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Blockchain

A Brief History of Trading: Introduction on Trading

How did we go from a society that trades weapons for furs to a society that tokenizes digital assets? It is hard to believe that several millennia ago we relied only on bartering for trading, while today we can buy digital non-fungible tokens (NFT) of LeBron James’ slam dunk. We as humans have traded since the beginning of recorded time. Like the desire to tell the truth, we are inclined to engage in trading—whether those trades involve goods for goods, goods for services, goods for fiat currency, goods “on credit,” goods for Bitcoins, or “tokenized” goods for cryptocurrency. When we think about trading, there are three things to consider: (1) money; (2) value; and (3) trust. All three need to be present for a trade to occur.

First, trading needs to involve “money”—a term that has changed its definition many times. “Money” serves three important purposes: it acts as a means of payment; it provides a store of value; and it serves as a unit of account that values goods and services. So money does not always refer to cash or credit, as we think of it today. Second, the items traded need to have “value.” The first thing to know about value is that it is a tricky term with a constantly evolving meaning. The second thing to know about value is that it depends on the relative importance people place on it. What was valuable in old ages—livestock, rice, animal skins, shells, and so on.—is different from what society attaches to “value” today. Further, money—whether represented by a coin, commodity, service, or Bitcoin—does not always have value to the other party. That money can be accepted as a form of payment does not automatically mean that it has value. Both parties have to want what the other party has. This affects price. For example, suppose Sam is a shoemaker of strong farm boots, Frank is a farmer, and Charles is a councilman. Because Frank would value the shoes more than Charles, Sam can charge Frank more for the shoes. This was the case several hundred years ago. The same holds true today: not everyone values having their own NFT of a digital cat. For instance, if Anna loves cats but is allergic, she might value participating in this Ethereum-based blockchain game that allows users to buy, breed, collect, and sell virtual cats, or “kitties.” Last, the parties must be willing to enter into transactions with each other. They must “trust” the other party to the bargain—trust that the goods exchanged will be reliable, that they are not faulty, that the money is genuine, that services will be performed honorably, and so on. Without “trust,” the transaction cannot occur even if “money” and “value” are present.

What makes these principles of money, value, and trust change over time? The answer is technology. Technology helps allow these factors to progress from one stage to the next. That said, even though both the meaning and form of trading has changed throughout history, the overall objective of society is sustainable economic growth.

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