Lessons for the Digital Age
History is rich with examples of how humans have used ingenuity to create money. From stones and seashells to cattle and beads, each form of money had its heyday, rooted in its scarcity, salability, and ability to store value. But the story of these primitive currencies is also a cautionary tale — how the very properties that made something valuable as money could be undermined by technological advancements, trade, or greed.
One of the most fascinating examples is the story of Rai stones on Yap Island in Micronesia. The ancient monetary system of these giant limestone disks bears striking similarities to Bitcoin, and its eventual collapse offers timeless insights into the nature of money.
The Currency of Stones
On Yap Island, money wasn’t paper bills or metal coins. It was carved limestone disks, some as large as four metric tons, with a hole in the middle for easier transport. These Rai stones were not native to Yap; they were quarried on distant islands like Palau and Guam. Their rarity and the immense effort required to procure them made them highly valuable.
Transporting a Rai stone was no small feat — it often required entire crews of people using rafts and canoes, with the journey fraught with danger. This difficulty imbued the stones with intrinsic worth. Once a Rai stone arrived on Yap, it was placed in a prominent location, visible to all. Ownership was transferred not by moving the stone but by public declaration. Everyone in the community would acknowledge who the new owner was, creating an early, decentralized ledger system.
For centuries, this system thrived. The stones were salable across space (usable anywhere on the island without being moved) and salable across scales (fractions of a stone could be transferred). Most importantly, they were salable across time — their value held steady because new stones were extremely hard to produce.
That is, until Captain David O’Keefe arrived in 1871.
The O’Keefe Effect
David O’Keefe, an Irish-American sailor, was shipwrecked on Yap and nursed back to health by the locals. Observing their use of Rai stones, O’Keefe saw an opportunity. He realized the Yapese valued coconuts for their oil but had no incentive to trade them for foreign currency. What if he could pay them in Rai stones instead?
Armed with explosives, modern tools, and a large ship, O’Keefe began quarrying Rai stones in Palau with far less effort than the traditional labor-intensive methods. He returned to Yap, offering his easily acquired stones as payment for coconuts.
But O’Keefe’s plan didn’t go as smoothly as he’d hoped. While some villagers were willing to accept his stones, others rejected them outright. The village chief decreed that only Rai stones obtained through the traditional, arduous process had value. O’Keefe’s stones were seen as counterfeit — not because they looked different, but because they violated the principle of hardness: the difficulty of production that ensured the stone’s value.
Tensions grew on Yap, dividing communities. Over time, as modern industrial tools became more common, it became easier for anyone — not just O’Keefe — to produce new Rai stones. This flood of supply devalued the existing stones. The Rai stones lost their salability across time, their function as a reliable store of value. Today, they remain on Yap as cultural artifacts, their monetary role long since replaced by modern government currency.
Beads, Seashells, and the Easy Money Trap
The story of Rai stones is not unique. Across history, other forms of money have risen and fallen for similar reasons: when the cost of production drops, the value collapses.
In West Africa, aggry beads — colorful, glass beads — once served as a form of currency. These beads were highly prized because glassmaking was rare and expensive in the region, giving them a high stock-to-flow ratio. They were durable, portable, and could be combined into necklaces or bracelets, making them salable across time and space.
But when European traders arrived in the 16th century, they noticed the beads’ value and began importing them in bulk from Europe. The cheap influx of beads eroded their scarcity, leading to a slow devaluation. Tragically, this process played a role in the transatlantic slave trade, as Europeans used these beads to acquire African resources — and people — at devastatingly low costs. Over time, aggry beads lost their status as money, impoverishing those who had relied on them as a store of value.
Similarly, seashells, such as wampum shells, were used as money by Native Americans and early European settlers in North America. Wampum’s value stemmed from its scarcity and the labor-intensive process required to craft it. However, as settlers adopted advanced tools and techniques to harvest shells in greater quantities, their supply surged. By 1661, wampum was no longer legal tender.
Hard Money Endures
What unites these stories is a fundamental principle: for money to hold its value, it must be hard to produce. When a monetary medium becomes easy to create, its value erodes, transferring wealth from savers to those who can produce the medium cheaply.
This concept — the easy money trap — is as relevant today as it was for the Yapese. Whether it’s Rai stones, beads, or seashells, the collapse of these currencies underscores the importance of scarcity and durability in maintaining monetary value.
Even cattle, which played a monetary role in many societies due to their nutritional value and mobility, had limitations. They were difficult to divide and not practical for smaller transactions, leading to the co-existence of other forms of money like salt. (Interestingly, our word “salary” derives from sal, the Latin word for salt, while “pecuniary” comes from pecus, meaning cattle.)
From Stones to Bitcoin
As human societies advanced, metals like gold and silver replaced these primitive monies. Their uniformity, divisibility, and resistance to inflation made them superior. But even gold and silver were eventually supplanted by fiat currencies — government-issued money untethered from physical commodities. While fiat money solved some problems, it introduced new ones, particularly the temptation for governments to inflate the supply, devaluing their currencies over time.
Bitcoin, in many ways, is a modern response to this cycle. Like Rai stones, it is decentralized, with ownership tracked on a public ledger. But Bitcoin improves upon primitive monies by being entirely digital, portable across the globe, and capped in supply at 21 million coins. Its hardness is built into its design, resisting inflation in a way that Rai stones and wampum shells could not.
As history has shown, the value of money depends not just on what it is made of, but on the trust that it will hold its worth over time. Whether Rai stones or Bitcoin, the principles remain the same. Understanding the failures of primitive monies helps us appreciate the innovation that Bitcoin represents — and the stakes of choosing sound money for the future.
The Rise and Fall of Primitive Monies was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.