Reasons hard currency might still have a place in an interstellar society

• Diverse levels of technology between different star systems or planets or groups of that trade with each other. If the technology is ubiquitous and homogenous then cryptocurrencies would be sufficient. But on a frontier world or a mineral prospecting or animal hunting environment where the low-tech people need goods (fuel, heat, light, food, weapons, medicine, etc) and the high-tech people want what is mined, skinned, grown, or harvested then they could resort to barter or use hard currency


• Criminal activity. Since cryptocurrencies maintain a blockchain record of transactions, they could be used to convict someone of a crime. So to conduct illegal business some parties might demand payment in fungible resources. Just because the coinage is minted and accepted doesn't mean that a government had to issue it. A crime syndicate could mint coins that criminals could use to pay for services and items in a clandestine manner. Either the coins could be intrinsically valuable like gold or diamond or thorium or the crime syndicate could redeem them for cryptocurrency


• For commerce between civilizations, both might be high tech and have their own cryptocurrencies but there may not be an agreed upon measure of exchange or a way to spend the other civilizations currency in their own borders. Again, barter would work, but coinage is more convenient.

In general, both the Star Wars and Star Trek universes illustrate where cryptocurrencies would work and where the equivalent of cold hard coinage is required.

In the modern world, we all still use physical currency in certain situations and places because it can serve as a useful failsafe for small transactions in remote areas.

The problem with your digital currency is connectivity. That is going to be the case no matter how 'secure' and ubiquitous you make your communications. There are going to be disruptions. Your work experience quantum tunneler accidentally puts his axe through your wormhole, the comms system is disrupted in certain sectors by that pesky super nova that just HAD to happen while you're buying that moon you always wanted...

There simply is no such thing as uninterruptible communications.

So you're in some backwater out past Betelgeuse, trying to buy a coffee, and all of a sudden the cafe's transactional comms go down - what do you do? you pull out a couple of notes or coins.

It's true that physical currency is on the wane around the world now because digital currency is much more convenient, and arguably even safer (or at least requires a higher level of technical expertise to steal) but neither solution is perfect. Ideally, to get by you need a mix of both, especially in remote areas that can struggle staying connected.

Having some 'hard' currency on you for those little purchases for which a record of the transaction isn't so important may well be the order of the day in many places, especially if the cost of maintaining stable communications turns out to be prohibitive. I can't imagine any government (for example) investing in a wormhole to a given planet if the number of transactions being processed falls well below the break even point. While it is still incumbent on the state to provide the critical infrastructure of business, regardless of whether or not it will make a profit to do so, governments tend to get pragmatic about these matters and find workarounds that save them money.

Just ask those people in outback Australia about their promised NBN internet connections...

One thing you may have overlooked, is your digital currency won't be instant. Depending on where the gates are exactly, if they're at the edge of the solar system it's still probably 4-6 hours for a signal to get from earth to the gate (assuming approximately Neptune's orbit as edge of solar system). You'd also end up with a similar delay on the other end of the wormhole, so if you want to transfer funds to your friend on Betelguese IV it could easily take 12 hours.

With these kind of potential delays there's all sorts of situations where you could have a temporary hold on some of your digital funds. OTOH physical currency is right there and can be spent.

Electronic interference

The area in which you live has electronic interference. So vending machines and stores need physical currency that can be verified immediately and mechanically rather than something accessed by a credit card that can't be checked half the time.

Note that black holes create this kind of interference, so it may be that your wormholes do as well. So someone who mostly travels through wormholes might normally be in a situation that required physical currency. And of course physical currency would be used near spaceports, as spacers both need and have physical currency for use on their ships.

Dystopian government

Everyone except the very elite depends on the black market for non-essential goods. If you're not well-connected enough, you often depend on it for essential goods too.

The government controls the official currency (numbers in a database), and will crack down on sufficiently large cryptocurrency networks.

A few small, local cryptocurrency networks thrive, but the bigger they get, the bigger the odds that the government will notice them. The tamper-proofness assumption doesn't hold for physically invading the datacenter of the biggest miners and traders with overwhelming force, does it? The government holds all territory, there's no other jurisdictions to go to.

