A Brief (and Incomplete) History of Money

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@ computational professor daniel martin katz danielmartinkatz.com BLOCKCHAIN, CRYPTOCURRENCY AND LAW professor nelson rosario A BRIEF (AND INCOMPLETE) HISTORY OF MONEY nelsonmrosario.com @ nelsonmrosario BLOCKCHAINLAWCLASS.COM

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DANIEL MARTIN KATZ E D U | I L L I N O I S T E C H + S TA N F O R D C O D E X B LO G | C O M P U TAT I O N A L L E GA L S T U D I E S . C O M PAG E | DA N I E L M A R T I N K AT Z . C O M C O R P | L E X P R E D I C T. C O M NELSON ROSARIO B LO G | L AWO F C RY P TO C U R R E N C Y. C O M PAG E | N E L S O N M RO S A R I O . C O M F I R M | M A R S H A L L I P. C O M BLOCKCHAINLAWCLASS.COM L A B | T H E L AW L A B . C O M E D U | I L L I N O I S T E C H - C H I C AG O K E N T L AW

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BLOCKCHAINLAWCLASS.COM A BRIEF (AND VERY INCOMPLETE) HISTORY OF MONEY

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BLOCKCHAINLAWCLASS.COM THE HISTORY OF MONEY IS A VERY BROAD TOPIC BUT ALLOW US TO HIGHLIGHT A FEW SUBTOPICS THAT ARE RELEVANT TO OUR COURSE

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BLOCKCHAINLAWCLASS.COM WHAT IS MONEY ?

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“MONEY IS ANY ITEM OR VERIFIABLE RECORD THAT IS GENERALLY ACCEPTED AS PAYMENT FOR GOODS AND SERVICES AND REPAYMENT OF DEBTS IN A PARTICULAR COUNTRY OR SOCIO-ECONOMIC CONTEXT. “ BLOCKCHAINLAWCLASS.COM

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BLOCKCHAINLAWCLASS.COM MONEY IS A UNIT OF ACCOUNT STORE OF VALUE MEDIUM OF EXCHANGE

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MONEY CAN BE IMPOSED THROUGH POLITICS OR WAR BLOCKCHAINLAWCLASS.COM

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MONEY CAN ALSO EMERGE THROUGH VARIOUS SOCIOCULTURAL PRACTICES … BLOCKCHAINLAWCLASS.COM

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HISTORY IS REPLETE WITH EXAMPLES OF INTERESTING FORMS OF MONEY … BLOCKCHAINLAWCLASS.COM

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THE YAP ISLANDS BLOCKCHAINLAWCLASS.COM

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RAI STONES AND YAPESE SOCIETY THE STONES DIDN’T NEED TO MOVE THE YAPESE PEOPLE USED RAI STONES AS MONEY TRANSFERRING OWNERSHIP OF STONES WAS DONE ORALLY BLOCKCHAINLAWCLASS.COM

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RAI STONES AND YAPESE SOCIETY IN FACT, ONCE A STONE SANK TO THE BOTTOM OF THE OCEAN WHILE BEING TRANSPORTED AND IT IS STILL CONSIDERED GOOD MONEY BLOCKCHAINLAWCLASS.COM

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RAI STONES AND YAPESE SOCIETY MONEY CAN BE DEPENDENT ON SOCIAL CONSENSUS NOT JUST INTRINSIC VALUE BLOCKCHAINLAWCLASS.COM

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https://www.npr.org/sections/ money/2011/02/15/131934618/ the-island-of-stone-money http://www.slate.com/blogs/ atlas_obscura/2013/10/15/ cash_card_or_car_sized_stone_payment_ options_on_the_island_of_yap.html BLOCKCHAINLAWCLASS.COM

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THE IRISH BANKING STRIKES BLOCKCHAINLAWCLASS.COM

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THE IRISH BANKING STRIKES (1966-1976) MAY 7 – JULY 30, 1966 MAY 1 – NOVEMBER 17, 1970 JUNE 28 – SEPTEMBER 6, 1976 THREE TIMES IN TEN YEARS FOR SEVERAL MONTHS AT A TIME BLOCKCHAINLAWCLASS.COM

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THE IRISH BANKING STRIKES (1966-1976) THE STRIKES SHUT DOWN ALL OF THE CLEARING BANKS IN THE REPUBLIC OF IRELAND. THUS, PEOPLE WERE NOT ABLE TO GET MONEY OUT OF THE BANKS BLOCKCHAINLAWCLASS.COM

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“Here’s what orthodox economics would have predicted for a country without banks: A collapse in the money supply, a credit crunch, a trade implosion, mass unemployment, an atomized GDP, and the gears of industry and commerce grinding to a crashing halt.” https://hbr.org/2010/11/the-irish-banking-crisis-a-par BLOCKCHAINLAWCLASS.COM

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Though the money supply did contract sharply, neither trade, commerce, nor industry came to a grinding halt. https://hbr.org/2010/11/the-irish-banking-crisis-a-par BLOCKCHAINLAWCLASS.COM How? People created their own currencies, to substitute for the collapsing money supply. They kept using checks to pay one another, but then, people’s checks began trading within communities.

