Bitcoin and Ethereum: A 500-Year Finance Journey

Finance has always been more than numbers on a ledger. It is the story of ambition, risk, and trust, unfolding across centuries and continents. From bustling spice ports in Southeast Asia to the grand halls of the first stock exchanges in Europe, the rules of money were written through exploration, conflict, and innovation. Each era left behind tools and institutions that would shape the next, carrying forward a legacy of trade, investment, and the constant search for better ways to exchange value.

To understand where we might be headed, we must first trace the path that brought us here.

A 500-Year Journey Shaping Modern Finance

When Satoshi Nakamoto sent the first 10 Bitcoins to Hal Finney on January 12, 2009, it seemed like an almost forgettable act. Yet that small transaction became the spark for what may be the most significant transformation in global finance in the last five centuries. From the gold and silver coins that powered Renaissance trade to the decentralized networks of today, the way humanity creates, stores, and exchanges value is shifting in ways few could have imagined.

The origins of this story lie far from Silicon Valley or modern research labs. They trace back to wooden ships navigating uncharted seas four hundred years ago, when merchants and financiers began shaping a system that still underpins the global economy. Through centuries of innovation, from bills of exchange to blockchain and from the Amsterdam Stock Exchange to Ethereum, three essential functions have endured at the core of every financial system.

These functions form the historical foundations of modern finance, and exploring them is the first step in understanding how the past continues to influence the future..

Historical Foundations: The Three Pillars of Modern Finance

The Age of Exploration and Three Fundamental Innovations (1600-1700)

The 17th century began with a financial challenge unprecedented in human history. When Christopher Columbus sought 2 million maravedis in 1492, equivalent to millions of U.S. dollars today, for his voyage to find a route to India, or when Vasco da Gama needed three times that sum to round the Cape of Good Hope in 1498, it became clear that no single merchant or nobleman could shoulder the immense risk of maritime exploration alone.

A typical expedition to Asia often lasted two to three years, with ship return rates as low as 50 percent. The costs could rival the annual output of a small kingdom, yet successful voyages promised profits approaching one thousand percent. The equation was clear: the risks were too great for one investor to bear, yet the rewards were too tempting to ignore.

First Innovation: Stocks – From Crowdfunding to Capital Markets

The breakthrough came from the Netherlands in 1602 with the creation of the Dutch East India Company (VOC). Rather than seeking one wealthy patron, the VOC introduced a groundbreaking approach by dividing the enterprise into 1,143 small shares. Anyone with sufficient means could participate, from goldsmiths to nobles, from small merchants to major banks.

Just as important was what followed. The VOC established the Amsterdam Stock Exchange, where shares could be freely bought and sold like commodities. For the first time, investors were not tied to their capital for years. If they needed funds, they could sell their shares, creating what we now call liquidity.

The results were dramatic. In its first year, the VOC paid a 75 percent dividend, creating overnight wealth for many Amsterdam merchants. By 1669, it had become one of the most powerful companies in history, with an estimated value equivalent to several trillion U.S. dollars today, operating 4,785 merchant ships, maintaining 40 bases from South Africa to Japan, and even minting its own currency.

The VOC’s true legacy was not just its wealth but its model for mobilizing vast resources from a wide pool of investors rather than relying on a single source of capital. This was the foundation for all modern capital markets, from the New York Stock Exchange to NASDAQ, from initial public offerings to today’s token sales.

Second Innovation: Insurance – Turning Risk into Mathematics

While the VOC had solved the problem of raising vast sums of capital, another challenge persisted: managing the enormous risks of maritime trade. In 1601, a Dutch fleet returned from Java with only four of its original eight ships. Storms, Barbary pirates, and disease could turn a promising voyage into financial ruin overnight.

In 1688, Edward Lloyd opened a coffee house on Tower Street in London. It quickly became the city’s most trusted hub for maritime information. Captains brought reports of ship departures, arrivals, and incidents at sea, while merchants sought backers for dangerous voyages. Those who agreed to take on a share of the risk signed their names beneath a ship’s insurance agreement and became known as “underwriters”.

