The Evolution of Money
A Journey Down the Current of Financial Progress
“A nickel ain’t worth a dime anymore.”
What is Money?
Money is an instrument that people agree to pay attention to. Whether it’s seashells in Papua New Guinea, Grecian coins made of precious metals, tobacco sticks in a prison yard or chips at a poker table, group attention flows through these instruments just as vibration runs through strings, imbuing them with the harmonic sound of “money” as an agreed upon medium of exchange.
The Watery Language of Money
Perhaps money’s fluid nature spawned its water-based lexicon. Assets which cannot move are said to be frozen. A person who is highly liquid has lots of cash. Holding an asset valued at less than its initial cost means you’re underwater. Just as boats are collectively stored in the port, a collection of stocks is called a portfolio. Products priced to move are said to be on sale, a mere homonym, though akin to the sails that move windblown vessels across the seas of commerce. Currency, (from Latin currere, meaning “to run”), shares the same root as current. Hence why we call it cash flow, because money is made to move.
Moreover, a river’s current is directed by its banks, while currency is controlled by banks. Money, like water, is also directed by the path of least resistance, and mirrors water’s propensity to find the fastest route. With that in mind, could the current of financial progress, as it has evolved across land, water, air, and wire, be why we’ve found ourselves in this new era of cryptocurrency?
Difference Between Digital Currency and Cryptocurrency
Digital money is also powered by an electric current, which carries a charge. This current is embedded in how we express ourselves, and why we charge our credit cards. The digitization of money via credit and debit cards, or in analogous value structures like airline miles or video game tokens are things we are familiar with. The evolution into this digital money transfer system dates back to the mid 20th century. Bank of America (a decade later rebranded as VISA) launched a credit card in California in 1958. By 1966 the Bank of Delaware issued the first debit card, and credit cards went national. In 1967 Mastercard joined the credit picture, and both VISA and Mastercard went international in the 1970’s. Coincidentally, the credit card went overseas the same decade we left the gold standard. In subsequent decades, many banks followed with debit cards and by 1990 they were used in over 300 million transactions.
Fast forward to today where cryptocurrency exists as a different version of digital money; it is a currency that does not have a direct correlation to dollars, pounds, euros, yen, or rupees. Cryptocurrency operates on an electric current just like digital transactions enabled by credit and debit cards, but unlike these digital representations of fiat, cryptocurrency is defined by an additional layer of security.
Definition of Cryptocurrency
To understand what cryptocurrency is first requires a definition of crypto and currency. Crypto refers to cryptography, which uses complex math problems to protect information. Currency is a medium of exchange in circulation, like a current. Cryptocurrency is therefore digital money that protects information in circulation with cryptography. Many things have been and could be money. However, as a medium of exchange, money works best if the items chosen to represent units of exchange are small, scarce, divisible, predictably similar and difficult to fake. Think exotic shells, precious coins, illustrated notes, and custom poker chips.
The Characteristics of Cryptocurrency
Bitcoin, or code-based money, isn’t just small, it’s physically absent. It’s not just scarce, the total supply is predetermined. It’s not merely predictably similar, each unit is an exact replica, which provides peak fungibility. Lastly, forgery isn’t even possible with bitcoin because of the power of cryptography combined with a decentralized ledger.
Could ethereum be a cryptocurrency too? Sure, it’s possible. The deciding mechanism is socio-cultural attention. However, in its current form ethereum is probably best described as an innovative cryptotechnology. Bitcoin is the first cryptocurrency, and has that first mover advantage. So long as it holds mindshare and remains protected by vast amounts of electrical power, it will become the singular digital unit of account.
Can’t Bitcoin Be Copied?
Cryptocurrency protocols are full of code that can be copied anytime (what’s called a fork), which is why the value truly resides within the specific instrument we agree to pay attention to, and therefore assign value. As far as intellectual property rights or “stealing someone’s idea” goes, the status quo is to say, “Yes, please go ahead and copy this code. See if you can make it better and let’s find out who will value that.”
Forks, or copies of blockchains, have proven the value lies with what people agree to pay attention to. Is there more value in bitcoin or the forked bitcoin cash? Is there more value in ethereum classic or the forked ethereum? Each of these two types of cryptocurrencies evolved because someone copied the code, and thought they could make it better. With bitcoin the initial blockchain prevailed, and with ethereum the forked blockchain prevailed. Since each of these cultural consensus driven decisions covered both potential options it proves that it is the social layer, layer zero – or what lies beneath the blockchain – that is the actual arbiter of value. What people pay attention to is what counts.
