MAN: Thanks to IBM Z for supporting PBS.

Hey, smart people.

Joe, here.

How much money do you have?

Don't worry.

This isn't a Patreon thing.

But we are on Patreon now.

Anyway, seriously.

Count your gold or your silver or your Benjamins, or maybe even your Rai stones, if we have any fans from the Pacific island of Yap out there.

Well, how much have you got?

There's a lot of ways to store your moolah, from the mattress to mutual funds, gold bars to Venmo.

But I'm willing to bet good money that your money is just, like, some numbers in a computer database somewhere.

And I recently found myself wondering, who says those bits and bytes are worth real money?

I mean, the Amazons and Walmarts of the world are perfectly happy when you tell your computer to tell the store's computers to tell Mastercard's computers to move that so-called money around for you.

But how did we get from hoarding and exchanging gold to a world of zeros and ones being shoved around by algorithms?

Well, the truth is that money has always been sort of imaginary, from people agreeing to agree that two lumps of silver are definitely worth a goat, or some scribbling that totally means you're rich, to today's crypto cyber stacks.

And at every step along the way, from clay tablets to Bitcoin, it turns out that these shared delusions of value didn't just come from social and political forces.

It was technology that made money possible.

[MUSIC PLAYING] Say that I'm a Mesopotamian farmer.

My wheat crop is kind of wimpy this year, so my neighbor Inkoshish helps me out.

He needs some wool, and I owe him a favor, so I send some over.

Everyone's happy.

But that didn't involve any money, just the exchange of gifts.

Barter-- it's easy.

But say his crop comes a few months before my sheep get fluffy enough.

Tracking who owes you over time is hard.

And it's even harder if Inkoshish insists that your wool has to be just as nice as his wheat, or he's going to club you over the head or something.

If only there were some technology that could help you record who owes who what.

Well, the earliest forms of writing were all about accounting.

At first, people recorded actual wheat and wool or whatever.

But eventually, people started recording all their debts in standardized units of account.

The way we have standard units, like meters or degrees, early accounting used units like cowry shells or shekels of grain.

Writing debts down in standard units serves one of the main functions of money.

It lets you store value or save up favors to cash in later.

And when you do want to cash in, money gives you a medium of exchange.

It's a convenient way of swapping what you have for something that you want.

Just record some new numbers in your ledgers, and as long as everyone trusts what's written down, now you both agree on a new amount of imaginary value that each owes the other.

Boom.

That's money.

And it's actually why writing was invented.

I want to pause to stress how mind-blowing this is.

Money literally is just accounting.

It's just a way to agree on how much value someone has stored up, and how to exchange it later for actual stuff.

Yes, I just called accounting mind-blowing.

Finally, you accountants out there get to claim some cool points.

But when we think of early money, we tend to think of commodity money-- physical objects that are useful, like rice grains, or pretty like gold coins.

That lets you store value by literally storing it, and then exchange it by, well, actually exchanging the physical objects.

But using commodity money means you have to make commodity money, which is solved by production technologies like smelting.

But it also creates a more subtle technological problem-- trust.

If your trading partner gives you a payment object like a coin, how can you be sure that it is what they say it is?

I mean, sure, it looks shiny, but how do you know that Inkoshish or Erasmus or Giovanni didn't dilute the metal?

To solve that problem, people invented touchstones-- chunks of rock on which you'd scrape both real gold and the coin that you're offered.

The streaks would be different if a coin was impure.

A better solution was minted coins.

A government could guarantee a coin's purity by stamping their official seal on a lump of metal.

And milled or reeded edges-- those are those little ridges you see on coins-- they could prevent anyone from secretly shaving off some extra gold for themselves.

And these technologies let people trust money enough to actually trade it.

But commodity money has a problem.

You get too much of it, and it's a pain to carry around.

So people started storing their big piles of heavy metal in temples and banks, which gave them paper receipts that they could cash in later.

It was a form of representative money, written notes with no intrinsic value, promising that whoever held one could exchange it later for the stuff with actual value.

And as far back as 12th century China, some governments decided they could just declare certain pieces of paper were worth something, even without shiny, valuable objects in a vault somewhere to back them up.

You couldn't trade those pieces of paper in for gold, but neither could your neighbor.

So everyone just agreed to pretend, which is why you can't demand gold for dollars, and why it costs more to make a penny than it's worth.

It became way more practical to carry these notes around instead of clay tablets or all that heavy metal, all thanks to technologies for writing, printing, and making paper.

