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Similarities between Yap stone and Bitcoin

Summary:
Jens Weidmann of Bundesbank in this speech points to similarities between Yap Stone and Bitcoin. The history of money is a story of its gradual dematerialisation from tangible objects to intangible computer code. For example, there once was a time, on the Pacific island of Yap, when huge and heavy, often doughnut-shaped limestone discs were used as money. That is evidently a very tangible form of money, as you can see in places like the Bundesbank’s Money Museum where such a Yap stone is on display. Digital money, by contrast, is intangible. It exists only as binary code. However, the stone money was a less impractical means of payment than you would imagine. Moreover, the similarities with crypto tokens based on distributed ledger technology (DLT) are so striking that some people

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Jens Weidmann of Bundesbank in this speech points to similarities between Yap Stone and Bitcoin.

The history of money is a story of its gradual dematerialisation from tangible objects to intangible computer code. For example, there once was a time, on the Pacific island of Yap, when huge and heavy, often doughnut-shaped limestone discs were used as money. That is evidently a very tangible form of money, as you can see in places like the Bundesbank’s Money Museum where such a Yap stone is on display. Digital money, by contrast, is intangible. It exists only as binary code.

However, the stone money was a less impractical means of payment than you would imagine. Moreover, the similarities with crypto tokens based on distributed ledger technology (DLT) are so striking that some people wonder whether stone money might have inspired the invention of Bitcoin.[1]

One such similarity is that the creation of new stone discs was constrained. The limestone was carved on the Palauan archipelago, some 400 kilometres away, and shipped to Yap. This made it a very resource-intensive process, not unlike the mining of Bitcoin.

But the most striking similarity between stone money and crypto tokens is that both rely on a public, community ledger system. On Yap, villagers knew and memorised the transactions – much like a blockchain network. For this reason, it was not necessary to move the heavy stones. According to reports by locals, one large stone was still accepted as money even though it had fallen off a boat and sunk to the bottom of the ocean. So physical possession was not necessary, either. And both systems provide transparency about transactions, as well as security, without needing a centralised bank structure.

However, oral ledgers can quickly become overwhelmed if economic transactions are conducted outside a Pacific atoll or become highly frequent. Digital ledgers, by contrast, facilitate global transactions in large numbers. Of course, crypto tokens have shortcomings of their own. The high volatility of their value, in particular, limits their use as a payment medium.

So, both stone money and crypto tokens touch upon two key issues in the payments debate: First, how can consumers pay conveniently, safely and efficiently? And second, what role do we want the central bank to play?

He even points to a paper which discusses the similarities in more details.

Amol Agrawal
I am currently pursuing my PhD in economics. I have work-ex of nearly 10 years with most of those years spent figuring economic research in Mumbai’s financial sector.

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