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A brief history of Money

The history of money dates back several centuries, coinciding with the formation of financial relationships among people.

“Money was created many times in many places. Social development did not necessarily rely on technological breakthroughs then; rather, it sparked a profound cognitive revolution. The emergence of money is linked to establishing a new intersubjective reality that exists solely within the human mind. Money extends beyond mere coins and banknotes; it encompasses anything people are willing to employ to evaluate the value of goods and services in an exchange” (Yuval Noah Harari, Sapiens: A Brief History of Mankind, 2011).

Presumably, the origins of money can be traced back to the era of hunting and gathering, which constituted the dominant lifestyle for 90% of human history. In those ancient times, individuals possessed proficiency in various trades and acquired the necessary survival skills.

An image of an early form of trade comes to mind: a caveman attempting to exchange rabbit fur for desired goods, such as boar meat. This practice is now known as the barter system, which some experts consider an early form of monetary transaction.

However, anthropologist David Graeber argues that the widely assumed predecessor of money, barter, did not exist before the emergence of money. Even if a barter system existed, it would not have been a sustainable everyday practice akin to monetary exchange. Consider the difficulties encountered when nobody requires what you have to offer. If your sole item for barter was a deceased mammoth, how would you transport it during trade encounters?

The Bread Game: The History of Money

By the end of the Pleistocene epoch (known as the last Ice Age, which concluded 10,000 years ago), the domestication of animals and plants had begun as humans spread across the world. This led to the rise of agriculture, which brought about centralization and increased population density. With the growth of centralized populations, the need for individuals to excel in all professions diminished, as in hunting and gathering societies. Consequently, people began to focus on specialized labor.

“Barter only functions effectively when all participants can obtain what they want or need.”

Some individuals began farming, others engaged in custom production, and others pursued construction. For instance, a clothing merchant might offer several outfits to a farmer in exchange for wheat. However, since the farmer did not require new clothing daily, unlike the merchant, who needed food regularly, the tailor had to be creative in finding a suitable exchange before acquiring the bread. This situation resembles a game where the ultimate prize is bread—a game of bread, so to speak. The barter system proved insufficient to sustain a civilization where everyone possessed only one specialization.

The Ancient Rules of Making Decisions about Money

The need for a regulated transaction system paved the way for the emergence of money, which served as a means to measure value (money for accounting) and facilitate transactions (currency exchange). However, the concept of money did not begin with the paper and coins we are familiar with today. Cowry shells were one of the earliest and most widely accepted forms of money used for trade in Africa (particularly Uganda) and Asia until the 19th century (1801-1900).

Ancient banks originated in civilizations such as Mesopotamia, where individuals could store their valuables in an organized manner for trade. This new system necessitated recording all incoming and outgoing transactions, leading to the first use of ledgers to document transaction histories.

However, the introduction of money did not occur through a coordinated global agreement based on the Mesopotamian experience. Similar to today, different forms of currency existed, and Cowry shells were not a universally recognized banknote. Grains, cloth, and other items were also used as money. While they may appear distinct and be described differently, each object shares three fundamental characteristics:

  1. It had to possess a physical form. Ideas cannot function as money, although they can generate income.
  2. It needed to be stable. Mere tangibility was not sufficient. Any civilization relying on leaves as a currency could face financial ruin in the face of a strong wind. Imagine trying to carry 50 leaves in your pocket.
  3. It required societal agreement. Without consensus, the stability of any currency is undermined, as people would be uncertain if others would accept their money in transactions.

The currency must be stable; if it suddenly disappears, it poses a significant risk.”

While items like shells, grain, and cloth could readily meet the first two criteria, the third criterion was more complex. Without a governing body to ensure widespread acceptance of money, currency stability could not be guaranteed. This issue was resolved with the advent of coins around 600 BC.

Centralized money management through coins

There is an issue with using grains as currency—more grain can be produced on a farm, and the same applies to shells—go to the beach! How can a currency system gain trust if anyone can create more currency anytime? This dilemma was one of the primary reasons that led to the introduction of coins.

The Lydians of ancient Greece were the first known group to use coins. Five hundred years later, major cities like Athens followed suit. Citizens couldn’t find more gold and silver to melt down and craft coins with intricate stamps, unlike shells and grains. Even in our modern world, this remains a significant challenge despite the availability of various tools.

Each coin bore a tangible symbol of approval. Rulers imprinted faces or national symbols on them, guaranteeing that they and the civilizations they represented vouched for the coin’s value. In other words, as long as their civilization existed, the currency would retain its worth. The transition to using coins brought about a controlled monetary circulation governed by rulers and the currency itself, making it more comprehensible for ordinary citizens.

