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Why the Internet Means the End of Government Money

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For thousands of years the most powerful monopoly enjoyed by the state was over money itself. Kings, Emperors and their administrations controlled the currency, its issuance and its use.

Us citizens had the use the monies we were given, or face the prospect of breaching strict legal tender laws. During these years many forms of money were tried, ranging from pepper corns, disks of whale tusk, stones and bails of tobacco, with gold and silver proving most fit for purpose.

Governments were able to maintain this monopoly by their strength and force, using armies, an arsenal, police forces and tax collectors to great coercive effect.

You might say that during this long stretch of monetary history our freedoms and choice were restricted as we laboured away under state-imposed money systems.

However, since 1990 there have been huge changes taking place.

The digital world has changed things forever

Since the arrival of the internet all this is beginning to change. Technology is enabling people and communities all round the world to create their own forms of money, try them out and make them available to others on the internet.

Money has become bottom up, instead of top down.

First we saw digital gold and silver payments arrive in the early 1990s, with the rapid rise of eGold, eBullion and others. Digital payments back by precious metals were just the start however, as new ways of decentralising money arrived and spread via technology communities.

In the mid-2000s the technology behind virtual currencies first emerged, led by Satoshi Nakamoto's research and a growing team of global developers and money hackers. Independent of the state apparatus, and like gold, but with 1s and 0s, these new crypto-currencies represent a great new development in how we use money.

Today we see a number of crypto-currencies emerging through a fascinating process of digital creative destruction. Bitcoin was truly the pioneer, but the likes of Namecoin, Litecoin, Feathercoin and their brethren are also now competing for our capital and savings. You might have noticed mainstream news coverage occurring in April this year as digital currencies first entered mass consciousness.

We are witnessing a fascinating evolution in money itself. This infographic paints a vivid story of the key developments to date.

Where is the tipping point?

As of today none of these new monies and payment systems has truly disrupted the government monopoly on money. The authorities have sometimes been heavy handed in their crack downs on these new monies, but most users are not terrorists or money launderers and are just trying an alternative to what they used all their lives.

Ultimately, the internet is proving the great enabler, with individuals, groups and organisations all over the world participating in this process monetary evolution. It will be very difficult to put the brakes on this all, given the sheer numbers of people involved, how spread out they are and how rapidly technology is advancing.

If this process does indeed continue apace, it will be evidence of a nerdy theory called Thiers' Law playing out globally. Thiers' Law essentially states that new, preferred forms of money will replace other, less popular forms, when people freely chose the money they use.

Only time will tell how our money will look in another 20 years, but for now we should marvel at the sea-changes in how we save, spend and make payments.

It's been quite a ride so far and it's about to get a whole load more interesting.