Meanwhile, gold has made a comeback. Cheap, portable and ubiquitous mass spectrometry had been long a reality, so convincing fakes are rare and elaborate.

Soviet-style totalitarian centrally planned socialism on steriods is the dystopia that first comes to my mind, but I suppose this could be made to work with other style dystopias.

Digital currency and encryption in general is about the ratio between the work required to crack something and the work required to verify something.

A physical digital currency token is a token that can be verified to contain some digital currency cheaply and reliably without having to actually transfer the digital currency.

Moving digital currency around requires the permission/effort of the network, be it some centralized store or a distributed ledger like the blockchain. That permission both costs privacy, bandwidth and computational effort.

So instead of going back to the centralized store all of the time, you simply embed a signed guarantee that the digital currency inside this coin is unique and unshared, backed by a major bank, state or other "trusted" organization.

You can verify this locally by communicating with the digital currency and checking the signature. No record of this verification is made.

The physical token will have an expiration date, at which point it needs to be "refreshed" by transferring it (either by refreshing it, or by transferring it to a digital account, or transferring it to a new physical token).

Part of the security of these physical tokens is that they have unique internal secure hardware. Transferring the currency data from one physical token to another is a security hole.

So, we have physical tokens which carry money. They have their value displayed on them. They can be remotely powered to light up and say if they have money, and they can be negotiated with to digitally prove they have value in them, without communicating with the central system.

Minting such a coin and converting it back to digital currency costs something like 10% of its value, but they are intended to pass from hand to hand to hand at least 100 times before they are liquidated.

Pure digital exchange, due to the risks of hacking, costs 50 cents plus 2% of the value exchanged for a high-security link, or 10% for a low-security link (including insurance from losses), or 100$ and 0.5% of its value for a Bank-level transfer. All 3 of these involve mathematically distinct operations that move different kinds of digital value around, and the costs are almost entirely in the form of computation to ensure that nobody can be faking the transfer.

This makes using pure digital currency for many purchases impractical or inefficient compared to physical tokens. Physical tokens, with their hardware encryption and security, are simply cheaper to pass around than doing it digitally.

As mentioned by @TiStrga, another possibility is a one-time pad.

You could imagine computation reaching the point that there is no longer a secure means of cryptography other than the one-time pad.

Then high quality random noise stored securely in a physical object, with a serial number, in pairs, could have value.

Communicating OTP over any communication link makes your communication no more secure than that original link. If physical tokens can be made more secure than the internet, then cash with said tokens becomes valuable.

And given that digital currency relies on cryptography, quite possibly the only safe way to exchange your digital money requires you to have OTP at both end of the communication link; a coin at both ends, which loses a certain number of bits.

Note that the failure of all cryptography would have other interesting effects on the universe's information economy and science in general.

You could suppose P=NP in your universe with an efficient algorithm, which means that everything efficiently provable is efficiently solvable, a radical and huge change in how we think about information.

Or you could go more hand-wavey, and make the coins contain entangled quantum systems which can be correlated using classical information in order to exchange a quantum OTP to secure the communication channel somehow. Now both parties in an exchange have to have coins from the "same mint". For interstellar trade, possibly the delicate quantum state of the coins doesn't permit FTL travel; STL shipment of quantum coins is required to permit secure trade between systems.

Now you'll have various currencies, one per system, with high barriers to trade of currency or other secure information between systems.

A step further and said coin technology might even be required to send any information FTL, including safely doing a jump of physical matter from system to system. But that probably makes travel too expensive.

Biggest factor is trust.

In an evolving digital age, more transactions are becoming digitalized. Much of those digital exchanges are indeed backed by some hard currency somewhere. There is the cryptocurrencies out there that are not backed by anything, but the trust come from the fact that the currency will always be there and will always be exchangeable. Now if a server storing the currency data gets destroyed or the one person holding all the encryption codes dies (this did happen) then the whole currency becomes worthless over night.

To ensure security, a massive level of encryption is required. This would be troublesome for small, quick transactions at remote location. having local decryption machines may not be feasible. This would erode trust in the system when you cannot use your money when and where you want.