The Emergence of Paper Money

While the invention of coins resolved many monetary challenges, certain drawbacks persisted. Firstly, coins were minted from precious metals, including gold, which limited their circulation and supply based on the availability of these metals. Secondly, the bulky and heavy coins made their storage and transportation uncomfortable. The discomfort and scarcity of gold supplies became increasingly problematic before the introduction of paper money.

Around 100 BC, the Chinese invented the first form of paper. Shortly thereafter, its use in monetary transactions was recorded. Instead of carrying coins everywhere, individuals could deposit their valuables in a bank and, in return, receive a signed note indicating the value of the items held in the bank. This marked the inception of the first banknote. The system operated on the belief that a note could be exchanged for tangible value. Rather than constantly exchanging physical goods, people began to trade in banknotes.

When the Mongols invaded China, the Mongol Empire also embraced using paper currency. In the 13th century, Marco Polo introduced paper money to Europe for the first time. By the 17th century, Europe had caught on to this growing trend, and jewelers began adopting the practice of issuing banknotes backed by gold as a guarantee.

As people started using and holding paper notes instead of constantly exchanging them for reserve assets, European banks began issuing more banknotes, assuming that not every individual holding a banknote would immediately demand gold. This marked the initial practice of employing currency in a form resembling the modern money concept.

Rejection of Gold

In present times, our money no longer allows us to redeem reserves of silver or gold. However, this was not the case until the 1930s. Before that period, each dollar was backed by gold, accounting for nearly half its value (approximately $0.40).

Americans and Europeans believed the population would not withdraw all their money simultaneously.

However, the early 1930s marked a challenging financial period for the United States. The stock market crash of 1929 triggered the Great Depression. To revive the U.S. economy, President Franklin D. Roosevelt implemented a money printing program to stimulate spending. Unfortunately, due to a limited gold supply, his options were restricted. He could not raise taxes during this economic crisis or print more currency as insufficient gold was available. The Great Depression transformed people into gold seekers, driven by fear for the future. This led to panic among the public, causing a run on banks and posing a threat to the economy. However, the banks held only $0.40 in gold for every dollar, which rendered them unable to fulfill the withdrawal requests of those seeking funds.

Therefore, in 1933, President Roosevelt made private ownership of gold illegal. To prevent the export of gold from banks, he ordered their closure for three days. Subsequently, he prohibited citizens from possessing gold, making it a serious crime punishable by up to 10 years in prison. Citizens were instructed to return their gold to the Federal Reserve System, which would issue paper money in exchange.

Despite the authoritarian nature of the plan, it did not achieve the desired success. The damage inflicted was significant, and in 1971, President Richard Nixon officially ended the US dollar’s gold backing. It was only in 1977 that private ownership of gold became legalized again. Interestingly, President Ford, who lifted the Gold Ban, was unaware that possessing gold had been illegal.

Today’s Monetary System

We have now arrived at the current state of monetary practice. We have observed how it all began and how the barter system evolved into a currency system based on valued items such as grain, shells, and cloth. The government guaranteed prices through coinage when coins became cumbersome, and paper replaced them.

As most transactions are now primarily conducted using paper, governments have become more flexible regarding the proportion of paper currency to available precious metals. Consequently, paper currency has transitioned away from its association with jewelry and has instead become a representation of the government’s assurance that it holds value.

Even in today’s context, paper money remains a contentious form of currency. In his book “Sapiens” (2011), anthropologist Yuval Noah Harari notes:

Even today’s coins and banknotes represent a rare form of money. The total amount of money in the world is $60 trillion, but the value of coins and banknotes is less than $6 trillion. Over 90% of the money—over $50 trillion—exists solely as digital entries in computer servers.

In other words, approximately 90% (and possibly even more, as this statistic was published in 2011) of the world’s currency exists in digital form. The relatively recent emergence of cryptocurrencies is worth mentioning, which can be a separate topic for discussion and article writing. Cryptocurrencies are characterized by their decentralized nature and utilization of blockchain technology.

As it is known, Y Combinator is the strongest startup accelerator in the world. If it is so strong, many startups strive to be a part of it, including both strong and weak ones. How Y Combinator became a mecca for startups is a separate question. However, how they manage to filter out a hundred worthy startups from tens of thousands of various applications is no less interesting.

The final interview at Y Combinator lasts about 15 minutes. During this time, founders are asked many questions rapidly, each of which they must respond very quickly. I googled and found a long list of questions asked during the interview. From this list, the most relevant questions for many startups were selected.

