The Road to Davos: A Brief History of Value and Payment Systems


Ancient societies had incredibly advanced value and payment systems. Photo: Shutterstock

Next week, Ripple CEO and co-founder Chris Larsen is headed to Davos, Switzerland for the World Economic Forum, an annual meeting of some of today’s most influential people from central bankers and celebrities to leaders of nations and industry titans. There, they’ll discuss big picture topics like the Fourth Industrial Revolution.

Ripple attends as one of the WEF’s Technology Pioneers for 2015Past recipients of this designation include Google, Airbnb and Twitter among countless other companies that have gone on to make a big impact in their respective industries.

The Road to Davos blog series tells the story of Ripple from the big picture perspective of the WEF.

See you in Davos.


In the beginning, there was nothing. So value and payment systems were purely abstract. It was all in our head.

Caveman Bob gave Cavewoman Alice some berries. Later in the week, Cavewoman Alice gave Caveman Bob some shells she found by the beach. Over the long run, and if peace and good vibes were maintained, some sort of financial equilibrium would emerge as an abstract emotion in the minds of Bob and Alice.

And in a way, in abstraction, these systems existed in their purest form, accounting for externalities and evolving cultural values, limited only by the physical restrictions of the human mind—which, admittedly, is relatively restrictive.

But this was probably how the first human payment system worked—a quasi financial, partly emotional reputation-based credit system.

You’ll find similar behavior with certain species of bats.

If a bat is particularly flush with blood after a successful night’s hunt, it will share the spoils with other bats. Bats keep track of these payments, sometimes over the course of many years. Over time, generous bats are paid back in kind. If a bat gets a reputation for never returning the favor, he’ll get cut out of the payment network.

Such behavior emerged after millions of years of evolution. It’s a survival mechanism. A robust payment network within bat communities reduces food uncertainty.


As is typical of homo sapiens, we quickly developed tools and technology to leverage such abstract needs—in this case the need to represent value and the need to facilitate payments.

People often erroneously reference the barter system as one of the economic systems, operating under the assumption that we had a functional society prior to the development of value and payment systems, which might seem to intuitively make sense. Even Adam Smith has suggested that value and payment systems may have emerged in ancient societies because of the inefficiency of barter.

Modern scholars disagree. Not only have anthropologists failed to find any evidence that money emerged from barter, further studies concluded that no past or present society has ever used a barter system in the absence of already existing value and payment systems.

What this suggests is that before there were value and payment systems, there was nothing—no trade, no commerce, no economics. What that means is that the development of such systems coincide with the birth of civilization.

From there, things developed rapidly.

By 1890 BC, the financial systems in the ancient town of Kanesh (present-day Kültepe, Turkey) were already wondrously sophisticated. We know this because of a comprehensive written record maintained by local tradesmen recently uncovered by archaeologists. As NYT Magazine reported:

The picture that emerged of economic life is staggeringly advanced. The traders of Kanesh used financial tools that were remarkably similar to checks, bonds and joint-stock companies. They had something like venture-capital firms that created diversified portfolios of risky trades. And they even had structured financial products: People would buy outstanding debt, sell it to others and use it as collateral to finance new businesses. The 30 years for which we have records appear to have been a time of remarkable financial innovation.

If the advanced nature of a Bronze Age financial system is impressive, it’s perhaps not all that surprising. From the human perspective, value and payment systems are tools for actualization—for both the individual and society at large. As such, it’s understandable that its development was top of mind.

Prior to the invention of value in the quantitative sense, every man and woman was an everyman and everywoman. You made your own stuff, you got your own food, you did everything yourself. As a wise man once said, “A jack of all trades is a master of none.” Before the advent of value and payment systems, there were no masters. The existence of value and payment systems allowed people to specialize. With the birth of specialization came an unprecedented acceleration in human productivity.

The use of technology also represented the transition from the abstract to the physical. Suddenly, value was tangible. You had a quantifiable sense of worth.

One of the first major value and payment systems was gold. Not only did it catch the eye, it had all the right properties.

It’s scarce, so it keeps its value.

It’s pure. Which makes it impossible to counterfeit. That also means it’s fungible.

And before long, it was ubiquitous. In other words, it was universally accepted.

In a sense, what we realized was that gold was the closest thing we could find in the natural world that was a physical manifestation of the abstraction of value was in our heads. Once just a swirl of electrons in the mind, the discovery of gold meant that we could hold value in our hands.

But there will always be limitations when dealing with the physical representation of the abstract.

Gold, for instance, isn’t very convenient or efficient.

Its supply is arbitrary, ecologically defined rather economically—hardly optimal from the perspective of an efficient financial system.

Looking at gold today, aside from its historical credibility, it really doesn’t make a lot of sense. Warren Buffett explained it best in a talk he delivered at Harvard in 1998:

“Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

And so, as technology improved and society became more advanced, our value and payment systems have tended back toward the abstract. A check is just a promise. Paper money, once backed by gold reserves, is now backed only by the credibility of the government that issues it.

This trend back toward the abstract makes perfect sense. Physical systems are impractical and inflexible. Today, central banks have no idea how much money is actually out there. As a result, monetary policy can only be as precise as a central banker’s best guess.

None of this would be an issue if our value and payment systems were designed in the spirit of the Internet. We’ve seen every industry embrace this philosophy, to exist as ones and the zeros, to be networked.

Banking isn’t fully there yet.

We have smartphones, smart refrigerators and smart factories. But we don’t have smart payments. The way we transfer value is still kind of dumb.

That’s a serious problem—one that manifests itself as a lingering bottleneck on the global economy.

It’s no one’s fault in particular. One reason why it’s taking so long is because this is a very hard problem to solve, one that may have only recently become solvable.

Today, however, we finally have the tools, the resources and the will to make that happen.

The desire to do so should come with a sense of urgency.

As the final laggard in that evolution, money and payment systems represent the last puzzle piece in realizing what some are calling the Fourth Industrial Revolution

So what we need is the Internet of Value.

The early days of the Internet provides a glimpse of where we are headed. As it happened, the architects of the World Wide Web were keenly aware of the importance of payments.

Included in the original documentation for the HTTP protocol are a set of error codes. The one most people are familiar with is 404, which means ‘Page Not Found.’

Then there’s 402, the code reserved for ‘Payment Required.’

Despite their intentions, that feature was never finished. Maybe they didn’t have the right technology. Maybe they had other more pressing priorities. Or maybe it simply wasn’t feasible at the time to build a value and payment system in the spirit of the Internet.

But today, we can.

And we are.