relatively scarce, durable, malleable, and required effort to obtain.
In the twentieth century governments severed the relationship between the certificates and metals. That severing permitted unfettered certificate creation. The certificates to which I refer are the green pieces of paper in our wallets. Even fractional dollars (coins) decoupled from precious metals through the introduction of cheaper alloys for their minting.
Economies then progressed to digital money. Digital money’s first iteration came with the advent of computerization. This money still represented paper dollars, albeit in digital form. This digital money was easily replicated, thus giving its issuer expanded powers to influence the economy and financial markets.
The Global Financial Crisis (GFC) of 2008 brought further action by money issuers who minted trillions of dollars. For critics, money issuers responded to a crisis they fostered with the very thing that fostered the crisis — money creation. If necessity is the mother of invention, the GFC provided ample motivation and inspiration. The result was a system of purely digital money created algorithmically and not at the whim of an issuer.
Thus, was born Bitcoin (BTC) — digital-only, open-source money. Open-source means software that anyone can inspect and modify. The biggest obstacle in creating digital money was the matter of double spending. Digital assets are easily replicated (think MP3, Word, Excel, PowerPoint files). Creating digital money that anyone could copy and spend more than once would crater confidence. BTC overcame the double-spend problem and, just as importantly, did it in a decentralized manner.
Bitcoin represents a new frontier in the creation of an economic and financial instrument. It is open-source money, algorithmically created with a decentralized architecture. Moreover, it functions as an economic means of exchange and a new investment asset class. Its creation spawned other forms of digital-only sources of value, some which are open-source and others that are proprietary. At times in U.S. history, various bank notes circulated as money. We’ll see various forms of digital-only money circulating in the future.
Jim Mosquera is VP of Corporate Development at Alliance. Previously he operated a consultancy offering financing and debt mediation. He also served as an executive in the fields of telecommunications and technology. He’s the author of the Escaping Oz non-fiction series and the Chandler Scott thriller series.