![]() ![]() Every token of that currency must be treated equally, even if it has been used for illegal purposes by previous owners. However, divisibility of such a gold bar, the process of melting and minting it into smaller units, comes at a high cost.įungibility refers to the fact that units of money are equal. Comparable to a barrel of oil, a bar of gold is equally durable but easier to transfer. While a barrel of oil is divisible and durable, oil isn’t easily portable in barrels. Liquidity refers to the fact that the substrate that represents money must be easily tradable, at low transaction costs.ĭivisibility and portability refer to the fact that assets must be easily transportable. Money also needs some inbuilt anti-counterfeiting measures to avoid forging. Properties of money include liquidity, fungibility, durability, portability, cognizability, and stability. However, the exact definition of a legal tender varies along jurisdictions. As legal tender, it represents an accepted way to meet a financial obligation as a result of economic activities and settle a debt within the geographical boundaries of that nation state. ![]() If a currency has the status of legal tender, it is a unit with which debts are denominated in a nation state by its legal system. A currency is a system of money of a closed group of people, like a nation state, often serving as legal tender within that nation. It provides a basis for market prices, which are necessary for an efficient accounting system and the basis for the formulation of commercial agreements. Money needs to serve as a medium of exchange, store of value, and unit of account in which debt can be denominated. Money has proved to be an efficient technology for intermediating the exchange of goods and services, providing a tool to compare values of dissimilar objects. Over time, however, more neutral artificial mediums of exchange developed, which we started to refer to as money. Shells, precious metals, or livestock were first used as such assets to counter the inefficiencies of a barter economy. To mitigate this problem, one can agree on a universal asset of value as a medium of exchange. The coincidence of wants problem refers to the improbability that two parties, each of which own different goods, can agree on a deal, unless each party wants the specific good the other party offers, at the same time. It makes economic exchange much more efficient than gift economies and barter economies, avoiding the inefficiencies of such systems like the “coincidence of wants” problem. The primary purpose of money is to facilitate an economic exchange of goods and services within and between economies. To be able to draw similarities and make accurate distinctions, it is important to understand the historic evolution of money, as well as the purpose and functionalities of money. Using old terminology to explain new phenomena does not always do justice to the full range of possibilities this new technology has to offer. The biggest challenge that we face when we try to explain or talk about cryptographic tokens is that we are trying to explain new phenomena with old terminology. While native protocol tokens and some asset tokens have certain properties of money, they have more resemblance with commodity money or representative money, but not so much with modern fiat money. ![]() Referring to tokens as “currencies” sparks a lot of controversy and is not entirely true. ![]() There is a widespread misconception that Bitcoin and native blockchain tokens are currencies comparable to fiat currencies such as EUR, USD, or YEN, which are issued by central banks of nation states. Money makes economic exchange much more efficient than gift economies and barter economies, avoiding the inefficiencies of such systems like the “coincidence of wants” problem. In a market economy based on division of labor, the role of money issued by governmental bodies is to facilitate the exchange of goods and services. ![]()
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