Crypto FAQ: What is currency and why do we need it?

• Defn: currency
  [noun; from Latin "currens" (condition of flowing)]
  Currency is a generic term for money in any form that can be used as a medium of exchange (i.e., legal tender) for goods and services, especially government banknotes (a.k.a. paper notes) and coins.
  

There are many kinds of currencies, including:

• fiat currencies based on government decree ("fiat") — e.g., most modern currencies including USD, EUR, JPY, CNY, GBP, CAD, etc.);
• precious-metal-based currencies — e.g., mostly pre-21st century currencies convertible to gold or silver, such as the pre-1933 paper US Dollar, which was based on a gold standard);
• commodity-based currencies — e.g., the values of several major world currencies are closely correlated to the prices of the commodities that the subject nation exports: Australia AUD: Iron Ore; Canada CAD: Oil; Russia RUB: Oil; Columbia Peso: Oil; Peruvian Sol: Copper, etc.;
• digital currencies — e.g., centralized Central Bank Digital Currency (CBDC), PayPal, etc.; and decentralized cryptocurrency coins and tokens.

The following section describes the Monetary Properties of currencies. For a description of the additional Transactional Properties and Disruptive Properties of cryptocurrencies, visit the FAQ: What is cryptocurrency?.

Monetary Properties of Currency

Historical and modern currencies can be classified accoring to the five properties that Aristotle attributed to mediums of exchange (money) in his classic Politics:

• durable — the medium of exchange must be hard-wearing and able to withstand the test of time and the elements without becoming unusable.
• portable — the medium of exchange must represent a large amount of universal value relative to its size and weight, and be easily movable.
• divisible — the medium of exchange must be relatively easy to decompose and recombine without affecting its other basic characteristices.
• fungible — the medium of exchange must be exchangeable for a similar denomination without affecting its other basic characteristices.
• intrinsically valuable — the medium of exchange must be valuable in its own right, totally independent of other entities. (Of the four Aristotelian attributes, this is by far the easiest to fault. However, consider that leading world reserve currencies (e.g., USD, EUR, JPY) are fiat currencies that also lack instrinic value! Further consider that the secure transport protocols associated with cryptocurrencies may eventually prove to have intrinsic value as vital utilities for transporting digital assets.)