THE EVOLUTION @anilsaidso

OF MONEY

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"Contrary to popular misconception, money is not
a government creation. Money is emergent — 
it is simply the most tradable good
in any given market."

-ROBERT BREEDLOVE
 PHYSICAL DIGITAL
Proof of
Primitive Precious Metals Gold-Backed Fiat
Work

d
po site Rec
eipt
De Gov’t Issued

@anilsaidso
TIME
 Tools
Arrowheads
Collectibles PRIMITIVE MONEY
Cowry Shells
“Primitive money existed long before large
scale trade networks. Money had an even
earlier and more important use. Money
greatly improved the workings of even
small barter networks by greatly reducing
the need for credit.”

Commodities –Nick Szabo

Barley (Shelling Out: The Origins of Money)

@anilsaidso
 Silver
Silver Siglos Type I
(c. 520-505 BC)
MONETARY METALS
“As technology advanced, particularly with
metallurgy, humans developed superior forms
of money..”
–Saifedean Ammous
(The Bitcoin Standard)

The relative difficulty of producing metals meant

they were predictably scarce. The durability of
metal was superior to shells, grains and beads.
All of this contributed to the significant value
Gold placed on metals at the time, giving them high

@anilsaidso
Gold Daric
(c.490 BC) value density (portability).
 @anilsaidso
STOCK TO FLOW Flow
A Measure of Abundance
The rate of change at which new units of a
monetary good are introduced into the
existing supply. Stock

“For anything to function as a good store of

value.. it has to appreciate when people
demand it as a store of value, but its
producers have to be constrained from
inflating the supply significantly enough to
Existing Stockpile
bring down the price.
-Saifedean Ammous S2F Ratio =
New Annual Production
(The Bitcoin Standard)
 @anilsaidso
The level of difficulty in producing new units of a money,
relative to other forms of money, determines its hardness.
This is not a static measure as technology is constantly
advancing, relegating formerly hard monies to soft.

HARD EASY
MONEY MONEY
CONVERGING ON GOLD
The free market eventually converged on gold due
to two key attributes that protected its value
reliably over long periods of time and across large
parts of the world.

Cannot be destroyed

Cannot be synthesized
from other materials
THE ORIGINS OF Gold could be minted into coins and
bullion with standardised weights
This differed from a promissory
note or IOU which had been used

PAPER MONEY and purity. As trade routes

expanded transporting large
for centuries prior. Paper receipts
were bearer instrument and could
Backed by Gold volumes of gold became more risky. be freely traded and redeemed by
Paper notes (redeemable for gold), anyone.
were a convenient solution where
trusted banks existed.

DEPOSITED RECEIPT
FRACTIONAL Gold storage came with a fee. However, by allowing a vault or
bank to lend out your gold, they would pay you for the privilege. If
RESERVE deposits exceeded redemptions, banks would be tempted to
increase their profits by issuing multiple notes (as 'loans') against
BANKING the same piece of collateral.

Multiple Claims on the

same piece of collateral

DEPOSITED
Run the Banks
As banks and vaults engaged more brazenly
in issuing IOUs in excess of their deposits,
even small shocks in the economy could be
enough to rattle the confidence of depositors.

When fears over an institution’s solvency

began to circulate it would set off a race
among depositors to withdraw their money.
The sudden drain of deposits en masse would
expose an institution engaged in excessive
leverage through fractional reserve banking.

Such an event can naturally trigger systemic

fears, drying up liquidity and bringing an Bank Run on American Union Bank,
New York City, 26 April 1932
entire financial system to a halt.
Modern Central Banking
Governments would eventually use the issue
of bank runs, resulting from fractional reserve
practices, as justification to end the private
issuance of currency and establish their own
national central banks. Such institutions were
granted exclusive rights to issue banknotes,
often backed by a set amount of gold,
establishing a unified national currency. They
would also become the ‘lender of last resort’,
providing liquidity when required and
reassuring citizens that their deposits are safe.
FROM GOLD TO
Although intended to be independent from govt, the gold
peg was a hindrance to govt’s who wished to borrow
from the future for spending today (especially to finance
GOLD-BACKED wars not popular enough to fund via higher taxes)

Gold as Money Gov’t Issued Paper redeemable in Gold

 @anilsaidso
THE
BRETTON WOODS
SYSTEM
Bretton Woods, NH, USA (1944)

After two world wars, many economic

superpowers were broke. The US now
controlled ⅔ of the world’s gold (as a
result of net defense exports).

DM A new global monetary order would see

countries pegged to the USD, with the
USD pegged to Gold.
 @anilsaidso
THE GLOBAL The global reserve currency acts
as the preferred or demanded

RESERVE
currency of settlement in
international trade. Changes to

CURRENCY
this represent major a geopolitical
realignment. The dominant global
currency has had a lifespan of
A Changing of around 100 years
the Guards

1920-
1815-1920 USA
s
p 1642-1720
1720-1815
UK
FRANCE
1530-1641 NL
SPAIN Bretton
Woods
THE NIXON .SHOCK.
15 August, 1971

The end of the Bretton Woods system:

“Nixon directed Treasury Secretary Connally to

suspend, with certain exceptions, the
convertibility of the dollar into gold or other
reserve assets, ordering the gold window to be
closed such that foreign governments could no
longer exchange their dollars for gold.”
-Wikipedia
 THE UNBACKING OF
GOVERNMENT MONEY
Banknote
Redeemable ‘Fiat’ Paper
for Gold Currency

@anilsaidso
The Fiat Era
The word fiat, taken from Latin, translates to
‘let it be done’. In the context of money, it
refers to an authority (in this case a sovereign
government) issuing a currency that is not
directly redeemable for a fixed quantity of
some asset. Its utility is often enforced by legal
tender laws which require it to be universally
"Federal Reserve notes are not redeemable
accepted by merchants and the only currency in gold, silver or any other commodity, and
accepted by the government for settling tax receive no backing by anything."
debts. -U.S. Dept. of the Treasury
 @anilsaidso
FROM GOLD Bank-issued
Paper Note
Govt-issued
Paper Note

TO PAPER
Redeemable for
Redeemable for
Gold
Gold

Gov’t-issued
Gold as Notes (post-1933)
Gov’t-issued Not Redeemable for
Money
Gold Certificate Gold
Physical Digital
DIGITAL FIAT
A digital representation of physical
cash, digital fiat was enabled by the
proliferation of digital communications
networks, the growth of consumer
devices & the standardisation of
payments protocols.

