Bitcoins and Beads: Rethinking the Notion of Intrinsic Value

Journalist:
Venzen Khaosan @venzen
February 2, 2014
Indian Ocean trade routes spread goods and currency.

As Bitcoin rolls out and its usefulness as an everyday currency and store of value becomes apparent, many consider that cryptocurrency’s appearance on the world stage of currency and value transmission is unprecedented. Some argue that cryptocurrency’s rise is a direct result of it’s appeal to people’s age-old sense of fair transaction and value exchange. A look at the tiny trade bead’s role as token of value sheds light on its unexpected modern incarnation with some interesting implications.

King Solomon’s Mines

In the 1930s five European treasure hunters discovered the shrouded secret location of Mapungubwe., a hill residence of an early Southern African kingdom that thrived from 1220 to 1300 AD before it mysteriously declined. By various accounts, the legend of Mapungubwe was the inspiration for Rider Haggard’s tale “King Solomon’s Mines” (1885).
The treasure hunters’ find yielded a great wealth of Gold jewelry, adornments and statues which they carted off to sell in the European antiquities market. However, as is so often the case in treasure raids, they left behind the most “valuable” contents of the site, namely the iron tools, the glass beads and porcelain that later helped archaeologists to reconstruct a picture of everyday life and events at Mapungubwe.

Mapungubwe Hill, Limpopo, South Africa

As it turns out the original inhabitants of the hill complex were the nobility of a pastoral kingdom that traded with India, China and Arabia via the East African coast. The kingdom’s subjects were mainly cattle herders with some specialists engaged in iron mining and tool production as well as Gold mining, smelting and smithing. Mapungubwe was situated on a Gold reef with much of the seam exposed, so Gold was both abundant and easily mined. It was transformed by local smiths into jewelry and decorative objects, most of which found their way (along with ivory and animal skins) to the African East coast. At the port of Sofala these goods were bartered in exchange for glass beads from Egypt, India and South East Asia, as well as porcelain from China.

Let’s trade

On the import side of the trade equation, once arrived in the East African coastal ports, via Indian Ocean trade routes, porcelain and glass beads would enter the Mapungubwe regional economy. They would find their way via local markets into homes as utility objects (bowls and plates) and, in the case of glass beads, as decoration and currency. There is no evidence that Gold was used in any context other than that of a trade good and a decoration restricted solely to the households of the nobility. So this begs the question: If the people of Mapungubwe knew that Gold was valuable as a trade commodity then why did they not value it themselves?

Strings of trade beads … and lion’s teeth (photo courtesy of Ezakwantu Gallery)

Consider the nature of any exotic item: it is by definition of distant origin and in limited supply. It is precisely because of its local abundance and easy extraction (at the time) that Gold was not considered valuable by Mapungubwe’s citizens and could, therefore, not serve as currency. Instead it was traded for goods that were locally scarce and therefore far more valuable. Glass beads, either on their own, or once transformed into head-dresses, necklaces, armbands and costume adornment served as tokens of value exchange much as Cowrie shells and Gold coins fulfilled this proto-currency function elsewhere. Once transformed into more complex creations, the value of the whole would be greater than the sum of it’s parts – a veritable “bead chain” to today’s blockchain!

While an intricate necklace may have bought the owner a porcelain bowl or iron implement, an elaborate head-dress would command higher value during an exchange, but ultimately these
tokens of value were neither symbols nor stores of wealth and there is little indication that people hoarded beads. As is the case across much of rural Africa, even to this day, the ultimate object upon which “intrinsic” value is bestowed is the object of their pastoral existence: Cattle. The Gold, the ivory, the glass beads – none of it equal to or more valuable than a single head of cattle! “A man who has no cattle, truly has nothing!” the saying goes to this day.

