Money evolved from simple barter items to digital currencies. Funds emerged as a means to facilitate trade and cooperation among strangers. As human societies grew, expanded, and became more complex, the need for a common medium of exchange became increasingly important.
From a realistic political perspective, concepts such as value and possession have played a role in human interactions since their early days. The first forms of money were barter tools, such as stones and livestock. These items were used to facilitate trade and were valued based on utility, scarcity, demand, and supply.
With larger human settlements and the ownership of the surrounding environment following the agricultural revolution, concepts such as economy, trade, and eventually money emerged. The use of commodity money can be traced back to ancient civilizations, where goods were used as currency. However, the emergence of coinage as a new means of exchange had a significant impact on the evolution of money.
Coins were a fundamental tool in the development of central political structures and the rise of modern states. Coins allowed rulers to build bureaucracies and armies necessary to maintain control over vast territories. The use of money also facilitated trade, leading to increased wealth and growth. It allowed for the development of uniform exchange rates, which further enhanced economic growth and trade.
In the early days of banking, goldsmiths stored gold and other coinage in their safes, issuing receipts that could be used as a form of payment. These receipts quickly evolved into representative money. Individuals used paper certificates to represent the value of goods, ultimately leading to the development of paper money, which is still in use today.
Until nearly 50 years ago, money was purely physical. In modern times, paper money in the form of digital currency has become a dominant means of exchanging value, using electronic record-keeping for banking transactions. Fiat money is backed by the government and the central bank and is valued based on people's trust in these institutions. In fact, the government has the authority to control the money supply. It can increase or decrease the value of paper money through monetary policy, such as printing more money or raising interest rates.
Today, paper money is often not backed by a commodity, such as gold, or tied to a stock of other physical reserves. Essentially, paper currency is non-convertible and cannot be exchanged for a commodity because it has no intrinsic value.
Money has taken on new forms in the digital age, such as credit cards, cryptocurrencies, central bank digital currencies (CBDCs), and digital currencies. Mobile payments and online banking services have become increasingly popular. Furthermore, since the inception of Bitcoin (BTC) in 2008, digital currencies have challenged the fiat currency system. The widespread adoption of mobile payment technologies and the emerging nature of cryptocurrencies have changed how we interact with money and signal the evolving nature of money and its role in society.