Digital fiat is replacing physical fiat at a

rapid pace thank lower costs,
increased speeds & the increased
capabilities for surveillance.
 PLASTIC CREDIT
The invention of the credit card gradually
normalized the act of borrowing for
consumption, something that impacts the
time preference of users- optimizing for
short-term consumption over long-term
investment or saving for delayed
gratification.

Today there are roughly three billion active

credit cards globally.
The Double Spend
Problem
In the digital world, where the marginal cost Several previous attempts were made to
of replication is zero, ensuring that the same create a non-sovereign digital money, but
digital unit cannot be spent twice by its owner each faced their own unique set of
was key to a monetary system operating challenges. These lessons would all be taken
without a central authority. into account by Satoshi Nakamoto to inform
the robust design of Bitcoin.
The coordination of trust among strangers
requires the alignment of incentives between
DigiCash Cyber Cash E-Gold Bit Gold
participants- rewarding honesty and making
1989 1994 1996 1998
dishonesty prohibitively costly.
AN INNOVATIVE SOLUTION

“I’ve been working on a new electronic

cash system that’s fully peer-to-peer,
with no trusted third party.”

-Satoshi Nakamoto
 @anilsaidso
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DIGITAL DIGITAL
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00000040 4B 1E 5E 4A 29 AB 5F 49 FF FF 00 1D 1D AC 2B 7C K.^
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DUPLICATION SCARCITY
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00000070 00 00 00 00 00 00 FF FF FF FF 4D 04 FF FF 00 1D ...
00000080 01 04 45 54 68 65 20 54 69 6D 65 73 20 30 33 2F ..E
00000090 4A 61 6E 2F 32 30 30 39 20 43 68 61 6E 63 65 6C Jan
000000A0 6C 6F 72 20 6F 6E 20 62 72 69 6E 6B 20 6F 66 20 lor
000000B0 73 65 63 6F 6E 64 20 62 61 69 6C 6F 75 74 20 66 sec
000000C0 6F 72 20 62 61 6E 6B 73 FF FF FF FF 01 00 F2 05 or
000000D0 2A 01 00 00 00 43 41 04 67 8A FD B0 FE 55 48 27 *..
000000E0 19 67 F1 A6 71 30 B7 10 5C D6 A8 28 E0 39 09 A6 .gñ
000000F0 79 62 E0 EA 1F 61 DE B6 49 F6 BC 3F 4C EF 38 C4 ybà
00000100 F3 55 04 E5 1E C1 12 DE 5C 38 4D F7 BA 0B 8D 57 óU.
00000110 8A 4C 70 2B 6B F1 1D 5F AC 00 00 00 00 ŠLp

1948 2009
HOW IT’S MADE
“In the bitcoin network, only coins that have already been mined
can settle transactions. In a gold-based economy, only existing gold
coins can be used to settle transactions. With fiat, government
credit allows nonexistent tokens from the future to be brought to life
when the loan is made.”
-Saifedean Ammous (The Fiat Standard)
 @anilsaidso
across space

Salability (noun)
The extent to which
something can be
easily sold.

across time
“Money is, and always has been,
technology.”

-Michael Saylor
@anilsaidso
The Five Critical 1
Scarcity
Difficult to produce, resistant to

Traits of Money
supply manipulation/value dilution

Divisibility
According to Robert Breedlove, the ‘most 2 Units that can be combined or
separated at various scales
tradable good’ in an economy emerges as
money. The criteria by which this is Portability
determined encompasses the following five 3 Density of value, ease with which it
can be moved across space
critical traits →

Durability
4 Does not deteriorate, ease with
which it can be moved across time

Recognizability
5

@anilsaidso
Ease with which it can be identified
and its value verified by others
 DIGITAL vs. DIGITALLY NATIVE
Digital fiat takes a product designed for the Bitcoin is a purpose-built money for the
industrial age and translates that into a digital age- upgradable and
digital version, bringing with it all of the open-source. It benefits from the
same bugs and restrictions. It’s a closed ingenuity and innovation of all who build
system, heavily permissioned and designed upon its foundations.
to erode in value over time.

@anilsaidso
CENTRAL BANK DIGITAL
CURRENCIES
The Race for Market Share
CBDCs do not compete directly with bitcoin as a store of value.
They are instead competing with other forms of digital payment
rails and currencies for market dominance in the digital age.
CBDCs are neither decentralized nor permissionless.

A key factor in the emergence of CBDCs is the surveillance and

censorship capabilities that it provides the issuer. Additionally,
in the age of negative real rates, the widespread push for public
adoption comes in tandem with the eradication of physical cash,
helping to ensure that currency is devalued in real terms.
“absoluuuuuuuuuuuute
control”
“A key difference with CBDCs
CBDC is central banks would have
absolute control..”

-Agustin Carstens
(General Manager, Bank for
International Settlements)