Digital currency is a form of currency that is available only in digital or electronic form. It is also called digital money, electronic money, electronic currency, or cyber-cash. Digital currencies have no physical form and are made using computers or electronic wallets connected to the internet or designated networks.
Just like physical money, digital currencies can be used to make purchases and pay for services. Digital currencies also enable instant transactions that can be seamlessly executed across borders. For instance, it is possible for a person located in the United States to make payments in digital currency to a counterparty residing in Singapore, provided they are both connected to the same network.
Types of Digital Currencies:
Digital currency is a universal term that can be used to describe many diverse types of currencies that exist in the electronic realm. In general, there are three distinct kinds of currencies:
- Cryptocurrencies
A virtual currency that uses cryptography to secure and verify transactions as well as to manage and control the creation of new currency units.
- Virtual Currencies
An unregulated digital currency that is controlled by its developer(s), its founding organization, or its defined network protocol. An example of this is a gaming network token or currency whose economics are controlled by its developers.
- Central Bank Digital Currencies
Regulated or unregulated currency that is available only in digital or electronic form. CBDC currencies are issued by the central bank of a country. A CBDC can be a supplement or a replacement to traditional fiat currency. Unlike fiat currency, which exists in both physical and digital form, a CBDC exists purely in digital form. England, Sweden, and Uruguay are a few of the nations that are considering plans to launch a digital version of their native fiat currencies.
TAKEAWAYS:
- Digital currencies are currencies that are only accessible with computers or mobile phones because they only exist in electronic form.
- Typical digital currencies are often the cheapest method for trading currencies.
- All cryptocurrencies are digital currencies, but not all digital currencies are cryptocurrencies.
- Some of the advantages of digital currencies are that they enable seamless transfer of value and can make transaction costs cheaper.
- Some of the disadvantages of digital currencies are that they can be volatile to trade and are susceptible to hacks.