Water-based hydraulic systems do exist but they’re quite unusual.
There are several reasons.
The first is water is corrosive, thus a hydraulic system using water would require expensive stainless steels to avoid rusting and pitting, leading to leaks. Not to mention the fluid becoming extremely dirty from fine rust particles.
Using various kinds of oils allows use of cheaper normal, non-stainless steels.
However the shank of hydraulic pistons is often plated with a layer of chromium. This both resists corrosion on outdoor equipment, but also resists abrasion from ambient dust and dirt. Chromium is one of the hardest elements on the periodic table.
The second reason is lubrication. Oils have better lubrication properties. Thus sliding parts like rod and piston seals and wear bands last longer using oil. This is one reaon why hydraulic systems are very reliable.
The third reason is freezing. Water unlike most liquids expands with extreme forcep when it freezes. This could cause fluid lines to crack, seals to burst, or fittings to separate in subzero weather. In contrast, hydraulic oils contract and form a slushy gel when they freeze, which at worst causes the system to stop moving since fluid can’t flow into various mechanisms. It may also cause small low pressure vapor bubbles to form in confined spaces. This isn’t really an issue.
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