Energy as a physical currency

In a high-tech civilization, it would be possible to calculate how much energy it takes to produce something. For example, that 1000-Calorie burger you want to eat might cost something like 15,000 Calories of energy (or something like 2,000 Calories if you have replicators that can produce it on the spot). If the production of many items is automated, then the cost could represent how much energy the automation consumes in order to get an item to you.

If you have a ubiquitous, easily transferable energy source, it would make sense to use it as a physical currency. One option would be a battery or super-capacitor that you could carry around with you. Another option would be what your spaceship uses as fuel. Your spaceship would have its own reactor or energy store, and you could use it to refill your portable energy store. Then as you go to the market, you would use that portable energy store to either give energy directly to a machine producing a good, or transfer it to a merchant in the desired amount.

One nice benefit that this shares with digital currency is how you don't need to worry about small change - it would be easy enough to transfer exactly the amount of energy you agree upon.

It also has the advantage of not being based on something arbitrary. Money in our civilization basically only has value because people have agreed that it does. Energy, on the other hand, can easily be translated into work.

Global Usability

However advanced your average tech level, you probably still have a few people that can't afford — or for whatever reason, don't use — the necessary equipment to deal in digital currency.

Privacy

Cryptocurrencies are complicated and their value isn't entirely stable. (It's also not inconceivable that your technology has advanced to a point that makes cryptocurrency impractical for whatever reason.) Cold hard cash has always been the ultimate "untraceable" currency. As long as there is crime, or just people that want their spending habits to remain "discreet", there will be a demand for cash. (Take a look at how David Weber's Honorverse deals with this for a good example. The "cash" there is in the form of credit chits, which are something of a hybrid between physical cash and cryptocurrency.)

Given that tech advances create an arms race between currency issuers and forgers, your "cash" is likely to be either a) something similar to "credit chits", or b) something that has a very high value-per-mass that is both easy to authenticate and cost-prohibitive to reproduce. The latter category has included salt and gold at various times in history. Note that this can be something that anyone can make, as long as the production cost is on par with its trade value, especially if its something that your civilization consumes.

Ultimately, keep in mind that the only purpose of currency is to simplify a barter economy. Even if there isn't a standard form of "cash", you can still have commerce that doesn't involve exchange of digital currency. "Money" is just a convenient way to assign value to stuff so that a) there is less dickering over prices/values, and b) it is easier for me to trade your money for what I actually need than to re-trade whatever alternate form of compensation you can offer.

How exactly do you get a "tamper-proof" digital currency? I'm not sure, but that sounds complicated, and by complicated, I mean expensive. If you were running a store, you would spend the $2000 needed to purchase the currency trader, plus the monthly fees needed to rent the remote quantum link. But let's say you're not running a store. Instead you rent locker space at the spaceport, or operate a bunch of vending machines, or run a food cart or something. You're certainly not going to add a currency trader to every locker bank or vending machine, I mean, most of them don't even have access to power, not to mention the effect it would have on installation cost. Instead you just add a slot for space quarters and call it good.

In general, this leaves you with an environment where banks and chain stores work with the tamper-proof digital currency, but still leaves plenty of room for physical currency to still have a presence.

Simple. Unless you have FTL (or faster) communications that can't be sliced, spoofed, jammed, or hacked, nobody can check if your Pan-Galactic VIP Diamond Encrusted Platinum Nova account backed by the Royal Bank of Alderaan is currently good or not.

(Hint: it's not good anymore, because the bank, and everything and everyone that was on the planet is so much space dust and asteroids now.)

Thus cold hard cash or other similar valuables will remain and be used in most corners of any and every galaxy, even one long ago and far far away.

Because the vast majority of digital currency isn’t actually “real” money: it’s just a number in a bank’s balance sheets that says that they owe you some amount of actual money: it’s not money, it’s credit, which is why bank runs are a thing that can happen.

There’s only two types of real money, both of which are issued by the national central bank (or, in America, the Federal Reserve): physical currency that they’ve minted, and a special sort of electronic currency that is only used by the banks, and is stored on special servers that the banks have access to. This special electronic currency is used to facilitate the transfer of funds between banks - and since the banks have agreements to total up the net value of the transactions between them (almost all of which cancel out) each day, and only transfer the net value, they don’t need anywhere near as much of this special currency as they would if they needed to actually hold any reasonable fraction of the “fake” digital currency on their accounts.