“MONEY IS ONLY A TOOL. IT WILL TAKE YOU WHEREVER YOU WISH, BUT IT WILL NOT REPLACE YOU AS THE DRIVER.” — Ayn Rand
So why are people focusing on cryptocurrency, anyway?
Adoption of Cryptocurrency
Similar to how the shift from newspapers to news websites reached a critical mass, we may be living amidst a shift from paper-based and digital fiat to cryptographically secure internet money.
The number of verified users of cryptocurrency went from 5 million in 2016 to 225 million in 2021. According to Chainalysis, global adoption grew 2300% from Q3 2019 to Q2 2021, with Vietnam, India, Pakistan, Ukraine, Kenya, Nigeria, and the United States leading the way. Notably, Kenya had the highest peer-to-peer (P2P) exchange volume.
As of 2021, PayPal started accepting bitcoin, Cash App sends and receives bitcoin, VISA settles transactions in a dollar-pegged stablecoin called USDC, and Venmo offers a menu of cryptocurrencies complete with educational materials.
When it comes to banks, Goldman Sachs offers bitcoin, ethereum, and other cryptocurrencies to its wealth management clients. Morgan Stanley plans to offer up to 2.5% bitcoin exposure to its clients with an “aggressive risk tolerance”, in other words individuals with $2 million or more to spare. But these were just precursors to the real adoption.
As of Q1 2024, the SEC approved eleven bitcoin ETFs (Electronically Traded Funds), which unlocked a multi-trillion dollar liquidity pool. In its first seven weeks the BlackRock bitcoin ETF ($IBIT) reached $10B in AUM (Assets Under Management). That makes it the fastest growing ETF in history. Excluding $GBTC, an early bitcoin product that had a multiple year head start, all bitcoin ETFs have reached a total of $20B in their first two months. To put that in context gold ETF’s hold about $200B. However, worldwide adoption of bitcoin as a sort of digital gold and store of value is nascent, and will likely take decades, concomitant with a wealth transfer between generations.
Millennials are the largest demographic group in America, at over 73 million, due to inherit $30 trillion from baby boomers from 2020-2050. This wealth like water will run downhill, and it’ll settle in the estuaries of those that prefer mobile banking, and buy cryptocurrency. A January 2021 study by Chase showed that “98% of Millennials use a mobile banking app for a wide range of tasks”. Digitally native Gen-Z — projected to reach 78 million in population by 2034 — is already keeping pace with Millennials in terms of mobile banking activity, checking accounts and transferring money.
According to a 2022 Financial Literacy study which surveyed 4,000 Americans, at least one in four millennials, Generation X-ers, and Generation Z-ers invest in cryptocurrency, and all of those who do believe “the greatest returns from their investments will come from cryptocurrency”.
CNBC published a finding in 2021 that among millennials with over $1 million in investable assets, almost half (47%) of them had a quarter of their portfolio in crypto. Business Insider reported in 2022 that the number of millennial millionaires hovers at around 618,000. Although “the great wealth transfer” may be a slow trickle, possibly burnt by boomers on mai-tais and beach vacations, there will be increased wealth traveling intergenerationally over the upcoming decades.
So half of the wealthiest portion of Millennials, the largest demographic in America, in the world’s wealthiest nation, holds a quarter of their finances in crypto, uses their smartphone for banking, and is likely to receive $30 trillion in inheritance over the next few decades. If this isn’t a perfect storm primed to expand the parameters of traditional banking and digital money, then what is?
Plus, We’re Digital Already
We’re already in a full-blown digital fiat system. The credit card, which issues debt, is a digital loan. The debit card, which pulls credits, is a digital checkbook. Few people carry cash. Swipes and taps are the norm. If anything, the pervasiveness of this digital economy is evidenced by how listlessly we transfer money to one another after dinner on Venmo.
Perhaps soon, the money we exchange on our smartphones won’t just be just digital fiat, but a secure cryptocurrency on a decentralized blockchain like bitcoin. PayPal, Venmo, Cash App, and VISA are signaling this cultural shift. As of 2024, BlackRock and Fidelity have bought in. The mainstream adoption of the new digital economy will be a rising tide that raises all ships.
A cryptography-governed asset, which is viewable on a blockchain, and baked into the native language of computers is a more enduring version of money. Whether this becomes a dollar-pegged stablecoin, fractions of bitcoins called satoshis, or something like ethereum remains to be seen.
