Suggested study time: 2 hours, plus optional further research. Money can exist as physical cash, a bank balance or certain digital tokens. These differ in who issues them, how ownership is recorded and what rights holders have. This lesson explains why using blockchain does not automatically make an asset valuable or legal tender.
Learning objectives
- Compare physical, electronic and blockchain-based money.
- Separate technology from claims about financial value.
- Recognise that laws and acceptance vary by country.
1. What is digital currency?
Digital currency broadly describes currency that exists electronically. People sometimes use this term loosely for very different things. An electronic bank balance, a cryptocurrency and a central bank digital currency are not interchangeable.
Ask who issues it, what the holder owns, who maintains the records, whether it can be exchanged for national currency, and what protections apply.
Money commonly serves three purposes: paying for goods and services, measuring prices, and holding purchasing power for later use. An asset with a sharply changing price or few willing users may perform these functions poorly. Read: RBA — Digital currencies.
2. Physical, electronic and blockchain-based money
| Form | Example | Key distinction |
|---|---|---|
| Physical cash | Kina notes and toea coins | Physical national currency transferred through possession. |
| Bank deposit | A kina bank balance | A claim on the bank, recorded electronically and denominated in kina. |
| Blockchain asset | Bitcoin or a token | Records follow network rules; rights and value depend on the asset. |
| Central bank digital currency (CBDC) | A central bank’s digital national currency | A direct central bank liability; design and legal status depend on the country. |
Physical cash
Cash can be physically held and transferred. When you pay K20 in notes, the seller receives them without needing your banking app. Papua New Guinea’s national currency is the kina, divided into toea. Read: Bank of PNG — Currency.
Electronic bank deposits
Your balance represents money the bank owes you, subject to your account terms. Transferring K20 to a shop changes bank records. Using a phone does not turn kina into cryptocurrency: a banking app provides access to an account, rather than creating a new currency. Read: Bank of England — What is money?
Blockchain-based assets
A blockchain is a shared transaction record updated according to agreed rules. Sending a token changes which address controls it; it does not necessarily move money between bank accounts. Tokens may provide access to services, represent contractual rights or be traded for anticipated price changes. Read each asset’s terms rather than assuming all tokens offer the same rights. Read: ASIC — Digital assets.
Central bank digital currency
A CBDC is issued by a central bank in the national unit of currency. It differs from a commercial bank deposit and a privately issued cryptocurrency. It need not use a public blockchain. Its availability and legal treatment depend on the country and design. Read: RBA — Central bank digital currency.
Activity: Compare a K50 note, K50 in a bank account and 50 tokens. Why does the number 50 not make their values or legal rights equal?
3. Technology and financial value are separate
A system can reliably transfer a token while that token loses value or has little demand. Investigate useful function, actual demand, available buyers, redemption rights and evidence behind any return promise.
| Claim | Question to investigate |
|---|---|
| It uses blockchain. | What useful function does that technology perform? |
| Supply is limited. | Is there demand? Scarcity alone does not guarantee value. |
| The price is rising. | Can holders sell at that price, and in what quantity? |
| It is backed by assets. | Which assets, who holds them, and what redemption rights exist? |
| Returns are guaranteed. | Who makes that promise, and what evidence supports it? |
Example: A project creates one million tokens and displays K10 per token. This does not prove holders could sell them for K10 million. Sales need willing buyers, funds and a functioning market.
Risks include volatility, limited liquidity, scams, custody failures and technical faults. A functioning website or wallet does not prove investment safety. Read: ASIC MoneySmart — Crypto assets.
Stablecoins aim to track a reference value. Their backing and redemption arrangements matter; the name does not make them equivalent to cash or bank deposits. Read: Bank of England — Stablecoins.
Activity: Someone says, “This token uses advanced technology, so its price must increase.” What evidence is missing?
4. Why a digital asset is not automatically legal tender
A digital asset is electronically represented. Legal tender is a status established by law, generally concerning recognised ways to settle monetary debts. Its precise effect depends on the jurisdiction.
Do not assume every shop must accept every legal-tender payment in all situations. The Bank of England describes a narrow debt-related meaning in UK law; PNG rules must be checked separately. Read: Legal tender explained.
- Legal to own or use? This concerns permitted activities.
- Accepted by a seller? This concerns agreement.
- Legal tender? This concerns legal status.
A merchant accepting a token does not itself give that token legal-tender status.
