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One outcome of the Covid-19 pandemic is that we have all become a little more germophobic. Whilst such an environment is likely to lead to dreaded 'superbugs', one other consequence of this was a heightened reluctance for the use of cash (i.e. notes and coins). This , of course, was not a new phenomenon, with Australian consumers making a majority of payments by cards well before the pandemic began. However, cash payments plummeted even further as we all looked to avoid touching things.
And the evolution of money has a long history: From precious metals and other commodities; to bank notes and fiat currencies; to cheques and credit cards; and now on to digital wallets and cryptocurrency. And now, whether it be a debit or credit card, paypal or AfterPay, the vast majority of payments are settled via 0s and 1s; that is, digitally.
Even so, the base of most transactions, big and small, is a local, fiat currency. This is money that has been issued by the domestic government for use as a store of value and means of exchange for transactions occuring within its borders. Some currencies, perhaps referred to as 'hard', 'safe haven' or 'reserve' currencies, might also be used for transactions that occur outside of its borders, most notably the US dollar. And again, most of the usage of fiat currencies is now conducted in a digital format (even if part of the mechanism requires a card or phone).
Digital currency, however, is slightly different from digitally-transacted fiat currency, even if it is still issued by a central bank. One difference is that a digital currency only comes in digital form, there is no universally-accepted physical form that it takes. The other major difference is that digital currencies (or 'ecurrencies') can be 'tokenised' (think of a serial number on a physical note). This means that every single issued cent or dollar of ecurrency can be safely stored and easily traced - thus, the risk of fraud and bank runs can be almost eliminated.
Cryptocurrency is a form of ecurrency with one major distinction: decentralisation. Whilst a central bank digital currency (CBDC) has the central bank (and other banks) as its main record keepers, the ledger for cryptocurrencies is generally kept on a 'blockchain'. This provides greater anonymity, which may have both legitimate (people not wanting the government knowing all they do) and nefarious (people want to conduct illegal transactions) purposes. As with other currencies, cryptocurrency is fungible (e.g. one bitcoin is exactly the same as another bitcoin) and it is also tokenised.
Since the development of polymer-based notes in Australia, long gone are the days of worrying that our cash might be destroyed in our jean pockets in the wash. We can still lose cash, of course, and digital currencies help overcome this to a great extent (albeit that fraud and theft still exist). Anonymous cryptocurrencies, however, have created a new way for us to lose our hard earned money: forgotten account keys!
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