A key property of gold is that it is almost impossible to destroy (durable) but can be melted down into smaller units (divisible), which are relatively easy to transport (portable) and when divided, each unit has identical properties (fungible).
It is also very recognisable, which isn’t surprising as it has intrinsic value due to its colour and shine.
Gold cannot be manufactured, you can only get more of it by digging it out of the ground, but because of the difficulties in mining it, the stock of gold tends to change at a very predictable rate – this gives it the important property of scarcity.
So sound money, effective as a medium of exchange or store of value, has these properties:
- Durable
- Divisibile
- Fungibile
- Portabile
- Recognisable
- Scarce
This gives us a good yardstick to measure sound money candidates against, and should help address the question of whether cryptocurrency, as a potential new form of money, has value.
What is important about sound money is that it has a natural evolution. All civilisations independently employed forms of money – varying depending on geography and culture – and all of them, over time, voluntarily gravitated to better (sounder) mediums of exchange or stores of value.
Gold remained the dominant form of money up until the Italian Renaissance (from around 1420) when the one weakness in gold – the difficulty of transporting large amounts – was addressed with the introduction of Paper Notes, redeemable at a bank for the gold it represented.
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