A New Theory of Money: From Ancient Japanese Copper Coins to Virtual Currencies

Abstract
This study introduces a new theory of money that can explain the ancient system of commodity money, the convertible and fiat systems of paper money, and the system of virtual currencies, in a unified manner. The key factor that underlies this theory is trust in money, which is built into the model in this study. The study demonstrates that the history of money can be thought of as a process that economizes transaction costs which builds trust in money and currencies. If an ideal blockchain is developed, it may replace the current monetary system of paper money and deposit money for which trust is provided by the central authorities. That will be possible if the decentralized system of blockchain-based money can sufficiently economize the transaction costs that are necessary to maintain the current centralized system of money.