From barter to bitcoin

By Bill Taylor It seem to me

March 11, 2014

It seems to me that the recent collapse/bankruptcy of a virtual currency/bitcoin exchange kinda makes a body ponder on the evolution of the way we deal with the exchange of goods and services - from barter to bitcoin. (If you aren’t’t exactly up to speed on what “bitcoins” are, don’t worry. I’ll give a layman’s explanation later on.)

“Barter”, probably the oldest and certainly the simplest system of how goods or services are exchanged, usually involves two parties who agree to a swap. I recently engaged in a barter arrangement with a guy who wanted some building material I had but didn’t need. In exchange he agreed to do some repair work on our home. No money involved, just an exchange of goods and services.

Bartering, however, has some major drawbacks such as requiring what is known as “a double coincidence of wants” that is, each participant wants what the other has. This and other disadvantages brought rise to the concept of “money” which provides a measure of value of all goods and services.

Originally, money usually consisted of gold, silver, or perhaps copper coins with an intrinsic value of their own. People could sell their services or goods for money which could be spent however they wished without going through the one-on-one bartering process. And so folks began carrying (or hoarding) coins - which was not always convenient and led to “paper” money or currency.

While “paper money” has no value of its own, it was originally “backed” by gold or silver, that is, a $10 bill “backed” by gold could be exchanged for $10 in gold. In the 1930s our country went off the “gold standard” and our currency became “silver certificates” which theoretically could be exchanged for silver.

Next, the silver certificates were withdrawn and replaced with Federal Reserve notes which are “backed” only by our central bank which claims the pieces of paper it prints are worth the amount shown. It all comes down to a matter of trust. Along with currency other pieces of paper, known as”checks” came into use.

Unlike currency which is produced by the government, checks can be written by individuals or businesses, but, like currency, have no intrinsic value of their own and so their value is also a matter of trust - but at least there is a piece of paper in hand. And that leads us to the era of paperless, electronic processing.

Today a large percentage of the exchange of goods and services are handled using electronic, computerized means. For example, my Social Security “check” is deposited electronically in my bank account from which “automatic” electronic payments are deducted for such services as utilities, insurance, and so on. I can also use a debit or credit card to “pay” for goods and services with the amount being deducted electronically from my bank account with no physical exchange of money.

A far cry from the barter system, right? OK, on to the “bitcoin”. A bitcoin is a “virtual” currency, that is, it exists only online. It isn’t’t backed by governments or central banks and is so “crypto” or secretive that nobody knows who developed it. There is no “mint” because bitcoins are created by using computer algorithms to solve complex mathematical problems - a process known as “mining”and just who does this “mining” is secret.

Transactions are carried out through bitcoin “exchanges” which are connected by a network of computers. Since they appeared a few years ago bitcoins have risen in value from about $10 to over $1,000 each and are accepted by a number of businesses. Bitcoins, however, are not regulated by any governmental agency and their value fluctuates widely. After the recent collapse/bankruptcy of a major bitcoin exchange the value dropped from a recent high of $1,150 to $664.

The bitcoins deposited in this exchange apparently simply disappeared - the 1s and 0s making them up vanished into the never-never land of computer oblivion. Supporters of the bitcoin like the fact that its users can remain anonymous (transactions are made, but identities are kept secret); the system is reportedly difficult to hack; and it cuts out middlemen like banks. There is also reportedly no record, no trail, of transactions once they are completed. Money laundering?

Well, we’ve come a long way from barter to bitcoin and I suppose that’s “progress,” but I have to wonder. I still like the idea of having something I can see and touch - like money - even if it’s old fashioned. At least that’s how it seems to me.

Bill Taylor, a Greene County Daily columnist and area resident, may be contacted at solie1@juno.com.