What is money and how has it evolved?

​We all have money. But few people really think about what it is and what it used to be. Money wasn’t always paper — or even electronic. It has gone through a long process of evolution: from shells and stones to modern cryptocurrencies.

But first, let’s figure out: what is money? At first glance, the answer seems obvious — coins, banknotes, or numbers in a bank account on your phone. However, many experts argue that money is, above all, a universal system of mutual trust.

Its power doesn’t lie in material value but in the fact that millions of people believe it has value. Money is a social construct — much like myths or laws — that exists only because we collectively believe in it.

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Money simplifies interactions between people and enables the creation of complex societies. It eliminates the need for personal agreements or the exchange of specific goods — it is enough to accept the common value of a unit. Thanks to money, cooperation is possible between strangers and even entire nations. In essence, money is a universal language of exchange, understood by everyone, regardless of culture or religion. Civilization began with money.

“In the first millennium BCE, three potential universal orders emerged, allowing humanity to view the world and itself as a unified whole governed by shared rules. The first such order was economic — money unified all. The second was political — empires took shape. The third was religious — world religions such as Buddhism, Christianity, and Islam arose,” writes Yuval Noah Harari in Sapiens.

It all started with barter

Before money, people used barter — they exchanged goods or services without a universal equivalent of value. In such a system, a person could trade a sack of grain for a clay pot or offer help building a house in exchange for an animal hide. Barter worked on mutual agreement: both parties had to agree on what and how much constituted a fair trade.

But barter had limitations. It required what’s known as a "coincidence of wants" — both sides had to simultaneously want what the other was offering. For example, if a blacksmith had extra tools and a farmer offered fish, the deal could only happen if the blacksmith needed fish.

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Despite its limitations, barter persisted well into later periods — especially during times of economic crisis or cash shortages. For example, after World War II, in a devastated Europe, many transactions took place through barter. On the black market, people traded food, cigarettes, clothing, and household goods directly.

However, barter was generally inconvenient and inefficient. This is one of the main reasons why money — a universal medium of exchange — emerged.

Shells and stones

What were the first forms of money? Money was invented many times, in many places across the world. Early money didn’t resemble coins or banknotes. People used various items that were rare, durable, and recognizable within their communities.

One of the best-known examples is cowrie shells, which were used in Asia, Africa, and the Pacific Islands. These shiny and sturdy shells served as a universal means of exchange. Their value stemmed from scarcity and beauty — cowries could only be collected in certain places, limiting supply.

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Another fascinating early form of money was Rai stones used on the island of Yap in Micronesia. These large stone disks with a hole in the center were so massive that they were often not physically moved during transactions. The key was not transferring the stone itself but publicly recognizing ownership. Information about who owned which stone was passed on orally and verified by the community.

Metal money

Metallic money marked an important stage in the development of trade systems. It appeared around the 7th–6th centuries BCE in ancient Lydia (modern-day Turkey). Coins were minted from gold, silver, and a naturally occurring alloy called electrum.

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Precious metals were well-suited for use as money: they were hard to counterfeit, durable, and had intrinsic value. People used such coins not only for local trade but also in international commerce.

Over time, metallic money began to lose popularity. As trade volumes grew, heavy coins became cumbersome to transport. In addition, rulers and ordinary people often debased coins — reducing their precious metal content or shaving off edges. Gradually, in most countries, metal money gave way to banknotes.

Paper money

The first paper money appeared in China during the Tang Dynasty in the 7th century and became widespread under the Song Dynasty (11th century). Merchants began using promissory notes and exchange certificates instead of heavy metal coins. Over time, the authorities legalized this practice and began issuing official banknotes.

Paper money reached Europe much later. The first true banknotes were used in Sweden in the 17th century. Paper money made trade easier and was far more convenient to transport than gold or silver.

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With the development of banking systems and technology, money continued to evolve. In the 1970s, many countries abandoned the gold standard — a system in which money was backed by gold reserves. Eventually, money became purely digital: bank accounts and electronic payments.

Cryptocurrencies

Cryptocurrencies represent a new milestone in the evolution of money. Launched in 2009 with the debut of Bitcoin, they introduced the world to money that exists purely in digital form and operates independently of banks or governments. Their unique feature is that all cryptocurrency transactions are recorded on a blockchain — a distributed and transparent ledger. This makes cryptocurrencies decentralized, resistant to counterfeiting, and accessible to anyone anywhere in the world.

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Cryptocurrencies offer several key advantages. First, they provide a high degree of financial freedom: users can transfer funds across borders quickly and cheaply. Second, blockchain enables verification of the authenticity and history of any transaction, increasing trust in the system. Third, cryptocurrencies pave the way for new forms of money and financial instruments — such as stablecoins and tokenized assets.

Today, we live in a world where money is becoming increasingly intangible. The rise of cryptocurrencies is a natural step in this transformation. From shells and stones, through metal and paper, humanity has now arrived at the next generation of digital money. It is likely that cryptocurrencies will play an increasingly important role in the financial systems of the future — continuing to develop the universal system of trust where it all began.