The meteoric rise of Bitcoin with its fancy blockchain infrastructure is hailed by its proponents as the future of finance. First, there was barter, then there was minted coin, then fiat money, and now crypto. But despite some innovative aspects of cryptocurrency, some scientists have found striking similarities between Bitcoin and an ancient stone money system from Micronesia.
Scott Fitzpatrick of the University of Oregon Department of Anthropology teamed up with finance professor Stephen McKeon of the Lundquist College of Business to investigate how unique and innovative Bitcoin truly is by exploring potential precedents in the history of finance.
Sure enough, they eventually came across the ‘stone money’ of Yap, a group of islands in Micronesia. Stone money, known as “Rai” to the native islanders, are huge stone disks measuring up to four meters, with holes in the middle through which long poles could be inserted to facilitate transportation. Some of these disks are marvelously crafted, adding artistic value to the money.
Now, you might be wondering what some oversized coins have to do with crypto. As it happens, quite a number of things.
Bitcoin was initially introduced to the world by its creator Satoshi Nakamoto, the pseudonym of a yet-unidentified individual or group, to a small mailing list of cryptography enthusiasts in the wake of the Great Recession of 2008.
In response to the widespread failure of the traditional financial system, Bitcoin promised to become a currency that people could trust that would function without third-party intervention. Central to this aim is its peer-to-peer network where a highly secured distributed ledger, known as a blockchain, is used to document every transaction and ownership of the cryptocurrency.
“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution,” reads a paragraph from the original Bitcoin white paper published by Satoshi Nakamoto on January 12th, 2009.
Because they run on a network of computers, Bitcoin is decentralized and cannot be controlled by a third party, such as a central bank. When two parties exchange cryptocurrencies, the transaction isn’t considered final until it has been verified and added to the blockchain (a sort of digital ledger) by solving complex mathematical equations.
The validation of the cryptographic ledgers when Bitcoins change hands is also how new Bitcoins enter circulation, a process known as “mining”. Since the rate of new Bitcoin was built into the protocol, inflation of the currency is capped. There’s more to it than this and if you want to learn more about cryptocurrencies, there are ample resources available online. But for the purpose of this discussion, this is the gist of Bitcoin and its overarching technology.
Similarly, the Yapese islanders mined the stone Rai out of limestone sourced from hundreds of kilometers away in the Palauan archipelago. The difficulty of sourcing and transporting scarce limestone across the islands naturally limited the supply of Rai, thereby preventing runaway inflation.
The Rai is so heavy that when owners changed hands, they would rarely take physical possession of it. Instead, the new owners would keep them on the side of the road or leave it on the property of the original owner who had exchanged it for goods or services. To verify ownership, the Yapese employed an oral ledger by which multiple members of the community would verify the transaction and ultimate holder of the Rai.
It’s not clear when the Rai was introduced but it is certain that this monetary system was still in operation when the first Europeans made contact in 1783.
“Given that the actual possession of rai was often infeasible, an owner would deem it to be valuable only if they could trust that all participants in the economic system agreed on the record of ownership,” Fitzpatrick and McKeon write in their study published in the journal Economic Anthropology. “Effectively, it was not a bearer asset; ownership was established solely through the ledger. Similarly, Bitcoin is often referred to as ‘trustless.’ It is notable that it emerged during one of the worst economic recessions in recent history, a time during which trust in the financial system was at a historic low.”
Of course, there are important differences as well — as expected when comparing financial systems more than a thousand years apart. Bitcoin is all digital and can be used across the world, whereas the oral ledger of Rai meant it could only be used in a tight-knit small community. Bitcoin can be divided into smaller units while Rai can’t be broken into pieces without destroying the value of the currency. Bitcoin holders are anonymous, whereas all Yapese owners had to be known by their real names for their assets to be verified by the Rai ledger. All Bitcoins are the same, whereas each Rai can differ greatly in terms of size and craftsmanship, a lack of uniformity that is far from ideal.
“The value of rai was dependent on several factors, including shape, size, quality, effort expended, method of transport, and individuals associated with its manufacture and/or ownership. In essence, each rai had a pedigree, and smaller pieces could have greater value if the process surrounding their production and movement had a certain level of significance (e.g., if people had died during the carving, a well-known carver had produced the stone, or it derived from a quarry that was exceptionally difficult to access),” the authors wrote in their study.
Perhaps Nakamoto and collaborators may have heard about the Yapese ancient currency and were inspired by the Rai when designing the Bitcoin blockchain. The similarities are, after all, quite striking. We might never know though since the identities of the original Bitcoin developers are shrouded in secrecy and their communication with the community at large is minimal.
The Rai monetary system collapsed in the late 19th century after administrative control of Yap was taken over by Europeans, beginning with Spain in 1885 and later Germany in 1899. The Europeans brought with them modern technology, including large and fast ships that made the transportation of limestone from Palau to Yap much easier. Modern carving tools also sped up the creation of new Rai stones, resulting in a spike in inflation. The final nail in the coffin was hammered by the Japanese, who seized the island from 1915 up until 1945, forcing the use of their own currency and sometimes turning the once precious Rai stones into anchors, ballast, and other construction materials.
Since Bitcoin is immune to both inflation and seizure by third parties due to the way it was set up, perhaps the cryptocurrency will have a much longer life than the Rai. At least some lessons from history have been incorporated in the design of Bitcoin, whose future nevertheless is quite uncertain.