Regardless of form, a knowledge of how cryptocurrency works isn’t necessary for it to become the predominantly used medium of exchange. But paying attention to it is. This attention doesn’t require technical know-how or expertise. Most people don’t know how their cars run but they drive them just fine.
Remember in 2022 when a litany of celebrities and talk show hosts purchased jpegs of cartoon apes in human clothing? Did the mass adoption that ensued necessitate a technical understanding of what a non-fungible token (NFT) is? Or was the only barrier to growth less clunky on-ramps that made it easier for credit card purchases? Whatever the value set of jpegs onchain — as art remains solely unto the beholder — this level of adoption brought blockchains into the public eye.
As apps like Strike, River, and Metamask continually prove, the “easier ways to drive the car” are already happening, and will continue to happen under the hood, while everyone keeps looking for the nearest onramp. A new road is being paved beneath our feet.
Paving The Road: Bitcoin 101
Bitcoin started as a peer-to-peer money exchange platform. Over the last fifteen years, bitcoin has shifted from being thought of as a means of payment for small purchases, to more of a store of value. This may not be where it always remains due to innovations, but it is where it has currently found product market fit. One of the most persistent arguments against bitcoin is that you can’t easily buy groceries or gas with it. Of course, you could obtain a bitcoin-backed debit card, which converts your crypto automatically upon purchase, but this is another adoption barrier. The main rebuttal to this contention is that you can’t buy groceries with gold or stocks either, but both of them are still worth hanging on to.
For example if you bought $1,000 worth of bitcoin on Aug 21st of 2011, five years later you’d have had over $50,000, and if you had waited a decade, those same bitcoins would have been worth $4.3M. By Aug 21st of 2026, we may see a similar jump. Imagine that in the same decade, bitcoin went from shady drug-dealer money on Silk Road, something you had to purchase at a Starbucks from a stranger with a paper bag full of cash, to something the U.S. Government seized and auctioned off legally to its citizens, thereby legitimizing its ownership in the public record.
Peer-to-Peer Transactions
The phenomenon of a peer-to-peer financial transaction system wasn’t revolutionary with bitcoin; PayPal launched P2P financial transactions in 1998, which blew up after the company was acquired by eBay in 2002. Bitcoin is revolutionary though because it offers peer-to-peer financial transactions without a bank. Bitcoin is like PayPal except the money isn’t stored in your checking account, it’s stored in your self-custodied wallet. This money isn’t even digital dollars, it’s digital code. With bitcoin this is called an unspent transaction output, or UTXO. Basically a UTXO is your claim on an ability to move some amount of bitcoin from one location in the decentralized ledger to another.
One way to think of the bitcoin blockchain is as a digital vault and its math-locked code is like digital gold. When people talk about buying bitcoin the cryptocurrency (BTC), they mean purchasing specific and unique information stored on that blockchain that requires private keys to access. If one loses their private keys, they lose the coin. Private keys are a long string of random numbers, so they are typically kept in a wrapper called a seed phrase. This is a randomized batch of 12 or 24 words. These seed phrases unlock private keys which access UTXOs, and let people move their bitcoin.
There’s no such thing as a bank run on bitcoin. This is because there is no need for a custodian. You are the custodian. That also means there is never a lack of funds due to fractional reserve lending. Bitcoin is the bank and the network of users own it. The value of bitcoin is self-evident, because unlike a dollar or a peso, which gets watered down over time with inflation, one bitcoin will always be equal to one bitcoin. That’s not a tautological statement, it’s a self-referential way of showing that it’s inflation proof. This is by design. Bitcoin can’t be over-printed because there are, and will only ever be, 21 million bitcoins. This is true because it was originally coded that way by its creator. As of May 2024, 19.6 million, or 93.8% of those are already in circulation. When you buy bitcoin from an exchange you’re buying part of this existing supply from a willing seller.
Bitcoin’s market cap, which is the amount of bitcoins in circulation times the value of each bitcoin, at its current value of $1.3T in Q2 of 2024, ranks sixth in market cap of all US companies, clocking in just behind Amazon and ahead of Meta, Berkshire Hathaway, and Tesla. Bitcoin is worth more than 98.8% of the companies making up the S&P 500.