This informal network eventually led to the creation of Lloyd’s List in 1734, one of the world’s oldest maritime journals. By then, the practice of spreading risk among multiple underwriters was well established. A valuable cargo, for example worth £100,000, might be insured by 50 to 100 backers, each covering only one or two percent of the risk. If the ship was lost, an individual underwriter’s loss would be limited to £1,000 or £2,000.

Premiums reflected the dangers of the route. A short, protected journey such as Amsterdam to Hamburg might cost just 2 to 3 percent of the cargo’s value, while voyages through pirate-infested waters or during storm season could reach 15 to 20 percent. The principle was groundbreaking: risk could be quantified, priced, and transferred.

Over the following century, Lloyd’s of London grew into the leading market for marine insurance. The model soon expanded to other areas, from fire insurance for homes in London after the Great Fire of 1666 to the controversial practice of insuring enslaved people during the transatlantic slave trade. For the first time, what had once been seen as fate or divine will became something measurable and tradable.

Third Innovation: Payment Systems – Connecting the World

The last great problem for early global trade was finding a way to move money safely across continents. Before the 17th century, merchants often had to transport tons of silver over dangerous and costly routes such as the Sahara Desert or the Indian Ocean. Each country issued its own currency with different precious metal content, creating confusion in pricing and exchange.

In 1609, the Bank of Amsterdam introduced “bank money,” a unit of account based on a standard measure of gold and silver. Currencies from across Europe like Venice ducats, German thalers, Spanish pieces of eight, were converted at fixed rates into bank money. This created a common reference for valuation, even though actual transactions were still settled in local currency.

Moreover, the Bank also refined the bill of exchange system, which allowed merchants to settle payments without moving physical coins. A trader in London could deposit money at a local bank, receive a bill of exchange, and have their partner in Amsterdam withdraw the equivalent amount from a corresponding bank. By 1700, this network linked major European trade hubs, forming the first true international payment system.

Immortal Legacy: Three Unchanging Pillars

The three innovations of the 17th century such as stocks, insurance, and payment systems, were born from the needs of maritime trade but became the foundation of the modern financial system. Four centuries later, despite the existence of complex derivatives, cryptocurrency, and algorithmic trading, the essence of finance still rests on these same pillars.

This is testament to the genius of Renaissance financial pioneers. They not only solved specific problems of their era but created timeless fundamental principles that shaped how humanity interacts with money and risk for the next five centuries.

The Transfer of Monetary Power (1800-1900)

If the 17th century saw the birth of the three pillars, the 19th century told the dramatic story of the first modern shift in global monetary dominance: from the Qing Empire’s silver-based economy to the British gold standard.

The Peak of the Chinese Empire

At the dawn of the 19th century, the Qing Empire was, by most measures, the world’s largest economy, accounting for roughly 30 percent of global GDP. This dominance rested on a centuries-old economic model: control of luxury goods that commanded high demand abroad but required little in return. China’s silk, tea, and porcelain were coveted across Europe, the Middle East, and Asia.

The Qing court tightly controlled foreign trade through the “Canton System,” introduced in the mid-eighteenth century. All foreign merchants were restricted to the port of Canton (Guangzhou) and could only deal with officially licensed Chinese trading houses known as the Cohong. Crucially, all payments had to be made in silver bullion. No barter was allowed and no foreign bank drafts were accepted.

This policy created what historians call the “silver sink” or “silver vacuum.” Between 1700 and 1820, an estimated 60 percent of the world’s mined silver, much of it from Spanish-controlled mines in Potosí (Bolivia) and Zacatecas (Mexico), ended up in China. By 1800, the Qing treasury and private hoards together held about 1.5 billion taels of silver, nearly half of the world’s circulating supply.

Collapse and Power Transfer

This silver-based supremacy began to unravel when Britain’s East India Company introduced opium from Bengal as a trade instrument. Initially sold in small quantities, opium rapidly became a high-demand commodity in China, especially along the southeastern coast. The trade was officially banned by the Qing government, but smuggling networks flourished, often with the tacit approval of local officials.

By 1838, smuggling had reached 40,000 chests annually, about 2,500 tons of opium. The flow of silver reversed, with bullion draining from China to pay for the drug. Between 1820 and 1840, the empire is estimated to have lost 100 million taels of silver, triggering inflation, a currency shortage, and fiscal strain.