No reasons

I'll take opposite view. Our all physical currency exchange places operates effectively because country at hand has plenty of metal and wood resources or can import them easily from other countries for manufacturing physical currency units.

Now consider such scenarios:

1. Zerg from Albinos planet wants to buy 1 billion gold coins which they operate in it's home planet - where gold is an abundant resource - from our earth currency exchange. Where do we get such enormous amount of gold ? Should we build millions of different warehouses for being able to suit each alien civilization's needs in currency exchange ?




2. Merchant ship of Ktulahu civilization crashes and it's pilot comes to us with 200 000 coins made from Uranium-235 radioactive material which they operate normaly in their home planet. Pilot asks to exchange his money into our dollars, because he likes our earth so much that he don't plans to return back to home and wants to live with us. How we will store such huge amount of radioactive material ? Should we accept the risk of chain-reaction of coins ? Maybe Ktulahu member itself is radioactive and sees no problem in this, however it is an issue in earth.




3. In a distant planet, named Trodontax, a dinosaur species Troodon had evolved into very intelligent creatures which brain is of same capacity of human, because Trodontax never had a cataclysmic event which have made dinosaurs extinct as in earth. Their coin has a mass around 1 kg, and in recent times they had an economic recession which invoked inflation. So if Troodon would like to buy an ice-cream in an earth - we would need a truck to carry that exact amount of Trodontax money to a currency exchange.




4. Local currency value problem. It will be a lot harder to establish an institution which would set-up a fair rates of native currency exchange rates for all alien civilizations.

Given this and many many more issues with native's local currency, the only reasonable way is to use a virtual-digital currency everywhere globally.

It's useful when you want to put hard limit on a stock exchange.

Intergalactic traders could find digital currency, and the ease of transferring it too tempting to not try to game the system with faster and faster communications. This has already happened IRL.

Imposing an artificial limit on all communications is much easier to do if you use physical currency. Artificial limits on stock exchange trading speed already exist IRL

Physical security

Digital currency can be hard to properly secure. A society that's a couple millenia ahead of us is so hard to imagine computer security for that it's nearly impossible to make predictions about digital security, but one thing is for sure: there will always be people who are interested in getting money through theft. And there might be A LOT of people that want to steal money. And if you got a nice juicy digital money steak in the form of poorly secured cryptocurrency wallets, or a small backwater planet bank with outdated security protocols, or some other form of digital money, that's going to attract a lot of people. Security needs to win all the time. the attacker needs to win only once. At some point, the attacker is going to win. And all those people can attack at the same time through automation and remote attacks.

Meanwhile, physical currency needs physical presence to steal. It's in one location, and you can defend that location with whatever measures you deem necessary. An attacker will need to bring whatever tools he needs with him for the heist. So you can put that currency in a close orbit around a neutron star, protected by a dense network of automated mines that only listen to the combined signals of the kill switches you and the 14 other members of the board carry, and make it so you need to find 3 separate wormholes in various star systems across the galaxy to get to it, and one of those wormholes is close to a military academy, and whatever other measures you can think of. And in case someone does manage to get to the vault and is robbing you, you can trigger the emergency fail safe and propel the entire station into the neutron star. Sure, you may have lost the money, but no one else will have it too. You can do the fail safe thing on a smaller scale too: thieves are robbing your bank? Set off a ink bomb and noone can use that currency anymore.

Non-artificial scarcity is how actual hard currencies evolved and any society which has centralized power must have centralized access to some form of non-artificial scarcity.

You say the travel is accomplished with wormholes connecting remote worlds. Well, can anyone, from any world, go to any other world for lunch, go to another one for dinner and come back "home" to sleep? Probably not.

There is some restriction on resources needed for travel. Some form of ownership of such resources requires either individuals who can own and transfer these resources by themselves or some form of fractional contractually-guaranteed ownership of whatever powers the travel. This makes either the containers carrying the resource a form of currency or fractional-ownership contracts a form of currency.