Dollar Psychology and Bitcoin Psychology
But people think in dollars. They pay attention to dollars. Bitcoin’s perceived value is in dollars. How much is a bitcoin? Four-thousand, Ten-thousand, Thirty-thousand, Sixty-five thousand dollars. Dollars are both a psychological and literal settlement layer. Thinking of bitcoin in dollars makes sense. Unless you're in El Salvador where bitcoin is considered legal tender, grocery stores and landlords aren’t accepting bitcoin. What people don’t consider is that although we tend to think of bitcoin in terms of its value in dollars, bitcoin actually cannibalizes the value of dollars. Cannibalizes definition sheds light, “to take salvageable parts from for use in building or repairing another machine.”
Bitcoin eats fiat and turns what were once gold-backed dollars into code-backed dollars. Purchasing bitcoin with dollars consumes an inflationary form of money and digests it into a non-inflationary liquid asset secured by cryptography. Bitcoin is quietly absorbing all the nutrients and value of USD. The owners of bitcoin know this. During the 2017 cycle, ~60% of the bitcoin held in circulation did not sell despite the fact that BTC retraced from a once all-time-high of $20,000 down to $4,000. From 2021 till 2024, 45% of bitcoin hasn’t sold despite dropping from its all time high of $69,000 down to $16,000 and running back up to $70,000. These are so called diamond hands: they have high conviction, low time preference, and can stomach volatility.
To get the psychology of someone who has held bitcoin for a long time you have to imagine the swings dealt with all the way up the ladder. One day up a dime, then down a nickel, up a dollar, down to a quarter, a few years go by and it’s up to twelve bucks! Six months later down to three. Imagine how they felt at $100. You get it, the swings. The ones who held for years built up a tolerance.
After going through all that volatility would you sell? They did not, and the price tripled. There is no question that, to pseudo-quote Lil’ Wayne, “these hodlers are loyal.” Hodlers is an endearing term for someone that “holds” and it originated as a misspelling on a famous Reddit post title. Bitcoin has an ‘in-group’ preference for hodlers or diamond hands (people that don’t sell), along with a widely perceived value (1.3 Trillion in market cap), transparent scarcity (less than 7% new bitcoins left), impenetrable security (no bank runs), and a barrier to entry of only an internet connection and a mobile phone (no ID, no credit report, no bank account required).
Moneyball
As the first out of the digital money gate bitcoin secured the perimeter of a new financial fortress. The blockchain is the vault inside a castle, the bitcoins are the gold, and the culture is the mote that surrounds and protects it. Countries and companies that put bitcoin on their balance sheet, and dial in a smooth frontend for greater adoption will be the first to benefit from greater financial transparency and security.
To quote the Red Sox owner in Moneyball about being the first guy through the wall, “He always gets bloody, always. It's the threat of not just the way of doing business, but in their minds it's threatening the game. But really what it’s threatening is their livelihood, their jobs, the way they do things, and every time that happens whether it’s a government or way of doing business or whatever that is, the people who are holding the reigns, have their hands on the switch, they go bat-shit crazy. I mean anybody who’s not tearing their team down right now, and rebuilding it using your model, they’re dinosaurs.”
Bitcoin took it in the teeth for a decade. But now Larry Fink, the CEO of BlackRock calls bitcoin, “A flight to quality.” The tide has turned and the tune of this instrument fueled by attention has changed. If more countries or companies don’t get on board and stay there, then they’ll be as nonexistent as the dinosaurs.
Bitcoin is too important to stop, too helpful to ridicule, and too profitable to ignore. It arrived at financial prominence at a time when faith in the traditional financial system was collapsing. The 2008 financial crisis showed us that central bankers, anytime they please, can paper over losses from a one-room suite in the eye at the top of the pyramid. Meanwhile, bitcoin grew up by climbing that ladder of economic influence rung by rung. It is grass roots, cypherpunk, internet cash that can’t be stolen or debased by anyone, and there is a limited supply. At the heart of the behemoth that is bitcoin isn’t greed, control, or usury, but observable code and as such moral transparency. No more secrets.
Bitcoin is an innovation on par with the steam engine and electricity. The steam engine shrunk the earth. Electricity lit up the night. Bitcoin is your own bank. It spurns the need for saving in fiat currency and side steps the central intermediaries who debase our purchasing power. Bitcoin allows someone to keep all of the value of their savings inside their own head by remembering a seed phrase. A new financial sapling has sprouted and it only needs the water of our attention to grow strong and tall like a mighty oak upon the river bank. Because money, in any moment, like some sort of emergent autonomous zone, is simply that which people agree to pay attention to.
Click here to order your copy of PAY ATTENTION TO BITCOIN: The Rise of Digital Gold and its Place in the Evolution of Money by Joseph Voelbel.
