A History of Transferring Funds
The way we transfer funds has changed over the generations. Well before we were born, goods were traded with the barter system. How many different ways have we changed the transaction since then? What do today’s transactions really look like? How could the transactions in the future change my purchasing experience?
Prior to the first 600 years, most people traded using a system of exchange where participants in a transaction directly exchanged goods. That was the first form of payment I will try to save you the details as we travel through time to the second form of payment. In order to even trades, there were gold, silver and different coins for the following generation. Paper bills first started in China around 618 A.D. The first bank, the Medici, was created in Italy in 1397.
It takes some time from the second form of payment to the next form but a lot happens in between. Here is the summarized version; Banks exchange coins in Europe until the 1800’s when cash became popular. Some founding fathers in the United States strongly opposed to the formation of a central banking system. The oppression by the Bank of England led to the American Revolution.
The First Bank of the United States opened 1781 modeled after Bank of England. The Bank was not renewed by Congress in 1811 as Thomas Jefferson saw it as an engine for speculation, financial manipulation, and corruption. This information will most certainly be brought up again later on until then we are still traveling through time to the third form of payment.
The government tried another bank after the war of 1812 in 1816 but again it was not renewed after 1836. The “Free Banking Era” lasted from 1837-1862 which is when state banks could issue bank notes against gold and silver. Think of this like trading USD/ BTC or USD/ETH. The United States first paper dollar was created in 1862 starting the third form of payment.
The United States had a system of National Banks from 1863-1913. During this period a national currency was created. President Woodrow Wilson signed The Federal Reserve Act in 1913. The Federal Reserve’s power developed slowly in part due to an understanding at its creation that it was to function primarily as a reserve, a money-creator of last resort to prevent the downward spiral of withdrawal/withholding of funds which characterizes a monetary panic like in 1907.
During the 1920s to early ’30s, The Fed experimented with a number of approaches, alternatively creating and then destroying money. Believe it or not, there’s a cryptocurrency trying this now called BOMB. Believe me, this is the short version of the payment forms of history, let’s just skip ahead shall we.
As cash flowed banks opened more locations, with more locations a hierarchy of corporate banks formed. The hierarchy usually looks something like Top management; your president or CEO, Executives, General managers. Then there is middle management; the regional and district managers. Followed by lower level management; the branch manager, supervisors and the bottom of the totem pole would be the tellers.
Today there is about $1.2 trillion dollars of U.S. currency in circulation*. The Fed distribute new currency for the treasury which prints it. Banks buy currency from the Fed to meet customer demand then deposit cash at the Fed when they have more than needed to meet customer demand.
*Editors note* The amount of USD in circulation is directly related to the amount of debt the United States owes to the fed at any given time. This system of fractional reserve banking is impossible to escape from and absolutely could be overthrown by the right decentralized, people-powered currency. To buy some Bitcoin now use the following link to sign up for coinbase
Bank of America started issuing credit cards in California in 1958. Eight years later credit cards were national, thus the fourth form of payment formed. During the ’60s the first central processing unit was created. The CPU is what was needed for your computer to operate as we know it today. Two decades later in the ’80s graphics processing units were for sale although the term GPU didn’t catch on until after the internet was created.
With the fourth form of payment, card-based transactions built a system over time. A customer would obtain a card from their bank. The customer would go to a store and pay using their card. A merchant captures the credit card information on their point of sale system. An example you may be aware of is the square mobile reader. Square allowed mobile merchants to have access to accepting card payments as more people carry less cash.
After the customer uses their card for the form of payment a card-issuing bank approves the transactions with the credit card processor. Processor pays the acquirer and debits the card issuer account. The processor pays the merchant daily usually charging fees monthly. The customers’ bank then charges the customer.
In the early 2000s the fifth form of payment was created as customers worldwide began to have access to the internet not just at work or home but in their pocket. With a credit card, debit card or gift card payments began to process on the internet. Companies like eBay and Amazon started online whereas companies like Target and Walmart which have been around long before getting online at the beginning of the decade.
As capitalism flourished access to create a business and transfer goods took less time to create and less time to receive payment. What took years of planning, months of building and weeks of paperwork, businesses no longer have to have a physical location to transfer goods or a service. Due to Thomas Jefferson’s prediction an engine for speculation, financial manipulation and corruption led to 2008’s recession. Bitcoin was created and access expanded beyond the federally centralized system thus the sixth form of payment started.
The fifth and sixth payment forms are internet-based, however, they are processed completely different. In 2011 near field communication payments started with Google Wallet then revamped to Android pay and as of now Google Pay. Would this be the seventh form of payment or 5 and a half? NFC payments from your watch or phone is still a credit card payment just linked between Google and Apple with your bank account using your credit card information.
The sixth form of payment uses a QRC, Quick Response Codes which are used for transactions by scanning the code or entering your wallet address. People transfer bitcoin or alternatives also known as altcoins with exchanges to accumulate more crypto. On January 9th, 2014 Overstock.com became the first major retailer to start accepting bitcoin as payments for its goods.
More retailers are accepting payments via cryptocurrencies, soon you will be able to go to a store and use a Coingate, Pundi X or competitor point of sale at a store. NFC crypto payments are possible with these terminals thus phone and watch payments will soon be widely accessible. The fifth and sixth form of payments is going to be with our generation for years to come.
From the beginning of currencies we have exchanged services and goods with physical locations, digital locations and with one another. The fourth payment method people exchanged cash with one another. The fifth payment method used to be limited to merchants but can now be accessed down to the individual with apps like Cash app and Venmo. Now with the sixth payment method, users can transfer crypto with apps like Coinbase.
Technology is not done advancing. Smart speakers like Alexa now accept vocal authorizations for payments even though its still using the fifth payment method to complete the transaction the payment process is technically different. Using your voice you can purchase things through Amazon. Could there be a day in the near future where you purchase a product with crypto using your voice? How about virtual reality or augmented reality payments, are those around the corner?
Tell us what you think about any of the forms of payment; past, present or future, or, if we missed something. If you’re new to crypto and looking for help go to bitsandtokens.com/register to get started.