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BLOCKCHAINLAWCLASS.COM PUBS AS CLEARING HOUSES https://www.ft.com/content/b8bc4a7a-20c3-11e5-ab0f-6bb9974f25d0

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THE ECONOMY CONTINUED TO GROW (ALBEIT PERHAPS SLOWER THAN IT HAVE OTHERWISE)

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In fairness to ‘orthodox economics’ it is not clear what would have happened if the strikes continued indeﬁnitely BLOCKCHAINLAWCLASS.COM OVERSTATED IMPLICATIONS ?

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That said, it is still an interesting example of how peer to peer transacting can occur in the absence of central institutions BLOCKCHAINLAWCLASS.COM PEER TO PEER TRANSACTING

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No content

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BLOCKCHAINLAWCLASS.COM THE FIAT CURRENCY SPECTRUM

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BLOCKCHAINLAWCLASS.COM ALL CURRENCY WHICH CANNOT BE CONSUMED IS A FORM OF FIAT

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BLOCKCHAINLAWCLASS.COM PARTICULARLY IN THE SECOND HALF OF THE 20TH CENTURY WE SEE AN ACCELERATION IN THE LEVEL OF FIAT IN CURRENCY

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IN OTHER WORDS, FIAT CURRENCY EXISTS ON A SPECTRUM BLOCKCHAINLAWCLASS.COM

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BLOCKCHAINLAWCLASS.COM THERE ARE FOR EXAMPLE GRAIN CENTRIC CURRENCY SYSTEMS

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BLOCKCHAINLAWCLASS.COM WHERE THE CURRENCY IS SET EQUAL TO THE GRAIN HARVEST AND YOU HAVE THE OPTION TO REDEEM CURRENCY FOR GRAIN

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ONE CHALLENGE IS THAT THE GRAIN WILL EVENTUALLY ROT BLOCKCHAINLAWCLASS.COM

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SO GRAIN CENTRIC CURRENCY IS NOT VERY STABLE BLOCKCHAINLAWCLASS.COM

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GOLD DOES NOT ROT BUT AT THE SAME TIME GOLD IS NOT IMMEDIATELY CONSUMABLE BLOCKCHAINLAWCLASS.COM

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ITS VALUE IS LINKED TO A COLLECTIVE BELIEF THAT IT IS VALUABLE BLOCKCHAINLAWCLASS.COM

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IN OTHER WORDS, THE IDEA THAT IT WILL BE ACCEPTED BY OTHERS IS THE SOURCE OF ITS VALUE BLOCKCHAINLAWCLASS.COM

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COINAGE IS OFTEN A GREATER FORM OF FIAT THAN THE UNDERLYING INPUTS BLOCKCHAINLAWCLASS.COM

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WHEN THE NOMINAL VALUE OF A COIN EXCEEDS THE MELT VALUE IT IS FIAT THAT FILLS THE VOID BLOCKCHAINLAWCLASS.COM

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PAPER MONEY REQUIRES AN ADDITIONAL LEAP OF FAITH (FIAT) IN ORDER TO BE SUSTAINED BLOCKCHAINLAWCLASS.COM

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BLOCKCHAINLAWCLASS.COM US CURRENCY FROM 1863-1933 WAS REDEEMABLE FOR GOLD COIN THE REDEMPTION OPTION 1907 AUGUSTUS SAINT-GAUDENS INDIAN HEAD EAGLE

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BLOCKCHAINLAWCLASS.COM US CURRENCY FROM 1878 AND 1964 WAS REDEEMABLE FOR SILVER THE REDEMPTION OPTION

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THE END OF THE REDEMPTION OPTION BLOCKCHAINLAWCLASS.COM “ON MARCH 25, 1964, C. DOUGLAS DILLON, THE 5 7 T H S E C R E T A R Y O F T H E T R E A S U R Y A N N O U N C E D T H AT S I LV E R C E R T I F I C AT E S WOULD NO LONGER BE REDEEMABLE IN SILVER D O L L A R S . ( 3 1 U. S . C . 4 0 5 A - 1 ) . CO N G R E S S A L L O W E D T H E E X C H A N G E O F S I L V E R CERTIFICATES FOR SILVER BULLION UNTIL JUNE 24, 1968.”

