Insights – Money 101: Demystifying all its forms

What is money? From the early days of bartering to the first metal coins and paper money, to the gold standard and invisible money (aka crypto), money has evolved into different forms. Has the crypto crash hit rock bottom, or will it bounce back? Are we headed for a recession and which currency will win?

We had an in-depth enlightening and learning discussion that helped us understand the building blocks of money and the causality of socio-economic systems with guest experts Dr Bhaskar Dasgupta, Head of Strategic Development, MENA, Apex Group and Jeetu Kataria, CEO, DIFX. Moderated by Jan Bladen, Managing Director, Governance Creed.

Introduction by Jan Bladen

 A-100-dollar bill costs twelve cents to produce, and interestingly, the US government printed 1.5 billion of these notes last year. In 1971, they delinked the value of the dollar from gold, which was its underlying asset, and instead linked it to ‘fiat’ money. The value of fiat money is derived from the relationship between supply and demand and the stability of the issuing government, rather than the worth of a commodity backing it. We exchange this money for goods, or it acts as a store of value, but with nothing behind it other than trust. How did money get to be what it is today? And how is money going to evolve in the future?

History of Money by Dr Bhaskar Dasgupta

 This is Economics 101. What exactly is money? Why do humans need money? First, it is a medium of exchange. Money, by definition, has got a value attached to it. And it is a unit of account. Ancient Egyptians were the first who started accounting, and they used their local currency to define the number of gifts people gave to their gods. The priests formulated a way of evaluating each gift into the local currency amount. The is the history of a unit of account, paper or coin, it measures the value of something, and it is also a standard of deferred payment – i.e., a cheque – the amount written on it is your promise to pay.

  • Money must be portable. For example, in the Yap Islands in the South Pacific, they used to mine money out of stones. Each huge stone wheel from different fields had different values. You could not move these from one place to another. They would just be kept at the quarry, and somebody would say, I own that big wheel, and then another would say now I own it. It was not portable.
  • Money must be durable. It cannot just vanish after over time. It is divisible now. And this is where, of course, cryptocurrency comes in because it is infinitely divisible.
  • Money must be uniform and be acceptable across time and by all people. For proper adoption and circulation, it needs to be transferable across time.
  • Money must be of limited supply. If there is too much supply, then inflation occurs.

In the Bronze Age, money held value in cattle, land, funnily shaped rocks, food…whatever. The economic system was bartering.

Then metals became currencies. And then came coins. Cowry shells were used as currencies as well and were carried around as decoration around the necks by tribal societies. Lydia, a tiny kingdom in Turkey, first produced stamped coins, with dyes.

In China, they started to convert these coins into paper money. Some paper money had ‘warnings,’ such as “I will take your head off if you counterfeit this.” And they were big, like A3 sized paper, but they were easier to carry around than a whole lot of coins.

In 1400, primarily in Italy, there was the start of single entry and double entry bookkeeping. That is where the banking concepts emerged. And people started talking about the gold standard.

When the Romans were in the UK, they found somebody who had written about having pepper as payment. Pepper was used as currency and travelled from Sumatra to India, through to the Gulf to Italy and to the Roman Empire.

But spices did not work throughout the world, and people preferred gold. And then we got the gold standard, with a shelf life of about 150 years. But it caused issues for the countries who had their currencies as reserve currencies. Neither England nor the US could not sustain it in 1871, Western Union did the first fund transfer by telegram. This was the first time you could move something that you could not see. This was the first form of ‘electronic money.’

In 1930s the backing of the dollar or the pound sterling against a set amount of gold started to get devalued. It created a huge depression. And this one of biggest worries of economists and bankers that this could happen again. (At present, we have dodged a huge bullet, only because the current crypto crash does not impact the real economy.)

Then came the concept of credit cards – production of money in a new way. Next was digital payments and virtual currency.

Fiat money is money because the central bank says it is the money, which shows how much trust the central banks have in their own issuance.

Then there is “commercial money.” In the old days, you could give your twenty coins to the bank for safe keeping, and then you take out fifteen coins for a purchase. You would return the fifteen plus one extra coin as the banker’s fee/interest. This was the simple lending mechanism, and it was a physical transaction based on actual funds present.

But then banks started to do ‘fractional lending.’ You put in $100 but take a loan for $1000. The bank does not have the extra $900 physically present, nor is it backed by any physical asset. We have economic crises every seven years or so and every 20 to 30 years, a banking crisis comes along with it. This happens when there is an overwhelming mismatch between the actual amount of money in the system and what has been lent out! Banking crisis is so dangerous, that governments have no choice but to bail out banks. The entire economy can collapse without the issuance of money.

