# From Bitcoin to Central Bank Digital Currencies: Making Sense of the Digital Money Revolution
## 1 Introduction  
Money is a tangible or electronic item universally accepted as a medium of payment in immediate or deferred time for goods, assets, and services in a given economy or socio-cultural environment. Money is traditionally defined by its functions, as systematized by [PERSON] [1]: it serves as a medium of exchange, a unit of account, the standard of deferred payment, and a store of value (\"A Medium, a Measure, a Standard, a Store\"). As a medium of exchange, money intermediates trades, resolving the inefficiencies of barter systems, such as the need for complementary interests for the trade to take place. As a unit of account, money enables denomination of prices of all goods, assets, and services in the economy, making the price system more transparent and informative. As a standard of deferred payment, money serves to denominate and settle debts. Finally, as a store of value, money serves as a medium of future payment. Some authors argue that the medium of exchange and store of value functions conflict, as the former implies the predisposition for its immediate use, while the latter requires that money be retained for future use (see, for instance, [2]). The story most recounted about the invention of money goes back to [PERSON], who conjectured that it was created to facilitate trading because of the division of labor [3]. Previously, there was a barter economy, or mainly a gift economy, as argued by several anthropologists [4]. The evolution of money is not linear, as different types of money have coexisted in time and within economies. However, loosely speaking, we may classify money into four types, in chronological order: Commodity, representative, fiat, and scriptural or electronic money. Commodity money draws its value from the commodity it is made of. In ancient times, several items served as a medium of exchange; some were useful in daily life, such as livestock and grain, while others were merely appealing, such as shells and beads [5]. At some point in history, metals began to be used to produce moneydue to their durability, divisibility, and homogeneity [6]. Then, coinage enabled the standardization and certification of metal currency. However, it also allowed the sovereign powers (who retained the supply monopoly) to issue coins with an intrinsic value lower than its nominal (facial) value. Representative money, often printed on paper, is a tangible token representing a claim on a commodity (for commodity-backed money) and, as such, it is redeemable in species. The abandonment of the gold standard at the outbreak of World War I resulted in the disuse of representative money. Fiat money is not redeemable and has no intrinsic value. Its worth originates in a government decree, i.e., it has a legal tender. Metal coins and banknotes are fiat money, commonly called cash. Nowadays, most money circulates in electronic form (scriptural money), mainly consisting of electronic records representing current deposits in the banking system. Since fiat money backs those deposits, the public can exchange them for banknotes and metal coins. When providing credit to the economy, the banking system uses its reserves, formed by cash and deposits in the central bank, to support new deposits. In the fractional reserve banking, these new deposits surpass by far the amount of reserves needed to support them, creating a money multiplier effect. For instance, the minimum reserves required by the European Central Bank (ECB) are just 1% of the deposits and, in March 2020, the Federal Reserve Board announced a minimum reserve requirement ratio of 0%. On the one hand, the central bank controls the issuing of electronic money by controlling the monetary base (also called high-powered money), formed by coins and banknotes in the hands of the non-monetary sector and reserves of commercial banks. On the other hand, electronic money is in part endogenous to the economy as it also depends on the demand for credit.