Bitcoin vs. traditional currencies: Key differences explained

In the history of commerce, trade began with barter systems, whereby people exchanged goods directly. A farmer might trade grain for tools, or a shepherd might exchange animals for pottery. While simple, barter was inefficient. It required a “double coincidence of wants,” meaning both sides had to need what the other offered, and there was no easy way to measure value across different items.

To solve this, societies turned to commodity money — items widely recognized as valuable. Salt, grain and, eventually, gold and silver became early standards because they were scarce, divisible and durable. Around 600 BCE, the kingdom of Lydia (modern-day Turkey) issued the first metal coins, providing a consistent and trusted unit of exchange.

As commerce expanded, carrying large amounts of metal coins became impractical. By the seventh century CE, China had introduced the first banknotes, which were backed by government promises rather than intrinsic metal value. This shift was significant: money became less about physical worth and more about shared trust that others would accept in trade. Over time, paper currency spread across Europe and the rest of the world, shaping the foundation of today’s monetary systems.

The rise of fiat currencies backed by governments

By the twentieth century, most nations had abandoned precious metal standards, such as gold and adopted fiat currencies like the US dollar, euro and yen. Fiat money derives its value not from physical assets but from government authority and public trust. Citizens accept it because governments declare it legal tender, and require its use for taxes and debts.