The Myth of the Barter Economy (2016)
It was a good article until the gift economy crap at the end. Game theory explains all of this quite well.<p>Money is desirable because it makes transactions and economic calculation so much easier. As a pure abstraction, money is simply a ledger (<a href="https:&#x2F;&#x2F;www.minneapolisfed.org&#x2F;research&#x2F;sr&#x2F;sr218.pdf" rel="nofollow">https:&#x2F;&#x2F;www.minneapolisfed.org&#x2F;research&#x2F;sr&#x2F;sr218.pdf</a>). When humans live in small groups related by blood, they just keep the ledger in their heads (if at all) because the penalty of cheating is so great that no one will defect (exile from the tribe and a lonely death).<p>When humans need to transact with people and there is uncertainty about (a) whether they will be able to punish cheating, and (b) whether they will ever meet this trading partner again, then they will use a more explicit and trustworthy form of money to reduce the risks. For most of human history the only real option here was some kind of physical token, which had to approximate the ledger abstraction: uniform in quality, easily divisible, easy to authenticate, with as inelastic a supply as possible.<p>The modern sovereign state allows for fiat money, since the state can simply declare that its official currency is the ledger that everyone will use. It&#x27;s quite efficient, since you can do things like maintain a banking system that exists primarily as numbers in a spreadsheet rather than vaults full of dusty gold bars. Our fractional reserve system also mingle debt and money, and for most of us the two are equivalent.<p>This makes perfect sense when you consider that money is a claim on the future output of everyone who agrees to use the money. It&#x27;s an EOU: everyone owes you. Thus, if you issue fiat currency against public debt, it&#x27;s effectively an EOU as well since everyone in the economy is indirectly responsible for the eventual repayment of that debt. Of course, sovereign currencies have borders, so looking at the ledger used by governments to keep score amongst themselves is quite telling.<p>However, when there is no socially accepted authority to dictate consensus, how do mutually disinterested individuals agree on a form of money? This was a pure thought experiment until the invention of Bitcoin, because the options were exceptionally limited: precious metals were so much better than anything else that had been tried, for reasons I won&#x27;t go into here, that there really wasn&#x27;t a choice. But with Bitcoin, you have a protocol for digital cash that can be used to create an infinite number of ledgers with the same desirable properties. How do we choose which one to use?<p>The answer, of course, is proof-of-work.