When Imperial Commissioner Lin Zexu confiscated and destroyed 20,000 chests of opium in 1839, Britain responded with the First Opium War (1839–1842). China’s outdated military, sailing junks against steam-powered gunboats, was decisively defeated. The Treaty of Nanking forced China to open five treaty ports, cede Hong Kong, and pay 21 million taels in indemnities.

The Second Opium War (1856–1860) inflicted even deeper losses. Allied British and French forces occupied Beijing, and the burning of the Old Summer Palace became a lasting symbol of humiliation. By the 1870s, China’s position had reversed completely, from the world’s largest creditor to a debtor borrowing 40 million taels from Western banks such as HSBC and Jardine Matheson to fund its weakened state.

Britain’s Golden Empire

While China’s financial power eroded, Britain was methodically building a monetary system anchored in gold. The Coinage Act of 1816 formalized the gold standard, fixing one pound sterling at 7.32 grams of gold. This commitment was more than economic policy; it was a statement of geopolitical intent.

Britain’s ability to maintain the gold standard rested on three core strengths. First was industrial dominance. By 1870, Britain produced around 40 percent of the world’s manufactured goods, giving it unmatched export capacity. Second was naval supremacy. A fleet of over 200 warships ensured control of global shipping lanes. Third was financial centrality. London emerged as the preeminent global financial hub, offering reliable credit, insurance, and settlement services.

This combination gave Britain the leverage to persuade others to adopt the gold standard, including Germany in 1871, France in 1878, and Russia in 1897. By 1900, roughly 70 percent of world trade was conducted within the sterling zone, and the British pound had become the first true global reserve currency of the modern era.

Historical Lessons for Today

The 19th century shift from China’s silver standard to Britain’s gold standard underscores a key truth: monetary dominance depends not on the sheer quantity of precious metal a nation holds, but on the totality of its economic, military, and institutional power.

The core drivers of monetary supremacy include military capability to secure trade routes and enforce economic agreements, industrial competitiveness to supply goods the rest of the world needs, and financial infrastructure to manage international credit, capital flows, and payment systems.

China’s downfall was not caused by running out of silver, but by failing to modernize militarily and diplomatically. Its navy relied on sail when rivals had steam, and its armies carried muskets against rifled artillery. Its foreign policy was insular at a time when global networks were expanding.

Although Britain had only 2% of the world’s population, it rose to dominate half of global trade by combining hard power in the form of industrial output and naval power with soft power through its legal system, reliable financial markets, and network of overseas ports and colonies.

The United States would later replicate this blueprint after World War II, substituting gold-backed dollars for the pound and reinforcing them with military alliances, Wall Street finance, and technological leadership. Today, that model is being tested not by another empire in the traditional sense, but by decentralized networks and blockchain-based assets, which may redefine how monetary power is exercised.

The Bretton Woods Era and Dollar Empire (1944-1971)

If the 19th century was the age of the British pound sterling, the 20th century belonged to the US dollar. Unlike earlier shifts in monetary power that evolved gradually, this transformation was the result of a deliberate plan. In just 22 days, at a quiet hotel in New Hampshire, the foundations of the modern financial order were laid.

Redesigning the Financial World

We have to go back to July 1944, with the Second World War still raging across Europe and the Pacific, 730 delegates from 44 Allied nations gathered at the Mount Washington Hotel in Bretton Woods. Their mission was urgent and unprecedented: to create a monetary framework that would ensure stability, rebuild shattered economies, and prevent the economic turmoil that had helped trigger two world wars.

Two proposals dominated the negotiations. John Maynard Keynes, representing Britain, suggested creating a supranational currency called the Bancor, to be managed by an international clearing union. Harry Dexter White, representing the United States, argued for a dollar-based system in which the US currency would serve as the main reserve asset. Given that the United States produced half the world’s economic output and controlled about three quarters of official gold reserves, over 25,000 metric tons, White’s proposal prevailed. Keynes, despite disappointment, conceded that the numbers left little room for debate.

