One of the biggest challenges of explaining the important role cryptocurrency will play in everyone’s future lives is explaining why the money we have right now needs to change. That route can get you bogged down in the stodgy world of economics and banking. A simpler and much more engaging approach is to simply highlight the wacky forms of money that have been tried around the world, but consigned to history in favour of something more useful. In that respect the giant donut shaped Rai stones from the tiny Micronesian Islands of Yap are a great place to start.
The Yap islands are located in Micronesia, a Federation of Islands in the Western Pacific. For anyone willing to journey a thousand miles East from the Philippines these islands offer a tropical paradise and one of the most interesting examples of primitive money - Rai Stones.
Rai Stones were the local form of money on Yap, resembling donuts that ranged from just a few centimetres diameter to huge objects weighing 4,000 kilograms. Those stones that were portable would have been exchanged, while the huge stone donuts simply stayed where they lay and the change of ownership was publicly broadcast.
The stones weren’t quarried on Yap but on a neighbouring island of Palau where the Yapese discovered the particular form of limestone during a visit and were attracted by the quartz like sheen, giving a resemblance to marble.
Once they’d made the 300 mile return journey to Yap, the stone was crafted into jewelry and became extremely sought after given its obvious scarcity and the risks assumed in transporting it in simple canoes.
For Yap, isolated by huge expanses of the Pacific Ocean from much of wider civilisation where gold and silver were the predominant precious commodity, Rai stone filled that role. And just as gold and silver evolved from jewelry to money, so on Yap, became their money. Stones were cut into circles, and holes cut into the centre so they could be carried around on bamboo poles.
The Yapese cut a deal with Palau, exchanging beads, coconut meat and sea cucumbers for the privilege of quarrying their rock.
In fact, without knowing it, the Yapese had discovered something that - given their circumstances - ticked many of the boxes that define sound money, first documented by Aristotle.
Portability is the last of the six key characteristics of money and the most obvious drawback of Rai Stones.
Transporting these enormous stones manually across open water was particularly challenging as was physical exchange. Visiting Europeans in the 19th century brought iron tools with them enabling excavation of even bigger stones. The largest was 3.5m wide and would take over 100 men to lift, but most stones were rarely moved as they were relatively fragile and prone to breaking.
Instead the largest stones were only exchanged for the most significant reasons such as dowries or building alliances. Many were abandoned on Palau while some were lost at sea but that didn’t really matter to their function as money, as they could still be traded just like those that were visible within the villages of Yap.
The characteristics of Rai stones, the way they were sourced, traded but not physically moved and ownership recorded in a shared oral ledger, has led to comparisons to Bitcoin. But today Rai Stones are just a tourist attraction because the increasing outside influences of Yap eroded the most crucial of their characteristics as money - scarcity.
In 1871 an Irish Sea Captain named David O’Keefe was shipwrecked on Yap. In return for food and shelter he helped carve the Rai Stones, and realised that this presented a great business opportunity. He wanted to buy coconuts from the locals but they weren’t interested in external forms of money, so he brought equipment to Palau to quarry Rai Stones and presented them as payment on Yap.
Most rejected them because they hadn’t been created in the traditional way - to use a Bitcoin analogy the required Proof of Work hadn’t been done. Unfortunately some locals were willing to trade with O’Keefe which was the beginning of the end for Rai Stones as a currency as it undermined the critical element of scarcity.
Such was the legend of O’Keefe and his time in Yap that his story was made into a Hollywood movie in the 1950s. As much as his Micronesian adventure would have thrilled movie-goers, Yap and O’Keefe are now more famous for their role in one of the best illustrations of how money evolves and why.
Humans need money as a means to an end. It's how we transport the energy we expend in our labours across space and time. And as Aristotle discovered, the most effective money, what is described as sound or hard money, has very specific characteristics. When a superior form of money is discovered, as happened on Yap, the old is inevitably abandoned for the new. If that weren’t the case we’d still be using beads, coconuts, shells, salt or Yap stones; all of which have been used as money at some point.
Of course we’re not still using them. Each were discarded in favour of sounder money, and when you think about how money naturally evolves in that way, it should make it easier to understand why the money we take for granted might be replaced by something better.
Just as the weakness of Rai Stones was relative scarcity, it might be a surprise to you to know that the money we all use now isn’t scarce. Governments don’t even have to fire up a printing press to create money, as 97% of all modern money is purely digital, and in fact created by commercial banks. Given the state of the pandemic world we live money supplies of modern currencies are more bloated than at any time in history.
For that reason the crypto community believes money will evolve once more. Just as Yap adopted Rai Stones then abandoned them for something more useful, crypto hodlers believe that fiat money is reaching its O’Keefe moment.