The term "digital currency" (also known as "digital money," "electronic money," or "electronic currency") refers to any form of money, money-like asset, or asset that is managed, held, or exchanged largely on digital computer systems, particularly over the internet. Digital currencies come in a variety of forms, such as cryptocurrency, virtual currency, and central bank digital currency. Digital currency may be held on a distributed internet database, a centralized firm or bank-owned electronic computer database, within digital files, or even on a stored-value card.
Although they generally lack the traditional physical forms of fiat currency that you can hold in your hand, such as printed banknotes or minted coins, digital currencies exhibit characteristics that are similar to those of traditional currencies. However, they do have a physical form in an unconventional sense because of computer to computer and computer to human interactions, as well as the information and processing power of the servers that store and keep track of money.
This unconventional physical form enables almost instantaneous transactions over the internet and significantly reduces the cost associated with distributing notes and coins. For instance, in the UK economy, 79% of money is electronic, compared to 3% of notes and coins (in the form of bank deposits).Virtual currencies, which are often not issued by a governmental authority and are used to transfer ownership across national boundaries, are not regarded as legal cash.
This kind of money can be used to pay for tangible goods and services, but it may also only be accepted in specific settings, like an online game.
Digital money can either be decentralized, where power over the money supply is predetermined or reached democratically, or centralized, where there is a single point of control over it (such as a bank).
History
Digital money was first proposed in a David Chaum research paper from 1983. In order to put the concepts from his research into practice, he established the electronic cash business DigiCash in Amsterdam in 1989. In 1998, it declared bankruptcy.
Introduced in 1996, e-gold attracted several million users before the US Government shut it down in 2008. It was the first widely used Internet currency. Both US government representatives and academics have referred to e-gold as "digital currency." Coca-Cola introduced mobile payments for vending machine purchases in 1997. In 1998, PayPal introduced its USD-based service.
When bitcoin was introduced in 2009, it signaled the beginning of decentralized blockchain-based digital currencies without a central server or reserve of physical goods. Blockchain-based digital currencies, also referred to as cryptocurrencies, proved resistant to attempts by the government to control them since there was no single entity or person with the authority to shut them down.
Digital currencies have their roots in the Dot-com bubble of the 1990s. Another well-known provider of digital currency is Liberty Reserve, which was established in 2006. Users can convert their money into Liberty Reserve Dollars or Euros and then freely trade them with one another for a 1% fee. Due to its alleged use in money laundering and Ponzi schemes, a number of digital currency businesses were investigated and prosecuted by the US government for operating without MSB licenses.
Q coins, also known as QQ coins, first appeared in early 2005 and were a form of commodity-based digital currency utilized on Tencent QQ's messaging platform. Due to rumors, Q coins were thought to have had a destabilizing effect on the Chinese Yuan currency because they were so successful in China.
With bitcoin, which was established in 2008 and has since become the most used and accepted digital money, there has recently been renewed interest in digital currencies.
Read also: The History Of The Emergence Of Coins
Comparisons and subtypes of digital currency
Currency as a specific type
The phrase "digital currency" refers to a particular kind of electronic currency with particular characteristics. The term "digital currency" is also used to refer to a meta-group of several subtypes of that currency; however, the precise meaning of that term can only be decided in the context of a certain legal or other situation. There are currently numerous legal definitions of digital currency and the numerous sub-types of digital currency, both legally and technically. There are multiple implementations that combine various potential qualities to produce numerous sub-types of digital currency.
Digital currency, virtual currency, cryptocurrency, e-money, network money, e-cash, and other varieties of digital currency are all subject to numerous governmental jurisdictions, each of which has its own distinct definition. Based on the unique characteristics of a particular currency type or subtype, various agencies and regulators within any certain government jurisdiction define various and frequently competing interpretations for the many types of digital currency.
Virtual currency vs digital currency
A virtual currency is "a sort of unregulated, digital money, which is created and typically controlled by its developers, and used and accepted among the members of a specific virtual community," according to the definition given by the European Central Bank in 2012. More succinctly put, it is "a medium of exchange that acts like a currency in some situations, but does not have all the properties of actual cash," according to the US Department of Treasury's 2013 definition. Virtual currency does not have legal tender status in any country, according to the US Department of Treasury.
Virtual currency is a digital representation of value not issued by a central bank, credit institution, or e-money institution that, in some situations, can be used as an alternative to money, according to the European Central Bank's 2015 paper, "Virtual currency schemes - a further review." The definition of virtual currency was given in the previous article from October 2012 as a sort of unregulated, digital currency that is issued and typically managed by its developers and used and accepted among the members of a particular virtual community.
The "Digital currencies" report from the Bank for International Settlements from November 2015 describes it as an asset with certain monetary features that is represented digitally. The issuer that is in charge of redeeming digital currency for cash may issue it and denominate it in a sovereign currency. Then, digital currency is equivalent to electronic money (e-money).
Virtual currency is defined as digital currency having its own units of measure, decentralized or automatic issuance, or both. As a result, bitcoin is both a sort of virtual currency and a digital currency. Cryptographic algorithms are the foundation of Bitcoin and its equivalents, which is why these virtual currencies are also known as cryptocurrencies.
Cryptocurrencies vs digital currency
Cryptocurrency is a subtype of digital currency and a sort of digital asset that relies on cryptography to link together peer-to-peer networking, decentralization, and digital signatures of asset transfers. To create and maintain the currency, proof-of-work or proof-of-stake schemes are occasionally utilized.
Electronic money systems may be able to become decentralized thanks to cryptocurrencies. The digital ledger system or record keeping system, when implemented with a blockchain, uses cryptography to edit several database entry shards that are dispersed over numerous different servers. Bitcoin is the first and most well-known system. It is a peer-to-peer electronic cash system built on cryptography.
Traditional currency vs digital currencies
The majority of the traditional money supply is held in computers as bank money. In some instances, they are regarded as digital cash. Though they are not advertised to us as such, one could argue that because of our increasingly cashless culture, all currencies are transforming into digital ones.