Money as a medium of exchange, and a store of value, has gone through many avatars as civilizations have surged and ebbed. Precious metals, precious stones, cowrie shells, rice–at various times in various places, these things have been used either as currency, or as an asset backing currency.
This book is basically focussed on the new kids on the block—the cryptocurrencies—although it takes a quick look in passing at historical trends in currencies. Cryptocurrencies are a 21st century invention and, according to their advocates, the future of money.
Most people have only a very dim concept of how and why cryptos work. While these digital artefacts have been at the centre of innumerable controversies and enabled several types of crimes, (including some new ones,) these are also among the most interesting of innovations.
To understand how cryptos work, and when they don’t, we need an explanation of how these are constructed as well as the economic implications of having such instruments around. Raghavan provides a sound introduction to the subject.
As the book explains, cryptos have forced central banks in particular, and economists in general, to examine the underlying logic of currencies and their management. They have also, almost accidentally, enabled the development of new digital instruments that offer both powerful defences against fraud, and the capability to enforce ironclad contracts between strangers without need for legal intervention.
In 2008, the financial world, which was already in crisis, received a tectonic shock. A pseudonymous hacker (or maybe a consortium) using the handle ‘Satoshi Nakamoto’ wrote an academic paper laying out the mathematical prerequisites for creating a new digital currency.