So, the key questions from an investor that you should be prepared for are:

  1. What’s new about what you’re doing?
  2. What do your users want the most?
  3. How are your users currently solving their problems?
  4. What sets you apart from existing solutions for user needs?
  5. What would motivate a user to try your service?
  6. What might discourage a user from trying your service?
  7. How many people are in your target market? How many billions of dollars is this market worth? How fast is this market growing?
  8. Who are your competitors? Who could become your competitors?
  9. Which competitor do you fear the most?
  10. How many users do your competitors have? What is their revenue?
  11. How much time and money will your users spend before switching to your service?
  12. What have you done that is impressive and can leave an impression on us?
  13. Tell us something surprising that happened in your startup.
  14. What is the biggest mistake you’ve made?
  15. What unique abilities do you have in your field?
  16. Who will be your next key hire?
  17. What will be your biggest challenge in six months?
  18. How will you become a billion-dollar company?

What’s new about what you’re doing?
If there’s an old problem in an old market that you plan to solve in an old way, chances are it either already exists, nobody needs it, or it doesn’t make financial sense. What changes are you utilizing to solve an old problem in a new way? Or how did you discover a new problem that previous generations of entrepreneurs haven’t had a chance to solve yet?

What do your users want the most?
Every person has a limited budget of time and money. They spend it on what they consider important to them. They won’t pay for your product or service if you don’t address their most crucial needs. They will always have more important things to spend their resources on. What grounds do you have to claim that you’re not focusing on something trivial and unimportant?

How are your users currently solving their problems?
To fit into our users’ limited budget of time and money, we need to displace something from that budget. We can’t imagine people setting aside money in an envelope, expecting that someday we’ll come along and they’ll give us that money. For people to start using our product, they need to stop using something else. What are they currently doing and using? We need to know this.

What sets you apart from existing solutions for user needs?
I believe answers like “a more user-friendly interface” or “we have everything in one place” are not the most convincing responses. Our distinctiveness is our superiority. Superiority is not just a checklist of features compared to competitors. It’s one critical consumer parameter where we excel over competitors—faster, cheaper, or more for the same price.

What would motivate a user to try your service?
Seeing your advertisement or visiting your website doesn’t guarantee a person will try your service. You must capture them at the right moment or make an offer they can’t refuse. How will you break the initial barriers of skepticism and inertia? How will you prompt the user to take action right now?

What could deter a user from trying your service?
To answer the previous question about what motivates them to use your service, you need to have a clear understanding of the reasons why they might postpone this decision. You can’t fight an enemy you don’t know. The better you understand what holds them back, the more successful you’ll be at pushing them forward.

How many people are in your target market? How many billions of dollars is this market worth? How fast is this market growing?
Here, you need to be knowledgeable about the numbers. Responses like “it’s a current trend” or “everyone wants it” and other cognitive discussions are unlikely to suffice in this context. The main reason a startup won’t become a unicorn is a small market. It’s more advantageous to have a large market and a weak [for now] product than a polished product in a small market.

Who are your competitors? Who can become your competitors?
Returning to the topic of limited budgets of time and money, we remember that people need to stop using something in order to start using our product. This means we always have a competitor – someone they have to stop using. It doesn’t necessarily have to be a direct competitor. It could be an indirect competitor that satisfies the same need in a different way, or an entirely different product for a different need that is more important than what we offer. A competitor can be not just a specific service, but also the “conventional way of doing things.” It’s quite important to consider which major or related players might become your competitors when you or your target market starts growing.

Who do you fear the most among your competitors?
It’s always important to identify your main competitor, the one you intend to compete against. If you fear no one, either you are overestimating your capabilities or the size of the target market where even a strong competitor couldn’t emerge.

How many users do your competitors have? What is their revenue?
Assessing the market based on the size of your competitors provides a more accurate evaluation of your target market than abstract figures from reports. For example, the food delivery market may be massive in size, but the majority of the money is made by the top five chains. Are you planning to defeat these chains? If not, including their revenue in the overall market volume would give us inflated expectations.

How much time and money will your users spend before switching to you?
The volume of time and money spent on competitors is the best indicator that there is money in the target market. If people are only spending minutes and pennies on competitors, what grounds do you have to expect that they will start spending hours and dollars on you?

What have you done that is impressive and can leave an impression on us?
If you haven’t done anything impressive before, why would you be able to do something impressive in the future? Becoming a unicorn is not just about routine work, but also about making impressive breakthroughs in acquiring customers and capturing the market. How impressively do you think and make strategic moves?

Tell us something surprising that happened in your startup.
If you haven’t encountered anything surprising, it’s likely that you aren’t keeping your eyes and ears open to new and surprising opportunities. No initial startup idea is good enough to reach unicorn status without changes. This idea must evolve. To do that, you need to be able to see and be amazed by things you didn’t expect, and use them to drive changes in your initial idea.

What is the biggest mistake you’ve made?
Another reason for changing your startup is to rectify inherent flaws. Rectifying wrong assumptions embedded in the initial startup idea. These mistakes are always present; otherwise, why change? If we don’t acknowledge our mistakes and persistently focus on one point, we will never evolve. The ability to see mistakes, acknowledge them, and draw conclusions is a chance for changes in the right direction.

