Early humans survived by sharing resources within small communities, but as societies grew, people needed a way to exchange goods and services with those outside their immediate groups.
First, we invented bartering – but as trade expanded, bartering became inefficient because finding someone who wanted exactly what you had to offer was difficult. We invented money as a more reliable and flexible system of exchange.
What is Money?
Money helps us exchange goods and services without having to trade one item for another. Imagine if you had to swap your lunch for a pair of shoes—pretty inconvenient, right?
Money makes trading easier by allowing us to use something everyone agrees has value. It also helps us save for later and measure how much things are worth.
History of Bartering
Before money existed, people traded what they had on hand for things they lacked. This was called bartering. A farmer might swap eggs for a new pair of boots, or a fisherman might trade fish for a warm coat. Bartering still happens today at swap meets, on Craigslist, and between neighbors.
But bartering wasn’t foolproof. What if the person with boots didn’t need eggs? That’s where money came in—it gave people a way to trade without needing to find the perfect match.
Commodity Money
To make trading easier, people started using items that had value – like salt, cattle, or even shells – as a way to assess whether their goods were comparable.
This type of bartering is called commodity money because these items were useful on their own, even if not exchanged for other goods. For example, salt was valuable because it helped preserve food, and cattle provided meat and milk.
In China, around 1600 – 1046 BCE, they started trading rare cowrie shells to value goods because they were durable and portable. This marked the beginning of “money” as something used to value other items without having its own inherent value.
The First Metal Currency
Over time, people realized that metal bars of equal weight made for even better money. They were durable, easy to carry or store, and they could be stamped to show their value.
Unlike salt or cattle, metal bars didn’t spoil or take up too much space.
In Europe, the first coins were made in ancient Greece starting at around 650 BCE. Gold, silver, and copper became popular choices for coins.
In the mid-1600s CE, in what would later become the United States, the Massachusetts Bay Colony started minting shillings and smaller coins separately from the currency minted by the British.
First Paper Currency
Metal coins could be cumbersome, so people started using paper money. You can read more about paper currency in The History of Paper Money.
The Introduction of Banks
As money became more common, people needed a safe place to store it. That’s where banks came in. Banks held people’s money, loaned it out, and even issued their own paper money.
In the United States, the Bank of New York was founded in 1784. In 1913, the Federal Reserve System was established as the nationwide banking authority.
The Gold Standard
Many countries sought to tie their paper currency to actual national wealth – and for many countries, the value of gold by the ounce determined the value of their money.
In the US, the value of the dollar became officially tied to gold when the gold standard became the law in 1879.
This system made money stable and reliable, but it also limited how much money the government could print.
Going Off the Gold Standard
In 1971, President Richard Nixon decided that the US should stop linking money to gold. This move gave the government more control over the economy.
While this made it easier to print money when needed, it also introduced new risks, like inflation, which can make prices go up over time.
Modern-Day Money
These days, money isn’t just paper bills and coins—it exists in many forms.
Digital Currency: Debit Cards, Electronic Payments, Mobile Payments
Money continues to evolve as technology advances. Today we use credit cards, debit cards, wire transfers, and online payments. There are also mobile apps like Apple Pay, Google Pay, and PayPal that make it easy to buy things without having cash on hand.
These digital payment methods are fast, secure, and convenient, allowing people to send money instantly without ever touching a dollar bill.
Virtual Currency
Some types of money only exist online, known as virtual currency. These currencies are usually used in specific digital spaces, like video games.
If you’ve ever bought V-Bucks in Fortnite or used Robux in Roblox, you’ve used virtual currency. While this virtual currency can be traded for in-game items, they aren’t real money and usually can’t be used outside the game.
Cryptocurrency
Cryptocurrency (also called crypto) is the newest form of money – and it’s different from anything before it.
Unlike regular money, cryptocurrencies like Bitcoin and Ethereum don’t rely on banks or governments. Instead, they use a technology called blockchain, which records transactions securely.
Proponents of cryptocurrency like that it’s decentralized, meaning no single person, government, or organization controls it.
Bitcoin, the first cryptocurrency, was created in 2009 and is still the most well-known, but there are thousands of different cryptocurrencies.
What’s the Difference?
People often confuse digital currencies, virtual currencies, and cryptocurrencies, but they’re actually different:
- Digital Currencies include all money that exists electronically, like the money in your bank account.
- Virtual Currencies are used in digital environments, like video game money, and don’t have real-world value.
- Cryptocurrencies are decentralized digital money that use blockchain technology, like Bitcoin and Ethereum, wherever shops or banks accept them as payment.