Bead creations used as adornments and currency (photo courtesy of Hamill Gallery)

Imagine the Arab traders chuckling as they packed the riches of Gold in their cargo hold – procured in exchange for “worthless” beads! Imagine the African traders handing over Gold (that was practically lying around the landscape) and joking amongst themselves as they stacked crate upon crate full of exotic glass beads for transport to the inland markets. Once transported there, the beads would be lapped up and transformed into tokens of value and expanding inland trade.

Let’s consider the implications of this brief overview of the role of trade beads at Mapungubwe:

Value is relative and what we often refer to as “intrinsic value” without questioning our own assumptions, is never universal – not even along the same “trade route” – nevermind at its opposite ends where the exotic status (and therefore value) of the procured goods is extreme. This principle of markets has bearing on the Bitcoin market, where wider adoption necessitates movement of Bitcoins from those who have plenty (think miners, early adopters) to those sectors where it is scarce and hence considered more valuable. The effect of procuring high value is a willingness to pay for it and a subsequent increase in price.

A token of value is not an end in itself. The people of Mapungubwe did not hoard glass beads for their own sake, but instead transformed them into objects that could be exchanged for everyday utensils and potentially “real wealth”, namely cattle. So it is with Bitcoin. As more retailers accept Bitcoin payment, so people will start to spend their coins on the things they want and need which is, after all, the purpose of cryptocurrency. Once the adoption phase reaches the “in active use” plateau then the speculative phase will draw to a close as BTC price stabilizes and the spectre of volatility becomes a memory.

Exchange of value is the purpose of trade. Even though Gold was plentiful and therefore of little local value in Mapungubwe and her hinterlands, once Gold entered the trade route, it would eventually flow to where it was most highly valued. The same is true for the mass-manufactured glass beads originating from South and East Asia. Both products would fulfill exactly the same function of representing highly valued commodities at their respective destinations – the opposite ends of the trade route.

For a token of value to be useful (and remain useful) it must be scarce. Had Mapungubwe discovered deposits of silica and begun glass manufacture, glass beads would have quickly lost their local usefulness as tokens of value. The same applies to Cowrie shells – they are useful as tokens of value inland, but not in the coastal town where they wash out on the beach every day! By extension, you don’t need a degree in Economics to understand the fundamental flaw of fiat currency, nor to see the critical role that cryptocurrency is stepping in to fulfill. The Old World had a proliferation of currencies – each relevant to and valuable in its geographic and market context.

Hence, the notion of one-size-fits-all currency and stores of value did not apply in the ancient world and why should it be true today? We are likely witnessing a return to contextual currency whereby people will choose (from many currency options) what they want to use as a convenient token of value. Cryptocurrency can co-exist with other forms of payment and stores of value. For Bitcoin, Litecoin, etc. to be useful and valuable they do not need to replace or wipe out “the competition”. There is no competition. Cryptocurrency merely represents the natural evolution of the  trade bead in a digital age – the coming together of technology and currency. That the resulting means of exchange appeals to society and finds useful application in commerce, is testament to the principle underlying all great innovation. Simple, practical ideas never die, they spring into life much like tinder takes a flame and quickly spread to fill the need they came to fulfill.

Bitcoin and the cryptocurrency family is still in its adoption phase. There is much to learn – some of it sweet, some bitter – yet like its forebear, the trade bead, cryptocurrency fulfills a very real need as token of value and store of wealth. Somehow, somewhere between bead and coin someone pulled a fast one… but is their game up? You can bet your bottom Dollar it is.

Acknowledgements:

Interconnections: Glass beads and trade in southern and eastern Africa
and the Indian Ocean – 7th to 16th centuries AD, Marilee Wood

Ezakwantu Gallery: Trade Beads

Hamill Gallery: Currency Exhibition

Last modified (UTC): February 3, 2014 07:29

Venzen Khaosan @venzen

Market analyst and Open source developer with a keen interest in blockchain technology, consensus mechanisms and the decentralizing effect. He has found a solution to the PKI mechanism. Email me to discuss.