This article is part of the Trezor educational series “From 6,000 BC to 21,000,000 BTC”. In this series of articles, we will go through all the basic principles of money, investing, economics, and self-sovereignty, and explain how Bitcoin fits into this global scheme. Each month we will focus on a different topic.

After completing the series, you’ll be able to quickly go through everything that happened in the history of our economics and brought us to where we are now, standing at the crossroads of the traditional system of national currencies built on centralized trust, and the trustless system of Bitcoin built on scarcity and decentralization.

These basic but often overlooked principles are required to fully comprehend the potential of Bitcoin and its effects on our society. Because Bitcoin is not just a technology; it’s a lifestyle, a tool of individual freedom, and a whole new system of economics. Controlled by everyone, yet no one.

Part I: The indeterminate history of money

Benjamins, bucks, stash, or dough. Simply put: money. It’s impossible to imagine our society without the concept of money. A tool that enables the quick and efficient exchange of goods, transfer of wealth, or store of value. Everyone understands the purpose of money, and regardless of the region or culture, every modern society has cash in its DNA.

But what exactly is money? How did this tool become the global driving force in the lives of the majority of the world’s population? And where did it appear for the first time? Unfortunately, we don’t have enough evidence from ancient history that could clearly answer all of these questions. We don’t know when or why the transition from barter to money occurred. A lot of our knowledge is based on only a few incomplete artifacts and logical reasoning, and we might never uncover the complete picture.

The most common theory of the evolution of money is the one portrayed by Adam Smith in his book An Inquiry into the Nature and Causes of the Wealth of Nations. Smith states that money occurred thanks to the evolution of barter and its imperfections.

On the other hand, we have anthropologists like David Graeber, who paints an entirely different theory of economics in his book Debt: The First 5,000 Years. Contrary to Smith’s teachings, Graeber believes that money appeared as a direct consequence of gift economies and debt. He states in his book that barter economies most-likely never even existed at the scale as described by Smith.

However, in this article, we will focus on the theory accepted by the general and scientific public, and that’s Adam Smith’s history of barter.

The dawn of humanity

Some anthropologists and archeologists estimate that the first very limited form of exchange of goods appeared in The Aurignacian period, and even though there is a lack of scientific evidence to confirm this, it’s reasonable to assume that humans were using goods as “money” long before currencies appeared. The first humans were trading goods with each other at the dawn of humanity when the early hunters started to trade flint tools, ornaments, and meat with other tribes or members of their own tribe.

It’s also important to mention that accounting and primitive mathematics were already starting to develop, proven by discovered artifacts dating as far back as 20,000 BC. These artifacts show that primitive methods of accounting (counting amounts) were used in the form of tally sticks. These sticks made of bone, wood, or other materials were used to count amounts, but it wouldn’t be reasonable to assume that this was a financial accounting, i.e., counting debt or money.

The Ishango Bone tally stick from the fibula of a baboon, modern-day Democratic Republic of Congo.

Sadly, we have found only a tiny fraction of artifacts from those days, and a lot of theories are based purely on logical induction, so let’s start a bit later. Let’s go back in time to 6,000 BC, long before the first currencies as we know them appeared.

The history of barter

The first mentions of barter started to appear in the region of ancient Mesopotamia during the late Halaf and early Ubaid Period, 6,000 BC. Located in the West Asian part of the Tigris-Euphrates river system, local tribes were always fighting over a lack of specific natural resources such as metal ores or timber.

To obtain the goods they needed, Mesopotamians had to start trading with other tribes who lacked the goods Mesopotamians had plenty of, such as fish, meat, fruits, and vegetables. Some of the first trades occurred between the Ancient Mesopotamian tribes and Phoenicians.

To trade more and further, docks were established on the banks of the Euphrates and Tigris, and some of the first reed boats were built by the Neolithic Ubaid culture of Mesopotamia. Barter slowly spread from Mesopotamia to the regions of present-day Turkey, Iraq, Afghanistan, and the whole Persian Gulf. By 3,000 BC, Mesopotamian trade routes branched in all directions, and barter became an essential part of many ancient civilizations.

Clay objects of the Al Ubaid period, from Tell Uqair.

Barter was thriving, and all the different cultures of the world started to create their own trading routes, exchanging their surplus goods. But barter wasn’t ideal. If you have spare furs and need wheat, you first need to find a farmer who has an excess of wheat and needs fur. Both of you then have to agree on the quality and quantity of the exchanged goods and their counter-value against each other.

To resolve this, people started trading their assets with merchants instead of directly between each other. This newly developed specialization was a crucial part of the barter system, allowing people to exchange their surplus goods with the merchant.

Merchants quickly became some of the most influential and wealthiest people of the old days, Assyrian merchants being one of the most famous and skilled merchants of that time. Barter shaped societies around the globe and contributed to some of the most essential inventions of the human species, but it was only the beginning.

The first ancient currencies

Civilizations were growing, but not every profession was generating goods that could be easily exchanged, so new methods of exchange in a distant-relative form of money started appearing.

