Monetary System

Every monetary system in the last 5’000 years consists of the base-money and of the credit-money.

Initially, the commodities (wheat) was used as a base-money, then gold and silver. After that, we entered the phase where the sovereign started to mint their own base-money. Nowadays we are in the central banking system, where the governments are not allowed to create the base-money anymore, but they have delegated this to the central-banks.

Credit-money has existed 5’000 years as well – first instances are known from the Mesopotamia. Credit-money was created in the decentral peer-to-peer transactions for thousands of years and it was destroyed when the loans were paid back. Credit-money is, in essence, transferable debt obligation – a bearer note.

Let’s think again – commodities, which were not manipulatable in quantity were used as a base-money; and the credit-money was created in the peer to peer transactions. There was no government involvement, only the functioning court system was required.

First commercial banks started to emerge 350 years ago. Soon the banks started to issue their private credit-money, but later, with the introduction of central banking the private credit-money was replaced with the centrally controlled credit-money.

The monetary system started de-centrally, but it has transferred to a fully centrally controlled system. The thesis of SmartCredit.io is that the blockchain will enable the shift to the decentral monetary system again.

This thesis is based on transaction cost analysis:

• Decentral credit-money was the initial monetary system
• Private credit-money followed because it’s production was with lower transaction costs
• Then centrally controlled credit-money followed (our current system) because it had even lower transaction costs
• However, the blockchain has lowered transaction costs even more. Our thesis is that the next version of the credit-money will be based on the decentral blockchain because of lower transaction costs compared to the central credit-money.