So that's how old-school technologies made old-school money possible.

But in the 1800s, new technology started to dramatically change how money was stored and exchanged, starting with the telegraph.

In 1872, Western Union set up a system where customers could wire money to other offices around the U.S.

Your grandma could give money to one office, and that office would send a specially coded message to a district clearinghouse, which would verify the money had been handed over, then send a second coded telegram to the receiving office, telling them it was OK to give you your birthday cash.

For the first time, money could move faster than people.

Just five years later, more than 38,000 wire transfers were moving nearly $2.5 million around the country each year.

Well, fast forward to the 1960s, and people were doing way more buying, particularly with these newfangled credit-card things, which quickly tell a merchant who to call to see if you have any money.

But every time a store needed to check a customer's credit card, they had to call on the phone, and someone had to manually check paper records.

Fortunately, electronic computers were just becoming a thing.

Ledgers could now be read by machines.

So when someone called, banks let the computers authorize the card payments.

And those magnetic strips let the merchant's machine automatically call the credit company's machine, taking more humans out of the process-- fewer people, fewer errors, and faster than ever.

But remember that money is about storing value too.

During the '60s, banks started installing other electronic computers that replaced those early mechanical storage devices with magnetic disks or tapes that can hold tens of megabytes, which is only a fraction of this video file.

It was a different time.

But since the '70s, computerized financial data has kept exploding in volume.

In 2018 alone, payment networks processed nearly 370 billion transactions.

Instead of finicky phone calls between glorified calculators, digital networks now whisk transactions to huge mainframe computers that handle each one in a fraction of a second, essentially 100% of the time.

Mainframes are the hulks of the computer world-- super fast input and output, obscene amounts of disk space, and all sorts of extra machinery for extreme reliability and security.

Can't play Fortnite on them, but they do have special error-correcting memory chips that can even catch if some random cosmic rays, which is a 0 to a 1 on some chip, and changes your $24 into $1,048.

On top of that, sophisticated machine learning programs take just milliseconds to analyze my past behavior and millions of other people's to see if this purchase was really made by me, or some Nigerian prince buying toy ponies with my stolen credit-card number.

Because I would never buy those.

This technology all works so well that we don't even think about it anymore.

And right about now I know you're thinking, "Is he going to talk about cryptocurrencies, like Bitcoin, because they're, like, the future of money or something?"

Now, there's a lot of videos about the ins and outs of cryptocurrencies.

But one thing that makes them unique is that instead of one ledger of imaginary money kept by one person or multi-billion- dollar company in one place, everyone using the currency cooperates to keep one giant ledger of imaginary money that lives somewhere in the clouds.

But where traditional forms of money work by everyone trusting everyone else, cryptocurrencies kind of work by no one trusting anyone else.

The ledger of who has what is only updated after a bunch of computers compete to solve really hard math puzzles designed to make sure that no one has messed around with the records.

It's a new money technology without a middleman, which has some advantages for certain things, and it also helps if you don't happen to trust your government.

But it basically serves all the same classical functions of money-- storing and exchanging imaginary value via the magic of accounting.

Of course, the role of technology isn't all rainbows and ponies.

All of this has made it much easier for someone to do real damage to your imaginary money by hacking into stores' treasure troves of credit-card numbers and stealing them.

But on the whole, we can safely say that technology is why money exists.

Technology and invention, not just psychology or economic theories, have continuously made our use of money faster, more convenient, and more trustworthy, even if it is all completely made up.

Stay curious.

And if you want even more awesome financial videos, go check out our friends at Two Cents.

It's an entire channel that's dedicated to helping you navigate the weird, imaginary world of your moolah-- it's really good.

I want to say a big thank you to IBM Z for supporting PBS.

IBM Z is an enterprise computing system, built for high-speed transaction processing with availability, security, and data-privacy capabilities for workloads like credit-card transactions.

You can find out more about all of that at IBM.biz/mainframe.

The IBM Z academic initiative helps students at more than 3,000 schools in over 120 countries develop enterprise computing and coding skills.

Get hands on with the IBM Z through Master the Mainframe.

It's an annual contest and year-long learning program at IBM.biz/masterthemainframe.

Speaking of money and technology, we are now on Patreon.

You can join our community of curiosity and get access to a bunch of cool stuff like special merch and behind-the-scenes insider perks.

You can even join the ranks of these Galaxy Brain patrons.

MAN: Action!

All right.

Be cool.

All right.

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