Uncovering the origin of Bitcoin

James: So imagine you're a fisherman on an island in the pacific ocean a few hundred years ago.

James: You've had quite a bit of recent success fishing and you'd like to buy a bigger boat.

James: Before there were computers, spreadsheets, printers, or even pen and paper how in the world would you conduct a large transaction? How would you keep track of who owned each boat, and how much each boat was worth? Basically you need a monetary system.

James: This is the story of how a small island in the pacific ocean invented one of the earliest systems of money and record-keeping that is surprisingly similar to the technology we use today.

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James: There are three basic components of any monetary system.

James: First, you need something that is rare, hard, or laborsome to procure or create. This makes it valuable.

James: Second, you need trust in the system by those using it.

James: And third, you need a public record of knowledge of who owns what.

Scott: I'm Dr. Scott Fitzpatrick. I'm a Professor of Archeology and Associate Director for Research at the Museum of Natural and Cultural History at the University of Oregon. I'm an archeologist that specializes in island and coastal regions in different parts of the world.

James: Scott recently told us about the story of the Yapese, a group of people living on an island in the pacific that created one of the world's oldest monetary record-keeping systems using large stones called RAI.

James: Imagine a large stone about the size of a small car in the shape of a circle.

James: In the center of this circular stone is another circle cut out.

James: Hundreds of years ago on an island called YAP, you might find the Yapese transporting one of these large circular stones back to their island.

James: The Yapese would travel to another nearby island called Palau to shape large slabs of limestone into their circular stone money called RAI

Scott: Rai stones were the largest portable items ever moved over open ocean in the Pacific before European contact. Oral traditions in Yap talk about how Yapese navigators had traveled to Palau, which is about 250 miles south of their island group, and had found limestone.

James: Once shaped, the RAI stones were transported back to YAP and actually became their form of currency.

James: RAI proved to be a very effective currency as the work required and risk in bringing back the stones made them scarce and valuable.

Scott: Oral traditions talk about there being kind of a number of different criteria that they used for assigning value to rai. The scarcity of the material is a big one.

Scott: They not only needed to find that resource, but they needed to get permission for it too. It probably involved some level of negotiation with Palauans or Palauan chiefs or villages to have access to those.

Scott: The shape is also pretty important. The size was also important too. But that's also on a relative scale because the largest stones in Yap were not the most valuable.

Scott: The ones that were carved and brought over before Europeans arrived were considered to be much more valuable because of the risk involved and other things, risk being another one of those criteria of just the labor and the energy and the risk involved in trying to not only get a quarry party to leave Yap and then just using watercraft and having to maintain those was a lot of work getting over there, carving these stones and bringing them back.

Scott: So a lot of energy expenditure is certainly required as part of that too.

Scott: So all of these -- some people sort of like say, well, it's just limestone. That's found everywhere. Why is it so valuable? And I kind of use a rough corollary of, well, they're not really so different as how we might perceive diamonds today.

Scott: The cut and the shape and the clarity, those are all kinds of important things. And I think if you flooded the free market with all the diamonds known in the world today, at least the ones that are natural, they'd probably be a whole lot cheaper.

James: New stones could be added with time much like our government prints additional money today.

James: I think about the U.S. economy, the U.S. Treasury controls the amount of dollar bills that are created every year. And if they were just to print off infinite dollar bills, money would be even more arbitrary and contribute to things like inflation that I think we'll have the opportunity to talk about in a little bit as well.

James: So it is interesting to think about something so old and how some of those basic principles, the idea of value, just haven't really changed over the course of hundreds and thousands of years.

James: In addition to the stones themselves, the Yapese had developed an entire system of ownership.

James: During a special ceremony, ownership of a stone could be transferred or exchanged for goods or services.

James: The island chief would be present during the transaction and those witnessing the transaction would serve as proof that it happened.

Scott: Oral traditions talk about this a lot, a chief of a village would sponsor that expedition. They would bring these stones back and the chief or chiefs would divide these up or send them out. This was a very sort of public display.

Scott: You can imagine your husbands or your brothers or whoever being gone from months on end, maybe even years, coming back. This would have been quite an event, them showing up with these stones or even maybe even just a single stone.

