Bitcoin has been a recent revelation as it first came to prominence in the tech world around the year 2013. Slowly but surely it is no coming into the mainstream, largely as a result of massive price increases in 2017, leading to plenty of headlines and news stories. However, if you decide to dig a bit deeper and delve into the past, you will see that there was an original version of Bitcoin that existed over 1,500 years ago.
While if you managed to get your hands on a time traveling machine and teleported back to the days of the Roman Empire or even to the Renaissance Period if you tried to explain the functions associated with modern day Bitcoin, you could very well be thrown in jail or labeled a madman!
Instead of talking about blockchain technology and decentralized systems when you went back to these past eras, you could explain the concept of bitcoin by using the island of Yap as an example instead.
As a small island located in the Western Pacific, Yap lies approximately in between the Philippines and Guam. It is striking how many similarities exist between the form of currency these people used in ancient times and that of bitcoin.
Key similarities include the supply being limited, it was hard to mine, and there was a public ledger system used that had its basis on consensus. The island of Yap and their currency provides a great way to explain the apparent intricacies of bitcoin and other cryptocurrencies.
In very basic terms, money is a social construct. Most types of money are not very useful apart from being a medium of exchange.
You can’t use paper or gold to eat or hunt for your meals. Societies do need a medium of exchange that has been universally agreed to hold specific value in order to allow for trade. This is the reason legal tender was created in the first place.
If the supply of money weren’t limited, then there would be massive levels of inflation. If you used the leaves of a tree as currency, everyone would have access to millions of this currency, making it useless as a medium of exchange.
This is why the supply of money needs to be limited, something which is controlled today by the central banks.
If you were living on an island in the middle of the ocean, it is difficult to decide what should be used as a medium of exchange. In many ancient civilizations, the likes of sea shells and fish scales acted as money, but in areas like Yap where they have an infinite supply of these things, they clearly would not suffice.
The people of Yap were great sea travellers, and by visiting islands nearby, they found that they had materials such as limestone that they did not possess themselves. The access to it was difficult, and there was a lot of work involved with getting it back to their own island. This is how it became the medium of exchange for people of Yap.
These stones were shipped via canoes and rafts back to Yap, with the massively wealthy ones weighing up to four tons.
Due to the effort, it took to mine the limestone, it can be compared with the computational power and energy cost associated with mining bitcoin. Those who mined the limestone were rewarded handsomely, just like bitcoin miners.
The main issue with the stones, however, was their sheer size, as they could not be easily transported. Money should be portable and convenient. The people of Yap came together and decided on what is the first ever recorded distributed ledger that is governed by consensus.
When one of these stones (called Rai stones) was changed owner, the stone itself was not moved. Instead, everyone in the community acknowledged this transaction via the public declaration. Once everyone agreed that this belonged to the new owner, there was no need to moves these stones.
There was even one story whereby a massive Rai being transported fell to the bottom of the ocean, but the survivors vouched for its size, and it stayed as a valid form of currency and exchange.
Cryptocurrencies work the same way. Bitcoin is pure code, so it doesn’t matter if it physically exists or not. Whenever a bitcoin transaction is confirmed, there will be a recorded announcement on the blockchain.
When a sufficient number of nodes confirm it, there will be a reaching of consensus, and this will become entered onto the public ledger.
It is amazing how rational the people of Yap were, and now the very same principles they used for the medium of exchange is being used behind the wave of cryptocurrencies today.