A Nested Monetary Structure

The Bretton Woods system worked through a layered arrangement. The US dollar was fixed to gold at 35 dollars per ounce, with the American government guaranteeing to exchange gold for dollars held by foreign central banks. All other major currencies were pegged to the dollar at fixed rates, with only small fluctuations allowed. The International Monetary Fund was established to oversee exchange rate stability, while the World Bank was created to support postwar reconstruction and development.

For the first time, the global monetary order was not the product of centuries of gradual change but of conscious design. The results were remarkable. From 1944 to 1971, the world entered what economists call the Golden Age of Capitalism, marked by average annual global growth of around five percent, low and predictable inflation, and an unprecedented expansion in international trade.

The dollar’s strength rested not only on America’s economic dominance but on its credibility. Countries could hold dollars instead of gold, confident they could exchange them for gold from Fort Knox at any time. This arrangement granted the United States what French finance minister Valéry Giscard d’Estaing famously described as an “exorbitant privilege” — the ability to obtain goods and services from abroad by issuing its own currency, while others had to earn dollars through exports.

Mounting Strains and the Triffin Dilemma

The seeds of trouble were present from the beginning. In 1960, economist Robert Triffin warned of a paradox. To provide the world with enough liquidity, the United States needed to run persistent balance-of-payments deficits. Yet over time, these deficits would weaken confidence in the dollar’s convertibility into gold.

Confidence in the dollar began to erode. In 1965, French President Charles de Gaulle publicly criticized America’s monetary privilege and sent a naval vessel to New York to exchange 150 million dollars for gold. By 1970, US gold reserves had dropped to about 11,000 tons, roughly half their 1950 level, while around 40 billion dollars were held abroad. If all foreign holders demanded gold at the fixed rate, the reserves would be depleted within months.

The Nixon Shock

On the evening of August 15, 1971, President Richard Nixon addressed the nation and announced the suspension of dollar convertibility into gold. Treasury Secretary John Connally summarized the American position to European allies in blunt terms: “The dollar is our currency, but it is your problem.”

What was declared a temporary measure became permanent. For the first time, the global reserve currency was backed solely by the credit of the issuing country rather than by a tangible commodity. This marked the beginning of the era of fiat money.

The Petrodollar Arrangement

In 1974, US Secretary of State Henry Kissinger negotiated a strategic agreement with Saudi Arabia. In return for American military protection, the Saudis agreed to price their oil exports exclusively in dollars and to reinvest their surplus revenues in US Treasury securities.

By the following year, the Organization of the Petroleum Exporting Countries had adopted the same practice. The result was a cycle that reinforced dollar demand. Oil-importing nations needed dollars to buy energy, oil exporters deposited those dollars in Western banks, and those funds were recycled into loans to developing countries, many of which spent the money on American goods and services.

The arrangement proved resilient. Even the oil price shocks of the 1970s, which quadrupled energy costs, strengthened rather than weakened dollar dominance. The collapse of the Soviet Union in 1991 left the United States as the sole global superpower, cementing its monetary supremacy. By 2000, roughly 90 percent of global oil transactions and 60 percent of official foreign exchange reserves were denominated in dollars.

New Challenges to the Dollar

Those who attempted to challenge the system often met resistance. In 2000, Iraq’s Saddam Hussein began selling oil for euros, and three years later the country was invaded by US-led forces. In 2009, Libya’s Muammar Gaddafi proposed a pan-African gold-backed dinar for oil trade, and within two years his government fell during a NATO-backed uprising.

We could see a more significant shift in 2024, when Saudi Arabia allowed its fifty-year petrodollar agreement with the United States to expire. Crown Prince Mohammed bin Salman announced that the kingdom was prepared to accept payment for oil in other currencies, including the Chinese yuan, the euro, and certain digital assets.

This decision signaled more than a change in oil trade practices. It reflected a broader transition from a unipolar financial order to a more multipolar world. The key question now is whether the dollar will follow the path of the pound sterling after the Second World War or adapt to maintain its dominance, possibly by finding a new anchor in the digital age.

The Blockchain Revolution: Replacement Candidates

While the petrodollar system wavers, a new force quietly emerged from the ashes of the 2008 financial crisis. This time, instead of governments or central banks, monetary power could belong to mathematics and encryption.

