How Have Payment Networks Changed Over The Years?
Payment networks have been a part of human history since the beginning of commerce and trade. From the earliest tally sticks to modern-day electronic payment networks, the methods of exchanging goods and services have evolved significantly. For thousands of years, the systems we used to facilitate payments have been tied to the technology and communication networks we had available.
Thousands of years ago
Many history books report that centuries ago bartering was the most common method of exchanging goods and services. Examples given are that people would exchange goods and services directly. For example, a farmer might trade a basket of grain for a cow, or a carpenter might exchange a simple table for some apples. This system was simple and efficient, but it is said that it had its limitations. For example, people needed to be locally based to start with, sometimes it was challenging to find someone who was either trading or wanted the specific goods or services that you had to offer. Additionally the values of goods and services were often subjective, making it difficult to determine the equivalent value of one item compared to another. But other historians claim that barter based economies did not exist claiming that gift-giving was instead the norm - with credit extended on a personal basis often held over the long term. What we do know is that five thousand years ago, the Mesopotamians relied on clay tablets to record those trades and a few thousand years later in China people around 995 AD the first paper notes began to be used.
The introduction of tokens as money
People began to use tokens as a medium of exchange. Tokens allowed people to trade goods and services without finding someone who wanted the specific item they had to offer. Instead, people could trade their goods and services for other tokens, which could then be used to purchase other goods and services. This became widespread, and it quickly became the dominant method of exchanging goods and services. As long-distance trading developed on the Silk Road and beyond, the Hawala system for commercial transactions established the system for transferring tokens without actual tokens moving. In the city of Lydia - once in Greece and now in present-day Turkey - lumps of electrum with a consistent ratio of gold to silver were broken into standard sizes and branded with the image of a lion. The Lydians invented coins and transformed every-day life. Over the centuries that followed paper money became widely used to reduce the need to carry heavy satchels of coins.
And then came banking systems
With the widespread use of money, the need for banking systems arose. Banks were established to hold and manage people's money, and to facilitate the exchange of money between individuals and businesses. Banks began to issue paper money backed by the gold or silver that they held in reserve. This gave people confidence in the value of the money they were using, and it allowed banks to develop credit, which helped to stimulate economic growth.
Payment networks followed telegraph poles
150 years ago, using the ‘new’ technology of phone lines - just like telegrams - people started moving money between places like New York, Boston, and Chicago.
The development of electronic payment networks
In the 20th century, the development of computers and the internet led to the emergence of electronic payment networks. Electronic payment networks allowed people to transfer money between each other quickly and easily, without needing paper money. Later, some of the first electronic payment networks were established in the 1970s and 1980s, and they were initially used to transfer funds between banks.
Electronic payment networks began to expand, and they became available to the general public. Online payment networks emerged, allowing people to send and receive money from their computers or mobile devices. These networks use encryption and other security measures to protect users' financial information, allowing people to transfer money anywhere in the world in real-time. However they remain closed networks and even today it’s not easy to send money between different systems.
Recently the rise of cryptocurrency and blockchain technology has led to the development of decentralized cryptocurrency networks. Cryptocurrency networks are not controlled by a central authority, and they allow users to transfer value and other digital assets directly between each other without the same need for intermediaries such as banks or payment processors.
Cryptocurrencies such as Bitcoin and Ethereum are examples of decentralized cryptocurrency networks. They use cryptography to protect users' assets, and allow users to transfer value and digital assets anywhere in the world. Cryptocurrency networks are still in their early stages of development, but they have the potential to revolutionize the way we exchange goods and services.
Payment networks have come a long way since ancient civilizations. From the use of money and the emergence of banking systems to the development of electronic payment networks and decentralized payment networks, the methods of exchanging goods and services have evolved significantly over time. With new protocols like the Lightning Network transactions will become faster, less expensive, more open and more secure.