Before barter and the double coincidence of wants, there Commodity money’s value stems from the commodity
was debt and obligation. Communities were small (by
from which it is made. Typically, that underlying
today’s standards), few people travel ed more than a
commodity has value only because as a society we
day’s walk from home and most commerce was done with
have agreed that it is valuable. Take gold, for
someone who was part of the same social tribe. ‘Money’
example, which is chemically uninteresting as it barely was used primarily to pay taxes to a distant ruler or to reacts with any other elements and has few industrial
quantify criminal damages. The need to pay taxes in a
uses. It is because gold is chemically uninteresting,
sovereign currency drove many communities to adopt
rare (but not too rare, like many other noble metals)
money even though they found it largely unnecessary
and fairly easy to refine and reshape, that makes it
otherwise.
useful as a currency, even though it has little practical value elsewhere. Gold is valuable simply because it is The key point is that barter and money developed
attractive and its chemical and mechanical properties
in response to the need to resolve obligations
make it a good choice for creating physical money.
between individuals who don’t know, or don’t trust,
each other. Neighbours had little need for formal
A fiat currency derives its value from government
money as they had little reason to engage in
regulations or laws and is pushed into circulation by a barter. Most debts were accounted for informally
government issuing debt and/or demanding taxes in
and were grounded in the individual’s shared trust
the fiat currency. In the first instance, it is our trust or their trust in the community to enforce the debt.
that the government will honour its debts – primarily
as a government can compel the governed to pay
The degree of trust between two parties is one of the
taxes – that makes the currency valuable. In the
strongest factors shaping how money and the
second instance, the need to obtain fiat currency to
technologies around it are considered, adopted and used.
pay taxes is what makes the currency valuable.
English shops issued their own wood or leather money
tokens for many centuries, providing customers with
Even Bitcoin is based on trust, as Bitcoin is only valuable small change in the form of IOUs redeemable at their own if everyone in the community using it agrees that it has stores. Often these IOUs were accepted at other stores in value. You must trust that someone will be willing to
the local area, though merchants would demand that
exchange the currency for the goods and services you
larger debts be settled in money accepted anywhere,
want. There is nothing preventing society from deciding typically a sovereign currency. This token money was
that Bitcoins are worthless and abandoning them.
unlikely to travel far from its source and typically never This would be a bad outcome for all cryptocurrencies,
circulated more than a few blocks. This practice, while as it would imply that a loose community of otherwise
technically illegal, continued until quite recently. The unrelated entities is not a suitable foundation on
development of local currencies (mentioned earlier) is a which to build a currency, casting doubt on the
continuation of this.
suitability of other cryptocurrencies.
Trust underpins what we think of as money.
This reliance on trust means that, fundamentally, money is a social construct. Money – any form of it – has value only when we all, as a society, agree that is has value.
The Future of Exchanging Value Cryptocurrencies and the trust economy 17
3
The nature of disruption