And now we have crypto currency, which is just another representation of money. It is thus named because it is safeguarded by a cryptographic mechanism.

Future of Money by Jeetu Kataria

 2008: The concept of Bitcoin was published as a whitepaper under the name Satoshi Nakamoto

2009: On Jan 3rd, the network officially launched with the mining of the Genesis Block

2010: The first economic transaction is made & first crypto stock exchange is launched

2011: In February 2011, BTC crossed the $1 threshold and reached its first-ever bubble price of $31

2013: 1 BTC reached $100 and crossed $100 in November and more cryptocurrencies and networks emerged

2021: Bitcoin hits its all-time high of $69k and crypto adoption rises

Bitcoin is an application of blockchain. A form of digital currency that used to make transactions on the blockchain. A cryptocurrency is a medium of exchange, such as the US dollar, but is digital and uses encryption techniques to control the creation of monetary units and to verify the transfer of funds.

Blockchain is a growing list of data blocks linked together. A shared decentralised database where information is stored as blocks A public network in which anyone, including a malicious participant, can participate without restriction. It can be used for many things, including cryptocurrencies.

Crypto coins operate on blockchains: It means that a blockchain keeps track of all transactions that involve its native crypto coin. For example, all Ether transactions are done on the Ethereum blockchain. Ether is the native token of the Ethereum blockchain.

Tokens: Unlike crypto coins, tokens do not have their own blockchain. They operate on blockchains of crypto coins. For example, many tokens run on Ethereum. Stablecoins, whose value is usually pegged with US Dollar, is also a part of this category.

Altcoin: Any cryptocurrency other than Bitcoin, like Ethereum or DIFX Token, is called an altcoin. Stablecoin: Type of cryptocurrency that follows the price of another asset like fiat currencies (e.g., US dollar) or precious metals (e.g., gold).

Privacy Coin: Privacy coins, like Monero, use privacy-preserving techniques to obscure transaction information

from anyone except the two parties involved.

CBDC: CBDC is a type of digital money that is issued by a central bank or government. A CBDC is an emerging form of cryptocurrency.

Utility token: Utility tokens usually serve various purposes within a specific application or platform. Governance Token: Kind of cryptocurrency that allows users to take part in the platform governance by voting. Token holders gain the right to vote based on the amount their willing to invest. Security Token: A security on a blockchain network is called a security token and acts exactly like its real-life counterpart. Blockchain Capital (BCap) is a good example of a security token.

Wrapped Token: Remember how stablecoins are pegged to another fiat currency like the US dollar? Wrapped tokens are the same, but they are pegged to another cryptocurrency, instead of dollar or gold.

Meme Token: Type of cryptocurrency that is created based on internet memes and is mostly community driven.

Dogecoin and Shiba Inu are two examples of meme coins.

Use cases: Business Contracts – Increases transparency, and efficiency and helps assess risk; Smart Gadgets –

Automated interactions & transactions, ease of supply chain network; Immersive online gaming – Rise of P2E gaming & metaverse worlds.

Ce-Fi refers to centralised finance where the corporation/party dealing with Ce-Fi have procured and adhered to regulations of various jurisdictions/authorities. Here users exchange assets through a Ce-Fi provider and follow strict AML & KYC procedures.

De-Fi refers to decentralised finance where the corporation/individuals enter a free for all market with zero liabilities. Here traders must be aware that De-Fi project are not liable to any losses, thefts or scams that may occur to you

NFTs: Known as non-fungible tokens. A one-of-a-kind and unique digital asset that shows and validates its creation and ownership using the blockchain. Virtually anything can be tokenised to be an NFT, a car, animal, human avatars, real estate, agreements etc.

Web 3: It will involve all the existing protocols and services we see on today’s internet, but they will be built on permission less blockchains with open protocols and open standards. This will allow for a much greater level of freedom, decentralization, and democracy for individual users, content creators, and projects.

Metaverse: Web 3.0 is about who will own and control tomorrow’s internet, the metaverse centres on how users will experience the internet of the future. The metaverse refers to both current and future integrated digital platforms focused on virtual and augmented reality.


Jan Bladen: Central banks and regulators need time to write rules and regulations. The speed of change in the cryptocurrency world has accelerated. Is there a risk of not regulating it quickly?

Bhaskar Dasgupta: Virtual assets should be treated as security, as a financial instrument that fulfils certain conditions. Until then, there are risks and if you transact and engage in the unregulated money ecosystem then you must be prepared to lose it.

