Standing on the Shoulders

of Giants
The world before the blockchain.

Ante Catenam Laterum - Before the Block Chain

This section takes us through the pre-Genesis block history, and shows us the
many building blocks used in the creation of the first cryptocurrency Bitcoin. The
next half of the history section will delve deeper into the history of cryptos since
the mining of the Genesis block.
Bitcoin and the blockchain is a system that is part money and part computer
network.
Computers and computer networks were required to build the system.
Banking and financial history brought about the need for such a system.

Money
Money is a central part of our lives in our modern world. It has been used in some
form throughout history.
Historians say there is little to no evidence that economies relied on bartering for
goods. Communities shared what they had with each other or use a form of
money, they may have bartered with strangers.
Many items have been used as tokens with monetary value in different cultures.
There are things we still find very valuable today such as gold, silver, and precious
gems. There are items most cultures today dont find of great value such as
cone-snail shells, beads, less precious stones, tokens with weight equal to other
items like a number of grains,and even heavy pieces of iron.

Historic Monetary Tokens

Money has taken many forms in different cultures and times. When issued by a
government it is called Fiat. How well does fiat hold value across political lines?
Precious metals such as gold and silver have long been held as a store of value.
They have many characteristics that contribute to their being a good, but not
perfect, monetary unit.
Money made out of an item that has value itself is called commodity money. E.g.
Livestock, produce, furs, tools, cigarettes, manufactured goods, etc. Things that
have their own use and take time and energy to create or harvest. Might not travel
or age well. The majority of these items are not good money.
The need for buying a variety of things, and having the ability to exchange debt
led to the use of money over earlier gift economies.

Modern Monetary Tokens

Money has been standardized, first by communities, then by larger governments.
The money we are familiar with today, that of paper bills and coins were
developed separately. Bank money was of course created later.
Stamped coins have been used for currency since around 600 BCE. Gold and
silver have been used throughout history by many cultures.
Paper money is used by Trusted Third Parties. Initially the paper was a certificate
tradable for precious metal coins at the bank.
Bank money is all electronic money. It comprises most of the money owned by
people, companies, and countries.

Precious Metals and Coins

There is evidence of precious metals being used as a currency for thousands of
years. Early coins from around 600 BCE were stamped, cast, or punched out (like
a hole puncher).
Coins became standardized in their purity, weight, and size to facilitate trade.
Europe used silver primarily until the 1300s when there was a great migration to
the use of gold instead. Coins are often mixed with trace metals to improve their
hardness. The coins used in most countries were some percentage precious metal
until the last hundred years when gold and silver standards were ended.
Precious metals can be unwieldy to store or spend. The creation of banks allowed
PMs to be safely stored. They could be retrieved with a certificate given by the
bank. Many banks used to give their own certificates (print their own money).

Paper Money or Banknotes

Used alongside coin money China since at around 600 CE and it became more used in
Europe in the 1600s, despite knowledge of paper money being brought by Marco Polo
to Europe in the 1200s.
Paper money notes or cash used to be representative money, that is it represented real
physical money in the bank vault.
One could redeem these notes for their value in gold or silver. Most countries one
hundred years ago worked this way. After WWII many countries tied their currency to
the USD. In 1971 Nixon de-pegged the USD to gold. Now paper and coin money are
token money, they are worth little outside their decree.
Moving physical money is dangerous and slow. Communication systems like phone
lines helped create digital money, which could be accessed electronically.

Bank Money
Electronic money is money that does not have a physical representation. There can be more
money in the banks account than its vault. All money in savings, checking, etc accounts is
bank money.
Bank money is created via fractional reserve a process where a bank creates money that
didnt previously exist. It does this based on the balance sheet changes that arise from
loans.
The bank receives a deposit, say for $100.00. The bank is then allowed to lend out some
percentage of that money, say %10, so they loan out $10. Now the bank can consider their
assets $110, even though it only actually has $90, and $10 loaned out. The new $10 is
called fiduciary money.
Bank money is created by central banks, which is the Federal Reserve in the USA.

A charge plate from 1958

Recent changes in monetary systems

Functions
Money serves many important functions. And different tokens have different
characteristics. First, what does money do?
Money serves many purposes, but they can be roughly broken down into three
main functions:
A store of value. Something that will be useful in the future.
A medium of exchange. To settle all debts money must be accepted by all parties.
A unit of account. A way to quantify the value of things with a metric, e.g. dollars.

Characteristics / Qualities of Good Money

There are a few traits often recognized as qualities of a good money. Such as:
Acceptability - The token cannot be used for commerce if not accepted. For that
end it should be homogenous in appearance,easily recognizable, and fungable
(that is all units are treated equal, no marked bills).
Divisibility - The units should be able to buy small things and large ones. Buying a
pack of gum with gold and buying a house with grain are not easy.
Durability - Throughout time money has been a physical item, now we have the
ability to create unique digital information we arent confined to these needs. The
items would need to withstand handling by many people in different environments
over time. Gold doesnt rust but is expensive to replace.

Characteristics / Qualities of Good Money Continued

Portability - Money that is easy to transport is better for the user, and in some
cases can be safer as well. The more portable a money is the better it is for long
distance use.
Scarcity - Money without scarcity lacks value. An addition to scarcity is difficulty to
acquire. The work expended to earn money helps give it value.
Hard to counterfeit - The other side of the scarcity coin is that the money cannot
be created illicitly. If money were easy to counterfeit it doubtful be scarce.
Consistent store of value - The better or longer a unit has been a store of value
the more people will trust it. Money issued by a brand new government might not
be trusted to retain its value for many years.

