Act One — The Origins of Money

To properly understand the importance that Szabo sees in money and the way we deal with it, it is indispensable to explore his fascinating essay The origins of money , in which he thoroughly explained the importance that money always had played in our human connections and the deepness to which it penetrated our societies all throughout history.

It’s a very interesting set of thoughts, that are backed up by famous anthropologist like David Graeber (I highly recommend you his awesome book Debt: The First 5,000 Years!). The fundamental premise is that a form of money as a mean of storing value and to facilitate exchange has always been around.

We humans have become the most fearsome predators ever seen on the world because of our extremely effective way of cooperating with each other. This ability was eventually channeled into the social institutions we know today such as trade, marriage and inheritance.

For humans, wealth transfers (one-way or mutual & voluntary or coerced) have played an important role from early on. For example, its fascinating to fathom, that humans are effectively the only animal know to inherit wealth from one generation to the other. These inheritances could be used as collateral (so big bad Bob doesn’t makes you one head shorter for not giving him what he wanted), payments for goods (that awesome new stone axe you always wanted) or food (mhm, delicious paleo food anyone?). You could also use it for paying the bride price for your marriage that is coming up.

All of these transactions (from A to B) have some transaction costs associated with them though. The mainstream economist believe that first we lived in a world where a system of trading goods purely against other goods existed (as Adam Smith famously described), this is also known as barter.

As proven by anthropologists, a world in which only a system of barter was used never really existed though. Rather, humans have always used some sort of collectibles (think pearls, bones, shells) in order to facilitate wealth transfers.

The fact that money, in one form or another, has always been ingrained in human societies, is very important to understand — it lays the foundation as to why he saw the imperative need to improve the way our money system works at the moment!

Since money is so inherently essential to our societies , a well designed money system needs to have three properties according to Szabo:

First, it had to be secure from accidental loss and theft.

Second, its value must be unforgeably costly, and therefore considered valuable.

And third, its value has to be accurately approximated by simple observations or measurements.

The one thing that always turned up all throughout history was gold. Good old gold.

Photo by Gian D. on Unsplash

There were a couple of problems with physical gold though, as Szabo also pointed out. Historically, gold lacked security. Big times.

Anybody remembers the Spanish looting the Atzects? But we don’t even have to look back that far, a quick look at the United States also shows some rather shady history. In 1933, Theodore Roosevelt signed an executive order, forcing Americans to surrender part of the gold that they had held.

For Szabo it was clear what was needed — a more secure, digital and trustless manner to transfer value.