I really enjoyed the entire article and comments section. It had been a question that I have been asking myself "How the whole finance system evolved through the way it is now?", since the answer might provide clues about the crypto and DeFi's future.

The biggest problem to overcome is how to create the authority so that it crypto "money" can have a future value by having a borrower and lender relationship. Up to now, I have seen no project that enables anyone to borrow any single crypto "money", without breaking the chain of decentralization. There are a few example projects that claims they lend with crypto, however crypto becomes a media like gold, dollar, or anything you may want to name. This is mainly because they also require borrower to reveal its identity and the entire process become a borrowing-lending action in accordance with today's legislation.

In short, the hardest thing (which I believe impossible) is to overcome a need of an authority throughout this borrowing-lending action and still make it decentralized. How borrower can ensure to take his money back if the loan is unpaid, is still requires a regulative authority. And this is the biggest obstacle that seems unachievable without having an authority. Thus, this situation blocks creating the "future" value of the cryptos.

Even in the past, old Italian bankers know that, if their loans are unpaid, they have government authority which enables them to either appointing a trustee to the institution or confiscating the property.

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Dec 31, 2021·edited Dec 31, 2021

Hey, you've done some great work with these issues. A lot of confusion still abounds when it comes to money. For the most part, most historical accounts do go as far back as 5000 years ago and even further, and I do not think there is much debate as to how it worked back then.

What I would like to ask you is, have you delved into the period during the middle ages where a lot of Europe was 'reset' so to speak into what is known as early feudalism and how money was also 'reset' in many cases?

Historical evidence is scarce I'll admit, but I believe the current money system we use today was born during the early feudal times where primitive feudalism, i.e. the period where most relations were feudal in nature (vertical) and when fees were paid 'in kind', transitioned into a money system by the issue of coins by local feudal lords to pre-acquire fees 'in kind'. These coins acted as proof that fees had already been paid when collection time came around. This 'proof of payment' gave these coins their value (not any precious metals in them, at least not locally) and enabled people to use them in exchange; i.e. this enabled exchange and even markets to open up, even if only locally in the beginning. You could call this type of money single entry, but the issuer did assume the obligation of accepting them back as fees already paid which gave them their value in the hands of the one holding them. It would be safe to assume here that the value of the coins in relation to how much 'in kind' fees they represented was 'set' by the issuer, just as in a similar fashion, all forms of money during the early times of the United States was set by legislature, for example x amount of beaver skins were worth y amount of US or Spanish dollars or British Pounds.

Whilst historically we look to the Italian bankers as the beginning of credit money (they would have still accepted metal coins as deposits even though not lending out actual coins), it does not mean that more locally people did not set up the same type of depositories for local coins and issue notes as promises to pay back said coins, and hence the creation of bank notes or paper money of some sort. Heck, these could also have been used to pay the landlord at collection time.

I can imagine that as populations grew, neighbouring lands were conquered and so forth, and by each 'expansion' so to speak, local money systems were subsumed into larger ones. One can see the history of the Swiss Franc as a prime example where it is quoted in wiki:

"Before 1798, about 75 entities were making coins in Switzerland, including the 25 cantons and half-cantons, 16 cities, and abbeys, resulting in about 860 different coins in circulation, with different values, denominations and monetary systems."

As I see the current money system from this perspective, this is how I describe it:

Countries such as the US, UK, Aust, NZ, Canada, Japan, Switzerland etc all issue their own notes and coins, which are accepted as payment of taxes.

Whilst these countries no longer set the value of this money (they let the market do it now), they do set the taxation rates on things like exchanges and incomes.

Most people accept this form of money, if it is offered, in exchange for goods and services.

Banks also accept this form of money as deposits. Every deposit of notes/coins becomes a double ledger money in the sense that banks now assume a liability to return notes and coins on demand if the account holder so chooses to exercise that right.

However, banks also allow account holders to make exchanges with other economic agents using these promises of the bank rather than notes/coins. These promises take the form of checks (spelt cheques in Aust), bank notes, and most commonly, electronic transfers.

This allows banks to increase the money supply by making loans. They do not loan out notes/coins but rather increase electronic account size and at the same time increase their obligation to convert into notes/coins on demand (even though most people will never exercise this right).

The total size of the 'accounts', or promises of the banks to convert into notes/coons on demand is anywhere from 95-99% of the total money supply, with the remaining 1-5% being actual notes/coins. Suffice to say, if everyone tried to convert their accounts into notes/coins at the same time, only the first few % would get actual notes/coins; the rest would get nothing.

Bank reserves, those issued by central banks, are promises of the central bank to convert into notes/coins on demand when and if banks exercise such right (to fill up ATM's, for xmas etc), but for the most part, they are merely used to settle between banks.

All forms of money you can think of, describe, etc, whether it be treasuries, crypto, and essentially all financial assets, have at their core, the humble notes/coins that these govts issue, and who are obligated to accept as payment for taxes. This, at the end of the day is what gives all these monies their value, and this current system, it is my contention, began during the primitive feudal times during the middle ages.

I should also point out in closing, the precious metals used in early times would have had value to those operating outside of these local feudal relations, such as merchants, and hence why Gold etc has always been an international money.


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