Bitcoin – Answer to the Millennium Question

The seeds of Bitcoin were sown during one of the most turbulent moments in modern finance. On September 15, 2008, Lehman Brothers collapsed under $619 billion in debt, triggering a global financial crisis and eroding trust in the institutions that were once thought to be unshakable. Just six weeks later, on October 31, an anonymous figure known as Satoshi Nakamoto published a nine-page whitepaper titled Bitcoin: A Peer-to-Peer Electronic Cash System. The timing was no accident. At a moment when faith in the “too big to fail” banks was evaporating, the idea of a currency free from central control gained unprecedented appeal.

On January 3, 2009, Nakamoto mined the first block of the Bitcoin blockchain, embedding a message from that day’s edition of The Times: “Chancellor on brink of second bailout for banks.” This was more than a timestamp; it was a declaration of intent. Just nine days later, Nakamoto sent 10 BTC to cryptography pioneer Hal Finney, marking the first Bitcoin transaction in history.

Initially, Bitcoin was embraced mainly by the cypherpunk community, programmers and activists advocating for privacy and strong encryption. On May 22, 2010, it entered pop culture history when Laszlo Hanyecz exchanged 10,000 BTC for two pizzas, now commemorated every year as “Bitcoin Pizza Day.” The value of those pizzas would later be calculated in the hundreds of millions of dollars at Bitcoin’s price peak in 2021.

Bitcoin’s journey was far from smooth. In 2014, the Mt. Gox exchange, which once handled 70 percent of all Bitcoin transactions, collapsed after losing 850,000 BTC to hackers. The price plunged from $1,200 to $200, yet the network itself continued to function, demonstrating the resilience of its underlying infrastructure.

In detail, Satoshi built into Bitcoin a predictable monetary policy: every 210,000 blocks, roughly every four years, the mining reward is cut in half. This halving reduces the rate of new Bitcoin entering circulation, creating periodic supply shocks. The first halving in 2012 cut rewards from 50 to 25 BTC per block, followed by 12.5 BTC in 2016, 6.25 BTC in 2020, and 3.125 BTC in 2024. Historically, each halving has been followed by a significant price surge as supply tightened while demand remained steady or increased.

Institutional adoption accelerated during the 2020–2021 period. Companies such as MicroStrategy accumulated billions of dollars in Bitcoin, Tesla briefly accepted it as payment for vehicles, and El Salvador made it legal tender alongside the US dollar. By November 2021, Bitcoin’s market capitalization reached $1.3 trillion, larger than the GDP of most nations. In just over a decade, it had grown from a niche experiment to a globally recognized store of value.

Ethereum – From Currency to Financial Platform

While Bitcoin answered the question of whether money could exist without a government, Ethereum posed a new challenge: could an entire financial system run on blockchain technology?

Vision of a Young Genius

In 2013, a 19-year-old programmer named Vitalik Buterin envisioned a blockchain that was not limited to simple transactions. His idea was to create a “world computer” capable of executing complex applications through smart contracts, programs that run exactly as coded without the need for intermediaries.

Ethereum’s initial coin offering in 2014 raised $18.4 million, a record at the time, and on July 30, 2015, the network went live. From its inception, Ethereum supported a growing ecosystem of decentralized applications. However, it faced an early crisis in 2016 when The DAO, a decentralized investment fund built on Ethereum, was hacked for $50 million worth of Ether. The community voted to perform a hard fork to reverse the theft, leading to the creation of two blockchains: Ethereum (ETH) and Ethereum Classic (ETC).

This willingness to adapt allowed Ethereum to thrive. By 2017, the ERC-20 token standard fueled a wave of initial coin offerings, while the CryptoKitties game demonstrated the potential of non-fungible tokens. In 2020, Ethereum became the center of the “DeFi Summer,” as total value locked in decentralized finance protocols surged from $1 billion to $20 billion in just six months.

Perhaps Ethereum’s most significant milestone came on September 15, 2022, with The Merge. After years of development, the network transitioned from proof-of-work to proof-of-stake, reducing its energy consumption by more than 99% without downtime, a technical achievement likened to replacing an airplane’s engine mid-flight.