Papua New Guinea context
The Bank of PNG’s 2023 virtual-assets risk assessment reproduces a notice stating cryptocurrencies have no legal-tender status in PNG and are not currencies issued by the central bank. This is a dated official reference: check for later notices before relying on it for a current legal or business decision. A project’s name, branding or PNG origin is not evidence of central bank approval. Read: Bank of PNG — Virtual-assets risk assessment, Figure 2 (PDF).
5. Laws and acceptance vary by country
Rules can depend on where an asset is issued, promoted, traded or used. Licensing, taxation, consumer protection and money-laundering rules may apply. Regulation of a service does not mean every token it offers is approved or legal tender. Study: ASIC’s Australian regulatory guidance.
Activity: A foreign website says a token is “government approved.” Identify the country, authority, legal document and date needed before assuming this applies in PNG.
6. Knowledge check
What makes a digital asset different from legal tender?
A digital asset exists electronically and may represent a token, service or another form of value. Legal tender has a status established by a country’s law for settling debts. Blockchain use, market price and merchant acceptance do not automatically create that status.
- Why is a kina bank transfer different from sending cryptocurrency?
- Can useful technology exist without a valuable token?
- Why does limited supply not guarantee a rising price?
- Does a shop accepting a token make it legal tender?
- Which PNG institution should you consult about national currency?
Answer guide: Transfers move bank deposits; technology and demand are separate; scarcity needs demand; merchant acceptance does not create legal status; consult the Bank of Papua New Guinea.
Two-hour study plan
- Read the lesson and comparison: 30 minutes.
- Study the official reference pages: 35 minutes.
- Complete the activities: 30 minutes.
- Answer the knowledge check and review: 25 minutes.
Further learning and research
Complete these optional topics after the core lesson. Keep notes and record your sources.
1. Who controls the money or asset?
Banks maintain account records. Blockchain transactions follow network rules, but exchanges, wallet providers and issuers may still control parts of a service. “Decentralised” does not mean every component lacks a controlling organisation.
Research: Compare a bank and a cryptocurrency: who maintains records, changes rules and handles problems? Bank of England — Money · RBA — Digital currencies.
2. Ownership, access and recovery
A balance on a screen does not fully explain your rights. Establish whether you hold assets directly or rely on a custodian. Recovery after losing a phone, password or account access depends on the arrangement.
Research: Find a provider’s official custody, recovery, withdrawal and support terms. Never include a private key or recovery phrase in your study notes. MoneySmart — Crypto assets.
3. Price and purchasing power
Price describes an exchange value at a particular moment. Purchasing power describes what you can buy. Owning ten tokens next month does not ensure they buy the same amount of food.
Research: Explain “I still own ten tokens” versus “My tokens still have the same value.” Bank of England — What is money?
4. Stablecoins and backing claims
“Stable” describes an objective. Investigate reserves, redemption rights, the organisation responsible, and what happens if withdrawals stop.
Research: Read an issuer’s reserve disclosures and redemption terms. List what they establish and what remains uncertain. Bank of England — Stablecoins.
5. Misleading promotions
Guaranteed profits, pressure to buy urgently and claims of government approval require independent checking. A professional website, followers or testimonials do not establish fund safety or withdrawal access.
Research: Review a fictional “high returns, no risk” promotion and identify the evidence needed. MoneySmart — Crypto scams · Investment hype.
6. Researching legal status responsibly
Identify the country and date. Overseas licensing, merchant acceptance and exchange listings do not establish PNG legal-tender status. Use project websites to identify claims and official authorities to verify them.
Research: Explain why national branding does not establish official currency status. Bank of PNG — Currency · Bank of England — UK legal tender.
Final research assignment
Select one digital asset or payment service and prepare a one-page, evidence-based report addressing the following questions.
- Issuer and governance: Which organisation or network issues or operates the asset or service, and who is responsible for its governance?
- Ownership and user rights: What does the user hold, and what ownership, access or contractual rights does it provide?
- Transaction records: How are transactions authorised, verified and recorded, and who maintains those records?
- Value and redemption: What determines its market price or redemption value, and under what conditions can users exchange or redeem it?
- Costs, restrictions and risks: What fees, withdrawal limits and significant financial, operational or security risks should users consider?
- Legal status: Which official sources support its legal-status claims, in which jurisdiction, and as of what date?
Submission requirements
Support your report with at least three credible sources, including relevant official or primary sources. Include each source’s title, website link, publication or update date where available, and the date you accessed it. Clearly distinguish verified facts from promotional claims and identify any questions that the available evidence does not resolve.