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‘NIXON SHOCK’ BLOCKCHAINLAWCLASS.COM T H E N I X O N S H O C K W A S A S E R I E S O F E C O N O M I C M E A S U R E S U N D E R TA K E N B Y P R E S I D E N T N I X O N I N 1 9 7 1 , T H E M O S T SIGNIFICANT OF WHICH WAS THE UNILATERAL CANCELLATION OF THE DIRECT INTERNATIONAL C O N V E R T I B I L I T Y O F T H E U N I T E D S TAT E S DOLLAR TO GOLD.

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THE END OF THE GOLD STANDARD BLOCKCHAINLAWCLASS.COM P R E S I D E N T N I X O N E N D E D T H E G O L D STANDARD (AKA BRETTON WOODS) SUCH THAT FOREIGN GOVERNMENTS COULD NO LONGER EXCHANGE THEIR DOLLARS FOR GOLD

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LIKE MANY OTHERS IN THE MODERN ERA THE US DOLLAR IS A TRUE FIAT CURRENCY BLOCKCHAINLAWCLASS.COM

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FIAT CURRENCY IS NOT NECESSARILY BAD BLOCKCHAINLAWCLASS.COM

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BUT MIGHT HAVE UNFORESEEN CONSEQUENCES BLOCKCHAINLAWCLASS.COM

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BLOCKCHAINLAWCLASS.COM MONEY AS PLASTIC AND THE RISE OF THE CREDIT CARD INFRASTRUCTURE

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CREDIT ACCOUNTS WERE WERE ONCE PREVALENT AT MANY STORES BLOCKCHAINLAWCLASS.COM

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NOT VERY EFFICIENT TO HAVE EACH MERCHANT MAINTAIN A LEDGER ACROSS THEIR RESPECTIVE CUSTOMERS BLOCKCHAINLAWCLASS.COM

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AMONG OTHER THINGS, THIS PUT EACH MERCHANT IN THE DEBT COLLECTION BUSINESS BLOCKCHAINLAWCLASS.COM

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IN ADDITION, THIS PUT THEM IN THE FRAUD DETECTION BUSINESS BLOCKCHAINLAWCLASS.COM

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MODERN CREDIT CARDS ARE REALLY A POST WWII INVENTION BLOCKCHAINLAWCLASS.COM DINERS CLUB WAS ONE OF THE FIRST EFFORTS AT A CREDIT CARD

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EVENTUALLY THE LOCAL BANKAMERICARD LAUNCHED IN 1958 BECAME BLOCKCHAINLAWCLASS.COM

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THE CENTRALIZED CREDIT CARD HAD MUCH LOWER TRANSACTION COSTS THAN STORE BY STORE CHARGE CARDS OR CREDIT ACCOUNTS BLOCKCHAINLAWCLASS.COM

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UBIQUITOUS POINTS OF SALE BLOCKCHAINLAWCLASS.COM RAPID AUTHORIZATION CENTRALIZED FRAUD DETECTION

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CRYPTO VS CREDIT CARDS BLOCKCHAINLAWCLASS.COM

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https://link.springer.com/chapter/10.1007/978-3-662-53357-4_8 http://www.comp.nus.edu.sg/~prateeks/papers/Bitcoin-scaling.pdf

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IN TERMS OF TRANSACTION THROUGHPUT, CRYPTO HAS A LONG WAY TO GO BLOCKCHAINLAWCLASS.COM “Today’s representative blockchain such as Bitcoin takes 10 min or longer to conﬁrm transactions, achieves 7 transactions per second maximum throughput …”

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BLOCKCHAINLAWCLASS.COM “… mainstream payment processor such as Visa credit card conﬁrms a transaction within seconds, and processes 2000 transactions per second, with a peak rate of 56,000 transactions per second” IN TERMS OF TRANSACTION THROUGHPUT, CRYPTO HAS A LONG WAY TO GO

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BLOCKCHAINLAWCLASS.COM Access More Here https://wallethub.com/edu/credit-card-transaction/25511/

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BLOCKCHAINLAWCLASS.COM Access More Here http://www.businessinsider.com/payments-industry-disruption-2015-1