Digital currency is a form of currency that is available only in digital or electronic form. It is also called digital money, electronic currency, or cybercash. While all other cryptocurrencies are digital currencies, not all digital currencies are cryptocurrencies.
Digital currencies can be centralized or decentralized. Fiat currency, which exists in physical form, is a centralized system of production and distribution by a central bank and government agencies. Prominent cryptocurrencies, such as Bitcoin and Ethereum, are examples of decentralized digital currency systems.
Key Takeaways
- Digital currencies are currencies that are only accessible with computers or mobile devices because they only exist in electronic form.
- Typical digital currencies do not require intermediaries and 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 shameless 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.
Understanding Digital Currency
Digital currencies do not have physical attributes and are available only in digital form. Transactions involving digital currencies are made using computers or electronic wallets connected to the internet or designated networks. In contrast physical currencies, such as banknotes and minted coins, are tangible, meaning they have definite physical attributes and characteristics. Transactions involving such currencies are made possible only when their holders have physical possession of these currencies.
Digital currencies have utility similar to that of physical currencies. They can be used to purchase goods and pay for services. They can also find restricted use among certain online communities, such as gaming sites, gambling portals, or social networks.
Digital currencies also enable instant transactions that can be seamlessly executed across borders.
Types of Digital Currencies
Cryptocurrencies
Cryptocurrencies are digital currencies that use cryptography to secure and verify transactions in a network. Cryptography is also used to manage and control the creation of such currencies. Bitcoin and Ethereum are examples of cryptocurrencies.
*Important note: Crypto currencies are considered virtual currencies because they are unregulated and exit only in digital form.
Virtual Currencies
Virtual currencies are unregulated currencies controlled by developers or a founding organization consisting of various stakeholders involved in the process. Virtual currencies can also be algorithmically controlled by a defined network protocol. An example of a virtual currency is a gaming network token whose economics is defined and controlled by developers.
Central Bank Digital Currencies
Central bank digital currencies (CBDC’s) are regulated digital currencies 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 along with our very own USA.
At the time of this article the writers were actively using Coinbase, FTX, Metamask, Trust Wallet, Crypto.com, Binance, Robinhood, Webull, KuCoin, Voyager and Hotbit. They also own currencies: BTC, ETH, USDC, SOL, AVAX, ALGO, MATIC, CRO, ENS, DOT, XLM, MANA, RARI, ENJ, XRP, FIL, SAND, HNT.