Some of the first methods of exchange that we could consider money appeared around 3,000 BC in the form of cowrie shells. This shell money was widely used in Asia, Oceania, and Africa, and some evidence indicates that they were also used in North America and Russia. The main advantage of these currencies compared to our present currencies is that they had their added value of being widely-demanded decorative accessories, on top of their monetary value.

Ancient cowrie shells, credit The British Museum.

Cowrie shells were most abundant in the Indian Ocean, where they were gathered on the beaches and then traded with neighborhood regions. Easily distinguishable from other types of shells and not naturally available outside of specific areas, they were the first type of money somehow resistant to forgery. The combination of these factors made cowrie shells one of the most widely spread currencies. They were still used as a currency in some parts of Africa until the 19th century.

Other currencies also started to appear around the world. One of them, the Mesopotamian shekel, was commodity money, meaning that it was a coin with value represented in the weight of goods such as a sack of grain or barley. Later on, shekels were used as a unit of measurement for bronze, gold, and silver.

Around this time, the first prehistoric banks were established in Mesopotamia. These banks would allow people to store their goods for later use or trading, and the first ledgers of money accounting were made from stone. These primitive ledgers carried a value representing goods stored at the bank. A predecessor of modern-day debit and credit systems.

At around 1,000 BC, the Zhou dynasty in China started to manufacture bronze replicas of cowrie shells, small knives, and spades, and used them as currency. Most evidence shows that the first actual coins started to appear independently in the regions of present-day India, China, and Greece, around 700 BC. These coins were all manufactured using different metallurgical processes, and they came in all different shapes, sizes, and values.

For example, Greek drachma coins of Aegina were made of silver and stamped with symbolic insignias of animals or valuable objects, while Chinese coins of the Zhou dynasty were cast from bronze and had a hole in the middle for easier counting and transport. However, these currencies weren’t standardized and often differed in both weight and value.

It wasn’t until the early 6th century BC when the first minted coins, predecessors to our modern-day coins, were minted from electrum, a naturally occurring mixture of gold and silver. These coins were a currency of the Kingdom of Lydia, modern Turkey.

Electrum coin of Lydia, credit The British Musem.

Although made in irregular sizes and shapes, they followed a strict weight standard and were stamped with a unique emblem. Precious metals soon became the favorite payment method, and within the next hundreds of years, minting and anti-forgery standards spread from Lydia to Greece, mainland Asia, and Europe.

For the first time in our history, forgery-resistant coinage and monetary systems with a central governance circulated. Currencies based on trust in the authorities issuing them, instead of their added value (livestock, tools, precious metals, etc.), set a cornerstone for modern-day monetary systems.

The unique currencies of our history

At the same time, as the minted coins were gaining popularity among the developed countries of Asia, Africa, and Europe, some other experimental currencies appeared. During the rule of emperor Wen of Han, from 180 to 157 BC, the Chinese imperial government struggled with a shortage of precious metals required to mint coins. To reduce the burden of coinage, the imperial government gave up its sole rights to mint new coins and allowed local rulers to issue their own copper coins. This caused massive inflation of new coins and devalued the existing currency minted by Wen’s empire. After Wen of Han’s death, and a short reign of Jing of Han, a new emperor Wudi of Han came up with a plan to restore the value of the Chinese currency. To prevent further uncontrolled inflation, Wudi intended to account for the number of minted coins by writing the minted volume on a white deerskin. These 1sq-foot large pieces of leather were assigned a value, rather than being valuable themselves as usable goods. This short-lived experiment didn’t fix the inflation issue of the Chinese empire but brought us the principle of currency with the face value.

In the imperial park at Ch’ang Ngan the Emperor had a white stag, a very rare beast, which had no fellow in the empire. On the advice of a minister the Emperor had this animal killed, and made a kind of treasury note out of its skin, which, he believed could not be copied. These pieces of skin were a foot square, and were made with a fringed border and decorated with a pattern. Each piece was assigned the arbitrary value of 400,000 copper coins. The princes, when they came to pay their respects to the Throne, were compelled to buy one of these pieces of skin for cash, and present their gifts to the Emperor upon it. This precaution ensured the circulation of the “White Stag Notes.” The skin of the white stag was, however, a limited quantity, and the time soon came when this device ceased to supply the Treasury with much needed money.

— China, A Short Cultural History by C. P. Fitzgerald

Another example of a unique currency is Rai Stones of The Micronesian island of Yap. These large circle-shaped stones, usually carved of calcite, were used as social money. Rai Stones had no use-value, and they were often too large to move, but that didn’t matter because Yap’s monetary system was built on an oral history of ownership. These small tribes didn’t need currency nor any form of a ledger, as buying an item was simply just an oral agreement between the trading sides that the ownership of a Rai stone has changed. Each Rai stone had an extrinsic (perceived) value based on its size, quality, and history of previous owners. It is unclear when the first Rai stones appeared, but the first evidence points as early as 500 AD, and Rai Stones remain being used for ceremonial purposes of Yap culture until this day.

End of Part I.