History of Money from Fiat to Crypto

What is money

Money is a key element of the modern economic system and has many functions, including a means of exchange, a store of value, a measure of worth, and a unit of account. 

• 	<p dir="ltr"><strong>It can take many forms, including fiat currency, cryptocurrencies, metal coins, and paper bills.&nbsp;</strong></p>
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Money is generally trust-dependent, its value determined by supply and demand. Government institutions and central banks control its issuance and quantity in circulation.
Ultimately, money is a product of political institutions and human faith, and its value can fluctuate due to factors such as inflation or deflation.

Money evolution

As money evolved, it changed from simple objects of exchange to cryptocurrencies.

• 	<p dir="ltr"><strong>The first money appeared as a means of exchange between people. As human societies grew larger and more complex, the need for money increased.</strong></p>
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The first money was goods for exchange and livestock. Over time, metal money appeared.

• 	<p dir="ltr"><strong>About 50 years ago, money was only physical. Now fiat money has taken the form of digital money, widely used in the electronic recording of bank transactions.</strong></p>
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The government controls local currencies. It can increase or decrease the value of fiat money through monetary policy, using the ways such as printing more money or raising interest rates.

• 	<p dir="ltr"><strong>Fiat money today is not backed by any commodity, gold or otherwise. It is not tied to stocks of other physical reserves.</strong></p>
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Credit cards are now used for money transactions. Digital assets, such as stocks and bonds, can also be used for exchange and investment.

• 	<p dir="ltr"><strong>Central bank digital currencies (CBDC) are a new form of money, which are a digital representation of national currency and are issued by the central bank.</strong></p>
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Cryptocurrencies use blockchain technology to record transactions and provide security. They are not controlled by the government or the central bank, using a decentralized accounting system.
This allows users to transact directly with each other without intermediaries.
Money continues to evolve with people's changing needs and advances in technology, giving people more choice and convenience when making payments and exchanging value.

Gold standard

• 	<p dir="ltr"><strong>The gold standard was used in many countries until 1971. The value of a country's currency was pegged to gold. This meant that paper money could be exchanged for gold at a fixed rate.</strong></p>
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The abolition of the gold standard has had both positive and negative effects. From one side it created a more flexible financial system that allowed governments to respond more effectively to economic crises and implement policies designed to stimulate economic growth.

On another side, the abolition of the gold standard has led to greater volatility in exchange rates and a lack of financial discipline among governments, resulting in economic instability and inflationary pressures across the board. 

Also, the abolition of the gold standard hurt the middle and lower classes, resulting in greater economic inequality.

• 	<p dir="ltr"><strong>The abolition of the gold standard has become a key moment in the history of monetary systems. It had a significant impact on the economies of many countries over the following decades.&nbsp;</strong></p>
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The difference between the barter system and the monetary system

The barter system is a system in which one goods and services are exchanged for other goods and services. The barter system had limitations, such as the lack of a standard measure of value and the difficulty of making the exchange. 

• 	<p dir="ltr"><strong>The monetary system is a system in which money is used as a means of exchange. Money provides a standard measure of value and facilitates easier trade.</strong></p>
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In the monetary system, there is a risk of inflation and deflation, which can lead to economic instability and a loss of confidence in the monetary system. The monetary system can become the target of fraud, theft, and other financial crimes.

• 	<p dir="ltr"><strong>Despite its disadvantages, the monetary system has great advantages over the barter system. It allows easier and faster transactions, simplifies accounting, and facilitates trade both locally and internationally.&nbsp;</strong></p>
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The monetary system allows the government to regulate the economy and influence the level of inflation. It is an important factor in ensuring the stability and sustainability of the economy.

The monetary system with its standard valuation and the possibility of quick and convenient exchange is a more efficient and convenient system compared to the barter system. 

Cryptocurrencies, being a new step in the development of monetary relations, have great potential and can be used as an alternative monetary system. In the future, cryptocurrencies may replace traditional monetary systems, providing more efficient and secure trading.

Monetary policy

Monetary policy is the action of a central bank to manage the money supply and interest rates to achieve specific economic objectives.

• 	<p dir="ltr"><strong>When low-interest rates are used, central banks provide too much money for lending, causing high inflation and rising commodity prices.</strong></p>
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  	<p dir="ltr"><strong>Too high-interest rates can reduce the money supply and slow economic growth.</strong></p>
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With the development of the monetary system and the advent of cryptocurrencies, wholesale and retail CBDCs began to be used. This is a new instrument of monetary policy that can be used by central banks to achieve their economic goals.

Wholesale CBDCs can be used to directly influence the money supply and interest rates, while retail CBDCs can be used to regulate the supply and demand for digital currency.

Inflationary or deflationary cryptocurrencies

Classifying a cryptocurrency as inflationary or deflationary depends on many factors, such as the issuance and burning of digital assets to regulate their quantity and value.

• 	<p dir="ltr"><strong>Cryptocurrencies have different mechanisms for regulating their supply, which can affect their classification as inflationary or deflationary.</strong></p>
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Cryptocurrencies use mechanisms to burn coins and reduce their supply, which can lead to their deflationary nature.

The demand for a cryptocurrency affects its classification as inflationary or deflationary.

If demand for a cryptocurrency increases, its value rises and it becomes more deflationary. Its purchasing power grows

If the demand for cryptocurrency decreases, it becomes more inflationary. Its value falls and its purchasing power declines.

Classifying a cryptocurrency as inflationary or deflationary can be complicated and depends on many factors. 

Therefore, it is important to carefully study the supply and demand dynamics of a particular cryptocurrency in order to understand its characteristics and potential in the long term.

The future of money

Cryptocurrencies and digital wallets provide a more decentralized and secure way to store and transfer money. However, they carry increased consumer risks, including the possibility of fraud and cyberattacks.

• 	<p dir="ltr"><strong>Digital fiat money, such as CBDC, represents a compromise between digital technology and the state's role in managing monetary policy and ensuring stability.</strong></p>
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A balance must be struck between innovation in money and finance and protecting the rights and interests of consumers and society as a whole.