Scott: People coming to say hello to the people that they had been away from for so long and seeing these really impressive objects that they maybe hadn't even seen before in their whole life. And the chief being able to say, okay, hey, we're -- let's all get together.

Scott: This is -- we're going to say thanks to everybody who brought these over, who helped make this possible. We're going to give this person, this one, for helping supply these resources for the trip.

Scott: Part of the value too, which I did mention earlier, is that a lot of these stones have their own pedigree. So they might be named after somebody who's a famous navigator who brought that back or maybe even a famous warrior or a clan group or something that would have supported this effort.

Scott: So this in a very public forum was a way for the chief and everybody around to know that this particular stone has this level of importance. We're going to place it over here, and everybody knows who owns this at this point in time.

Scott: Because these were really important exchange valuables, they weren't something that you would just normally use to go buy food down at the grocery store in a modern sense or it's to go get taro or to get some fish that somebody had caught.

Scott: These were used in more important events, marriage ceremonies, birth ceremonies or to maybe return someone's corpse of a conflict, so you get somebody back for a proper burial or something. So these are really important kinds of objects and used in these important displays that would have made it a lot easier, I think, for them to kind of keep track of who had what.

James: An interesting thing to note is that the stone didn't need to be physically moved or transported. Ownership could be transferred with the stone remaining in the same location.

Scott: They were placing these in certain locations and that transfer of ownership would take place without necessarily having to move it. Because really a lot of people around the world have assets that are not in their immediate location.

James: RAI was one of the first organized systems of currency and shared recordkeeping.

James: What makes it particularly interesting is that by creating RAI, the Yapese were an early pioneer of blockchain technology used today.

James: RAI was an early implementation of the distributed ledger concept that today's Bitcoin blockchain technology is built on.

James: Here's a comparison:

James: Bitcoin relies on a distributed ledger called the blockchain. This is basically a shared record of who owns what.

James: RAI relied upon a ceremony with the chief and others taking witness to a transaction taking place

James: With both systems, there's no central bank. Meaning, there's no “official notebook” with a record of all the transactions.

James: Instead, the notebook or ledger is owned by everyone in Blockchain's case and witnessed by the chief and everyone else for RAI

James: Another similarity is the mining of new currency. I'm sure you've heard of bitcoin mining or in other words creating new bitcoin.

James: As for RAI, of course these coins were literally mined. Pulling stone out of the ground, shaping it into RAI, and then transporting it back to YAP.

Scott: When you look back at the ways in which traditional societies around the world have used exchange valuables, whether those are stone or metal or shell or lapidary items or whatever, really in Yap, it's the only case that we know of where you do have this evidence of an oral ledger, of people really making a strong effort to keep track of who owns what.

Scott: These rai stones, of course, are very visible features that are easily identifiable. They're not easy to move. And that's something that you can more easily keep track of.

Scott: That is an interesting corollary to how blockchain operates, just so you can maintain some faith in the system. There's transparency with how everything is kind of in terms of how those assets are stored and moved or exchanged.

Scott: Even though this is kind of conjectural, we do suggest that, well, if there was ever a pinprick of an idea by Nakamoto who was credited with -- whoever that is, whether that's a he or a she or a group of people.

Scott: If there was a pinprick of an idea about how you should or could structure an electronic ledger in order to keep track of digital currencies, I think Yapese stone money is really the best way to sort of concieve of that and the best example of how that might have been the impetus for this idea.

James: History often repeats itself and it's truly fascinating to think that a group of people on an island in the pacific ocean hundreds of years ago were the early inventors of a technology and system that we use today in modern times.

James: One of the things that's interesting to me is just the parallels that they're able to find between hundreds and thousands of years ago with the things that we do today and looking back and finding things that were built or made or used or whatever it may be that we didn't give credit for. And so thinking about something that we, again, look at as so futuristic in the blockchain and finding parallels and origins in something so much older is just really incredible.

Scott: It's one of the innumerable cases of the past having influence on the present. We can learn from what we've done in the past, and a lot of ideas that we have today aren't necessarily new ideas.

Scott: We still don't have really great explanations sometimes for how people in the past were doing things. They did some very extraordinary things that scientists today are still trying to figure out and debating. This is another small but very interesting example of that.