Understanding the Core Properties That Define Money

Money isn’t just something we use daily—it’s a complex system with specific characteristics that allow it to function effectively in our economy. To truly grasp what money is, we need to understand the underlying properties of money that make it work as a medium of exchange, unit of account, and store of value across different societies and time periods.

What Makes Something Qualify as Money?

For centuries, societies have experimented with different commodities to serve monetary purposes—from seashells and glass beads in Africa to wampum used by Native Americans, and eventually gold and silver. What remained constant across all these experiments was that successful monetary systems shared fundamental characteristics. These properties of money aren’t arbitrary; they emerge from practical necessity. When people gather to trade, they naturally select whatever commodity best satisfies these core requirements.

Not every object can become money. A cow cannot function as money, nor can a stone. These items fail because they lack the essential properties of money needed for efficient commerce. The question becomes: what exactly makes one commodity suitable for money while another fails? The answer lies in six widely recognized properties that have stood the test of time.

The Six Essential Properties That Support Sound Money

Durability: Money That Lasts Through Time

For money to be passed hand-to-hand repeatedly without losing its value, it must resist wear and damage. Physical tender like paper currency can tear and deteriorate. Gold, by contrast, doesn’t rust, decay, or corrode over centuries. This durability ensures that your wealth today remains viable tomorrow. In modern contexts, digital currencies inherit this property through cryptographic resilience—they don’t physically degrade. Durability is foundational because without it, the other properties of money become compromised.

Portability: Moving Value Across Space

Money should be convenient to transport, whether physically or digitally. Imagine trying to conduct trade with only iron ore as your currency. You’d struggle to carry large quantities across distances. This is why gold became preferable to iron—an ounce of gold represents far more value in a smaller package. Modern fiat currencies solved this problem through standardized denominations and later through digital transfers. Bitcoin takes portability to an extreme, allowing billions of dollars’ worth of value to be transmitted globally in seconds through a simple digital transfer.

Divisibility: Breaking Down Value Into Smaller Units

Money must be divisible into component parts without losing value. A ten-dollar bill can be exchanged for two five-dollar bills with no loss of purchasing power. This allows transactions of any size. Livestock makes poor money precisely because you cannot divide a cow into smaller value units. Digital money excels at divisibility—cryptocurrencies can be divided into infinitesimally small units (Bitcoin into satoshis).

Fungibility: Perfect Interchangeability

Each unit of money should be identical and interchangeable with every other unit. One dollar is always worth exactly one dollar; two five-dollar bills are always worth exactly one ten-dollar bill. This interchangeability is essential for pricing, accounting, and commerce. If different units of “money” had different values (like rare collectibles), it would no longer function as money—it would become a speculative asset.

Scarcity: Limited Supply and Unforgeable Costliness

Money must have limited supply, otherwise inflation inevitably erodes its value. Computer scientist Nick Szabo termed this concept “unforgeable costliness”—the genuine difficulty of creating more units. Throughout history, this is why precious metals dominated: you cannot simply manufacture gold or silver at will. The supply is constrained by geology and extraction effort. When governments print paper money without restraint, that currency loses value as the supply explodes. This property of money directly determines whether it can store value over generations.

Verifiability: Recognition and Authenticity

Money should be easily recognized, difficult to counterfeit, and widely accepted. Physical currencies achieve this through security features and government backing. Digital systems achieve it through cryptographic verification. If money can be easily faked, vendors reject it and it fails as a medium of exchange. Verifiability protects the entire monetary system from collapse through fraud.

Why These Properties of Money Matter for Society

For thousands of years, gold naturally accumulated these six properties better than any competing commodity. Gold is durable (it doesn’t corrode), portable (concentrated value in small packages), divisible (can be melted and reformed), fungible (one ounce equals any other ounce), scarce (limited by nature and mining difficulty), and verifiable (visually identifiable by experts). This is why gold gradually became the de facto worldwide monetary standard after millennia of free-market experimentation.

The shift away from gold began in 1971 when governments severed the connection between currency and physical bullion, inaugurating the era of fiat money. Fiat currencies sacrificed some of the properties of money—especially scarcity and durability of value—in exchange for government control and the theoretical ability to manage economies through monetary policy.

How Modern Money Challenges Traditional Properties

Contemporary fiat systems maintain portability and divisibility but have weakened scarcity and store-of-value functions. Central banks retain unlimited authority to print currency, deliberately eroding the property that made gold compelling: scarcity. This design ensures that money loses purchasing power over time by design—the central feature modern economies rely upon to maintain economic activity and reduce the real burden of debt.

Digital currencies have introduced additional properties of money that weren’t relevant before: established history, censorship resistance, and programmability. Bitcoin, for instance, inherits the durability and scarcity properties of gold while adding extreme portability and programmable restrictions on how the money can be used. Its code-enforced supply cap provides scarcity guarantees independent of any central authority.

The Three Functions Enabled by These Properties

The properties of money exist to support three essential functions:

Medium of Exchange — Money facilitates transactions without requiring the mythical “coincidence of wants” where two parties both possess and desire the exact items each other owns. Before money, economies relied on barter, which severely restricted commerce.

Unit of Account — Money provides standardized pricing, allowing market participants to compare values and conduct complex economic calculations. Prices expressed in a shared unit enable capital accumulation and economic planning.

Store of Value — Money preserves wealth through time. Only commodities with strong durability and scarcity properties achieve this. Consumption goods like food spoil; capital goods like machinery depreciate. Money must resist both.

The Evolution Continues

Each era of monetary evolution reflects which properties of money societies prioritize. Medieval Europe valued gold for its durability and scarcity. Victorian economies valued verifiability and fungibility through standardized coinage. Modern economies struggle to balance scarcity with government control, accepting the inflation tax in exchange for policy flexibility.

The emergence of digital systems like Bitcoin represents an attempt to recapture properties that fiat abandoned—particularly scarcity and value preservation—while adding digital-age advantages like global transferability and programmability. Whether digital currencies ultimately succeed depends on whether they can consistently deliver the properties of money that users demand.

Understanding the properties of money helps explain why certain systems succeed while others fail, and why people gradually abandon currencies that lose essential properties through debasement or depreciation.