What unique abilities do you have in your field?
Having a good idea is not enough. The success of a startup is 10% idea and 90% execution. This means not only having the best idea but also superior execution. The quality of execution does not depend solely on the amount of money but on the quality of the founders. Superheroes defeat villains. Founders who possess superpowers and know how to apply them in the right direction become unicorns.

Who will be your next key hire?
The answer to this question demonstrates two things: the competence where founders feel their weakness and the direction they consider the most crucial.

What will be your biggest problem in six months?
Today, you should be working on solving the problem that might arise in six months. If you can’t predict your future problems, you can’t plan your activities effectively. Consequently, you’ll constantly encounter bottlenecks that impede your growth. Stunted growth means there’s a chance you won’t have time to become a unicorn.

How will you become a billion-dollar company?
Since this question requires a quick response, the answer should be concise and clear. Saying, “I have a business plan with all the numbers in Excel” is unlikely to be a good answer. Similarly, saying, “You will give us money, and that’s how it will happen” is not sufficient. The investment of a few hundred thousand dollars from Y Combinator is not enough to build a billion-dollar company. There needs to be another simple, short, and understandable answer. What is it?

Money should work and generate income. That is why when you have free capital, there are many questions – where to invest money, how to make a profitable investment, and what kind of income can be provided by a particular type of investment. By reading our article, you will learn where to invest money to have a steady monthly profit. Today, there are different investment options – some require capital investment, while others require your time and effort.

We have tried to cover all the nuances and peculiarities of investing in this article. It was based not only on our personal experience but also on the experience of experts in the financial industry and various investors. After a detailed examination of the options for where to invest your money and how to invest your available funds correctly, you can choose the optimal way to invest your capital.

Investment. How to invest money?

The concept of investment means placing your capital to make a profit. Usually, the investor’s profit is calculated as a percentage of the annual amount invested. Thus, if the contract specifies 10% per annum, then from the invested $1000 per year, you will receive $100, i.e., in total, you will already have $1100.

It is important to remember that investments are always associated with risks. Spending money is always easy enough. However, do not forget that if you invest money in an unprofitable project, you can earn nothing and lose part of your capital. And your main goal as an investor is to receive a regular income from your investments, not to part with your accumulated money.

That is why you should take any investment seriously and, first of all, choose the one that suits you and can satisfy your needs for the desired level of risk and income.

What are the types of investments?

Although almost everyone is familiar with investing, few people know that capital investment can be different. Before you choose an investment object, you should understand its types. Investing is classified according to several factors that should be studied in advance.

By investment object:

  • Speculative – these are investments that can be earned simply by reselling them.
  • Financial – investment in various financial instruments. The brightest example is stocks and bonds.
  • Venture – investment related to the prospect of human activity development. These can be various know-how, startups, technologies, etc.
  • Real – the least risky investments in real objects, for example, in real estate.

By investment term:

  • Short-term – investment for a period of up to 1 year.
  • Medium-term – for a period of 1 to 5 years.
  • Long-term – for more than 5 years.

By ownership form:

  • Private – when the investor is a physical person.
  • Foreign – when the investor is a non-resident.
  • State – when the investor is a state organization.

By the level of investment loss risk:

  • Conservative – where the risk for the depositor is minimal.
  • Investments with moderate risk.
  • Aggressive – the most risky investment for the investor.

For investment purposes:

  • Direct – when the investment is made in one direction by direct financing.
  • Portfolio – an investment of funds in several projects at once, from which an investment portfolio is formed.
  • Intellectual – these are the same venture investments, i.e., investment in startups, know-how, etc.
  • Non-financial – those that do not require material costs, for example, self-education.

What needs to be done before investing money

So, first of all, it is necessary to understand the peculiarities of private investment. For every person with a certain amount of money who wants to invest it somewhere, it is worth studying all the pros and cons of investing.

Advantages of investing:

  • the possibility of receiving additional income – this is our main goal, which we strive for when we plan to invest our capital;
  • the ability to constantly update our investments and receive an unlimited amount of profit;
  • as a result of receiving our interest on the deposit, we can achieve our desired goals;

Disadvantages of Investing:

  • First and foremost, there is always a risk involved in investing, as it is impossible to be 100% certain of the profitability of any project, meaning there is always the possibility of losing a portion of your capital.
  • Investments require stress tolerance, which means that if you are fairly emotional, the process from investment to profit can be quite challenging.
  • It is important to spend time on self-education. If you are not interested in market novelties, you may fall behind the trends and lose your income.
  • Starting capital is necessary – no startup can do without it, which makes the question of where to invest small amounts of money the most relevant.