Comparing Bitcoin and Ethereum’s Key Milestones

Both Bitcoin and Ethereum have shaped the blockchain landscape, but they have done so with different missions and strengths. The table below highlights their most significant historical moments:

Before reviewing the table, it is important to note that while Bitcoin remains focused on being a secure, scarce, and censorship-resistant form of money, Ethereum aims to serve as a programmable platform for a wide range of decentralized applications. These distinct purposes have influenced their respective developments and adoption patterns.

From Pioneers to Pillars of the Digital Economy in 2025

Bitcoin and Ethereum began as experimental projects in the early days of decentralized finance. By 2025, they have evolved into the foundational pillars of the global digital asset ecosystem. Their influence now extends across institutional finance, decentralized platforms, and the tokenization of real-world assets (RWAs).

Institutional Momentum and Strategic Adoption

Institutional adoption of Bitcoin has accelerated sharply thanks to clearer regulations and a mature trading infrastructure. The approval of spot Bitcoin ETFs in the United States, combined with new rules allowing crypto allocations in 401(k) plans, has unleashed significant capital inflows. More than 14.8 billion USD flowed into Bitcoin ETFs in the second quarter of 2025 alone. BlackRock’s Bitcoin ETF now manages over 50 billion USD in assets.

Corporate balance sheets are shifting as well. In the first half of 2025, publicly traded companies added more than 2,500 BTC to their treasuries. State pension funds in places like Michigan and Wisconsin have begun allocating to digital assets for long-term growth. Bitcoin’s price reached an all-time high of nearly 124,000 USD in mid-August 2025, driven by favorable policy, strong ETF demand, and a weakening US dollar. Some market models project that the price could climb to between 150,000 and 200,000 USD by year-end.

Expanding DeFi and Tokenized Assets

Ethereum remains the dominant force in decentralized finance in 2025, powering over 63% of all DeFi protocols and securing 78.1 billion USD in total value locked (TVL). Daily locked value across Ethereum is approaching 96 billion USD. Layer-2 scaling solutions are central to this growth, with around 40 billion USD in DeFi activity taking place on Arbitrum, Base, and Optimism. On Base and Optimism, more than half of gas consumption comes from speculative MEV (Maximal Extractable Value) activity.

Ethereum’s infrastructure is also advancing. In July 2025, the network increased its gas limit by 25% to 45 million units, with a target of 150 million units after the upcoming Fusaka upgrade. More than one million validators now secure Ethereum, staking a combined 30.2 million ETH — approximately 25% of the total supply. Lido and Rocket Pool lead the market in staking services.

Tokenizing Real-World Assets (RWA)

The tokenization of real-world assets is accelerating on Ethereum. This includes government bonds, real estate shares, and commodity-backed tokens. Bitcoin often plays a complementary role in these markets, serving as collateral or a reserve asset in lending and settlement frameworks.

Strategic Implications at a Glance

Before examining the broader market impact, it is useful to summarize the evolving roles of Bitcoin and Ethereum in 2025.

Conclusion

Born from a brief whitepaper and a post by an unknown creator, Bitcoin has grown into the first truly global digital reserve asset, offering scarcity, portability, and a level of independence from government control unmatched by any previous form of money. In turn, Ethereum has built the programmable foundation that powers much of today’s decentralized economy, from lending and trading to digital art and real-world asset tokenization. Together, they have done more than create new types of currency; they have introduced an entirely new way to design financial systems, much like the Dutch merchants of the seventeenth century who reshaped commerce for centuries to come. The journey from the Age of Exploration to the blockchain era is not a closed chapter. It is evolving from a bold experiment into a phase where these systems are tested, scaled, and integrated into the real economy.

That evolution points toward a future in which the boundaries between decentralized, centralized, and traditional finance begin to dissolve. In the next article of this series, From DeFi to TreFi – The Multi-Dimensional Future of Finance, we will explore how protocols such as Uniswap, Aave, and Compound are re-creating the core functions of Wall Street on blockchain rails, how centralized exchanges and institutions like Coinbase, Binance, and BlackRock are adapting, and how tokenizing real-world assets could create twenty-four-hour global markets for everything from real estate to private equity. This convergence, where DeFi’s innovation meets CeFi’s usability and TradFi’s stability, may define the architecture of money for the next century. We now stand at the threshold of that transformation.