Picture yourself in a time machine travelling thousands of years back and trying to explain Bitcoin to moguls of the Gilded Age or lords in Medieval Europe. That would be a Himalayan task even for Marty McFly! However, there is one very improbable place on the planet where people would understood you flawlessly. Welcome to the island of Yap.
Yap is small island in the Western Pacific. It is located between Philippines and Guam. The currency of the Yapese people is surprisingly similar to that of Bitcoin in various ways: limited supply, difficulty in mining and it used a blockchain-like distributed ledger which was purely based on consensus. Seeing how the Rai of Yap functioned conveys us closer to understanding present day cryptocurrencies.
Currency is basically a social construct. Most types of currencies are really not terribly helpful if you think about it. One cannot eat gold; one cannot use a dollar as a hunting weapon to hunt food. In any case, all social orders require an all around acknowledged medium of trade to encourage exchange, and this is the reason why currency was developed early in the history of humankind, in various corners of the planet.
Currency has to have a restricted supply, or it gets inflated rapidly. It does not make sense to utilize tree leaves as a medium of trade for example — everyone would be a billionaire on paper, but in reality those leaves would all of a sudden be worth practically nothing. Till recently people mainly used valuable metals, since they are hard to get, they have a constrained supply, and they are generally difficult to fake. Today, the shortage of currency supply is managed through central banks with a variable level of success.
Imagine a scenario where you live on an island which just doesn’t have a decent contender for a medium of trade. Seashell and fish scales were utilized as cash by numerous early civilizations, yet the Island of Yap sits right amidst the Coral Triangle — they have a basically boundless supply. Eventually, currency needs to represent work, and going down to the shoreline to gather seashells is simply too easy.
Ancient Yapese, like most people in the Pacific, were fantastic sea navigators. On their voyages, they’ve discovered that the neighboring islands (often hundreds of miles away) have something they do not: limestone. It’s rare in Yap, it’s difficult to access, and it’s an crazy load of work to bring it back home. It’s practically a perfect medium of trade! So they began to ship stones back to the Island of Yap on rafts. Some were reasonably sized, however the biggest ones, representing genuine wealth, weighed more than 4 tons (8,800 lbs).
These bear quite a lot of similarities with cryptocurrencies. A large number of them, including Bitcoin, depend on Proof of Work (POW): the effort needed to “mine” them. Today, this effort is fundamentally electric and computation power. In those days it was physical power and navigational skills. Yapese miners were liberally paid, much the same as Bitcoin miners today.
The Rai of Yap
The issue with these stones (or Rai, as they called them) is self-evident: they are just too enormous. Currency should be compact. This is the motivation behind why we don’t utilize crude oil for instance as a medium of trade. It’s rare, it represents work, yet it is insanely difficult to take a barrel of oil to the grocery store. The Rai were surprisingly worse. They were not just difficult; they were immobile. So the Yapese needed to think of an answer, and however improbable this sounds, they found distributed ledger governed by consensus.
The stone was actually not moved when the ownership of the Rai changed. This was acknowledged amongst the group by public announcement and consensus. If everyone concurred that the Rai was transferred from A to B, it didn’t generally make a difference where the stone physically was. There was a famous Rai which sunk to the base of the ocean in a tropical storm. he survivors vouched for the group that the coin really genuine and remarkable in size, and it remained a substantial portrayal of wealth, regardless of whether nobody has ever seen it with the exception of the sailors. Possession records of all the Rai were passed down through generations, at last turning into a public ledger governed by consensus.
This is precisely how present day cryptocurrencies function. The Rai were immovable; Bitcoin is pure code. It doesn’t make a difference where it is, or regardless of whether it exists in a physical shape. When you do a transact with Bitcoin, it is declared on the blockchain. When enough nodes confirm it, the consensus is reached, and the transaction turns into an entry on the public ledger.
It’s easy to reject the Rai of Yap as a foolish concept— who would use enormous stone coins as currency? But the Yapese were entirely reasonable, and every time you transact a cryptocurrency, you are using a system very similar to the one the people from the Island of Yap used.