Jan Bladen: You both agree there are higher risks associated with cryptocurrency and that most people do not understand the fundamentals. What can we do to improve the awareness? And what can we do to manage the risks associated with cryptocurrency?

Jeetu Kataria: We have a free academy where we educate users about risk assessments in digital assets. If you are investing into a technology ecosystem, then you need to understand how the technology works as well as the people who are backing and building it. Apart from that, you need to learn about the usability of that specific technology or token in which you are investing.

Jan Bladen: What’s the risks and how do we regulate a decentralized platform?

 Bhaskar Dasgupta: The pace of change of regulation is increasing, but it is also starting to reveal serious problems. Many countries are experimenting with central bank digital currencies (CBDCs). If the central bank itself is going to issue you a digital currency and give you a wallet to host it, what is the need for banks?

Jeetu Kataria: It depends on where we choose an exchange. How is their system? Do they have their internal custody or an external custodian? How does the custodian management work?

Audience 1: Will the new money system survive the test of time?

Jeetu Kataria: In the last two years the U.S. government has printed a lot of fiat money. It is not backed by anyone or any physical asset. But based on the trust of a government of a country. The history of money has shown that, there are new money systems that evolve over time. Either we must trust a system, or we trust the tech. This technology is irreversible. In the digital world, we need to understand the utility. The asset is the utility of that specific digital asset in which we are planning to invest. The digital assets are not meant to replace the current financial system but run in tandem. Whatever you invest in, you must understand the usability and the history of that specific digital coin. Or if there is a new token, check the peer comparisons and history of its performance.

Bhaskar Dasgupta: People must not be surprised at the current volatility and high risks of new assets. It is driven by underlying economic phenomena and we have been there before.

Audience 2: The central purpose of money is that it has a legal tender. If I go into a shop in the US with a US dollar, they must take my money. That is the central feature of money. Stocks and shares give you an opportunity to get legal tender through dividends, and they are linked to an underlying asset. But cryptocurrency does not have any legal tender. I cannot go into a shop and force them to take payment in bitcoin or call the authorities if they do not accept. It is not a store of value but community created hype. How do you regulate ‘hype’?

 Jeetu Kataria: In the last two years there are more than 50,000 different merchants across the globe, including companies in Dubai who have started accepting Bitcoin as a fee. This is because regulators are streamlining the whole ecosystem of bitcoins.

Bhaskar Dasgupta: What are the laws? What are the regulations? The macroeconomic system is based upon one currency from a particular country. And people do not appreciate how important a currency is as a legal tender. Politics becomes important when it comes to laws being passed. The open economies find it extremely difficult to move away from the legal tender rights that a normal existing currency has got, which itself is based on trust of each national authority. The US can issue trillions of dollars because people trust in that economy. So that is the legal side. The regulators build on the laws. The challenge is to make sure that the security fulfils investor protection. No regulator has approved the issuance of a cryptocurrency. The central banks are authorized to check out the issuance of digital currency. Regulators have allowed you to trade on certain cryptocurrencies. It is not equivalent to a fiat currency, but you can trade it. Fiat currency has got reserves and capital. The systems have long proven checks and balances, proper custodians. If there is a problem, you can go to somebody. There are rules and regulations that apply. How do you connect a cryptocurrency to a legal tender, to a regulator and to the government?

Audience 3: What is the utility of Bitcoin? What happens when governments around the world create CBDCs?

Jeetu Kataria: Bitcoin will continue to be an asset class. It is a decentralized protocol. During the last nine years the utility of Bitcoin has grown on gaming systems and other transactions on a decentralized protocol which was off system, without intervention of any centralized government. The tech is irreversible, and governments cannot shut it down. The price movement of Bitcoin has happened without an actual asset backing, but solely based on the community and utility. The issuance of CBDCs will not hamper the utility of the Bitcoin because it is decentralized.

Audience 4: Bitcoin has a value because we feel there is an underlying utility. Does a change in technology or some other utility pose a threat?

Bhaskar Dasgupta: It does pose a risk, like when the reserve currency shifted from the Austro-Hungarian currency to the Pound Sterling. Then there was dislocation when the Pound Sterling dropped off and the US Dollar took off. And now, China wants the Yuan to be a global reserve currency. The fundamental fear is that these decentralized tokens will cross a certain threshold of transactions and then we would not have any macroeconomic levers to fix a potential problem. This is the reason Facebook was heavily slapped down. Since the activity in Bitcoin and decentralized tokens is extremely limited, the calamity is not big enough even if it crashes. But what will happen when this financial system grows and there aren’t proper regulations or safety nets or any learnings from previous macroeconomic theories?