Comparison of Different Types of Money

Oxen (or other
commodity money)

Sea Shell (or other

token money)

Precious Metals

Fiat: Coin/ Paper

Bank Card (or other

bank money)

Cryptocurrency

Acceptability

Bad-Medium.
Only select people/ times

Bad-Good.
Region specific

Poor-Good.
Widely valued but not
accepted

Good.
Region specific, but
well within regions

Medium-Good.
Growing use but not
saturated

Bad-Poor.
Little used but growing
online

Divisibility

Bad-Medium.
Oxen dont divide well
more than once, but grain
can

Bad-Medium.
Unless the atomic unit is
low in value many are
needed

Poor-Good.
Easy to cut but high
value metal needs tiny
pieces

Good.
Designed with different
denominations

Good-Great.
Single card, no
denominations, limited
by system

Great.
Much greater
divisibility for user

Durability

Good-Poor.
Depending on specific
good

Bad-Good.
Token dependant

Great. Corrosion
resistant and wont rot,
break, or die

Good. Banknotes are

closer to cotton than
paper

Good

Great.
Will never fall apart

Portability

Poor

Poor-Medium.
Worse if little value per
item.

Medium.
Easy to carry small
weights but not large
ones.

Good.
$1 & $100 are the same
physical size

Good-Great.
Great for end user,
international transfers
difficult

Great.
Easy to carry any
amount or send across
political borders

Scarcity

Medium-Good

Medium

Good. Terrestrial
sources are limited

Poor-Good. Monetary
policy dependant

Bad-Poor. Gov. &

policy dependant

Bad-Great. Crypto
dependant

Difficult to
counterfeit

Great

Great. Low value of

units lower ROI

Great

Good. Can be done with

expense

Medium-Good

Great

Constant Value

Good

Medium

Good

Good

Poor-Good. Not all

types are equal

Poor

Money Creation: Where does money come from?

Money in the world economy comes from banks.
A central bank / reserve bank is a bank that tries to manage the money for a
country. The central banks do things like printing the legal tender and managing
the money supply of the state. They do things you hear on the news like
quantitative easing or changing the interest rate. They can create base money.
Commercial banks are the ones we are more familiar with, they give loans to
people and businesses, hold savings and checking accounts, etc. These banks
engage in fractional reserve lending which creates broad money out of nothing.
Regulations and rules limit the extent that commercial banks can create money
this way.

Origin of Precious Metals

PMs are elements, as seen in the Periodic Table. At the beginning of the universe
the Big Bang created an incomprehensible amount of energy, the early universe
was opaque with light created by this energy. A result of this was a large amount
of Hydrogen and a small amount of Helium came into existence. Gravity caused
these atoms to create stars. When some stars burn through most of hydrogen
content they begin to fuse (create) heavier atoms (up to iron). The source of all
other atoms in the universe are supernova, and other very high energy cosmic
phenomena. Solar systems (sun & planets) are created together out of roughly the
same material. The earliest stars couldnt have had planets.
For this reason the Earth has a mixture of elements within in. The heavier
elements are less abundant.

Origin of Precious Metals Continued

Metals are mined from the Earth. It is rare to find metals in their pure form in the
Earth, these lodes can be prized.
Metals are often recovered from chemically treated spoils, the chemicals are used
to extract specific elements and can create toxic waste and pollution. Some old
mines have poisoned water/air after misuse.
Metals are refined to remove any impurities and often as a step in smelting ingots.
Ingots or chunks are often melted and cast before being sold where they might be
stamped as coins, mixed in alloys, or used in jewelry.

On the Origin of Banks

Money requires storage, with money such as grain, oxen, or gold that storage can
be a large overhead. The need for security rises in tandem. People who didnt
want to store their money trusted it to banks to securely hold for them.
There is evidence of humans doing accounting since 3,200 BCE.
The invention of double bookkeeping allowed records to be kept more accurately.
Funds of merchants could be handled by others with trust, allowing workers
outside of the family to be hired.
Banks have existed for thousands of years in multiple continents for money
holding. The concepts of money lending, interest, transferring through a third
party, and fractional reserve banking emerged by the nineteenth century.

Rise of the Modern Bank

Banks have been known for financing both sides in wars, but how did they get to
be powerful enough to perform such actions?
Banks had a great amount of power within the area their notes were used. Central
banks emerged in Europe around the same time and from the early 1800s banks
began working internationally at an unprecedented rate.
The Emergence of the World Bank and the IMF circa 1944 helped foster
international lending and trade at level never before seen.
As communication improved so did international banking relations.
Financial crises in the 2000s greatly spurred the consolidation of banks.

The amount of money in the world

Financial Freedom
The idea that money isnt needed to live is an idea many people have not even
considered but it is worth mentioning.
Permaculture and homesteading teach principles that can help to build a life with
reduced reliance on money.
Ideas of self-sufficiency applied ones life and ecosystem.
The ability to grow, build, and harness all you need from nature in a sustainable
way require planning, time, and energy. These ends can be met much easier with
money.
Most people would still end up using money, albeit they might use it much less.
Even the Amish use money.

End of Money Sub-Section

We have discussed the uses and types of money, what kind of tokens make a
good unit of money, and very briefly touched on their creation. Cryptocurrencies
show that they can function as good units of money.
Cryptos can function as a software type of money, and the hardware they are built
on is just as interesting. Many inventions and ideas have arisen over time, some
more than once and others to be quashed and never seen again. Exotic ideas
become commonplace products and new uses for old products can be discovered.
New technology creates building blocks for even newer ideas. Thus with cryptos
there have been many building blocks; let us look at some of the pieces.

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https://en.wikipedia.org/wiki/Bit_(money)
New monetry systems over time https://youtu.be/0Wrrzsrb-wg?t=7m54s
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