Digital Currency
Digital currency (also known as digital money, electronic money, or e-currency) is a type of currency that is available only in digital form, and does not have a physical presence (such as banknotes and coins). It has properties similar to physical currencies, but allows instant transactions and borderless transfer of ownership. Examples include virtual currencies, cryptocurrencies, or even “digital fiat money” issued by a central bank. Similar to traditional money, these currencies can be used to purchase goods and services, but can also be restricted to certain communities such as for use within an online game or social network.
Digital currency is a financial balance recorded electronically on a stored-value card or other device. Another form of electronic money is network money, which allows the transfer of value over computer networks, especially the Internet. E-money is also a claim on a private bank or other financial institution such as bank deposits.
Digital money can be centralized, where there is a central point for the money supply, or decentralized, where the money supply can be controlled from different sources.
Digital currencies
Digital currencies are also called encrypted currency or electronic currency: they are a representation of digital property. More precisely, it is a program written in a specific programming language and using global encryption techniques that make it almost impossible to hack and manipulate it. Digital currencies are a term used to refer to all these applications that use Block Chain technology, whether these applications represent digital currency or represent anything else such as smart contracts and others.
Internet based non-physical currency
Digital currency or digital money differs from physical ones (such as banknotes and coins) that exhibit similar characteristics to physical currencies, but they allow instant transactions and borderless transfer of ownership. Both virtual currencies and cryptocurrency are considered a type of digital currency, but the opposite is not true. Similar to traditional money, these currencies can be used to purchase physical goods and services, but can also be restricted to certain communities, for example for use within an online game or social network.
The Definition
Digital currency can be defined as a form of currency or various means of exchanging benefits that offer characteristics similar to physical currencies (paper and coins), but differ from them in that they are digital, meaning they are not tangible. Among the characteristics of digital currencies is that they allow instant transactions and the transfer of ownership directly, without borders and without restrictions.
History Of Its Inception
The origins of digital currencies go back to the 1990s, the century of the information technology bubble, and one of the first of these products was electronic gold, which was founded in 1996 and is backed by gold. A recently well-known digital currency service is Liberty Reserve, which was founded in 2006; It allows users to convert dollars or euros into a digital currency between dollars and euros on the same site, and it also allows them to be freely exchanged with each other at a 1% fee. Both services are considered central, but the US government closed them completely after it was heard that they were for money laundering. Q coins (virtual money) or QQ coins, were used as a type of commodity-based digital currency on Tencent's QQ messaging platform and appeared in early 2005. Q coins were very effective in China and were said to have had a destabilizing effect on The Chinese currency, the yuan, is due to speculation. Recent interest in cryptocurrency has prompted a renewed interest in digital currencies with Bitcoin, introduced in 2009 becoming the most widely used and accepted digital currency.
Comparisons
Digital currency versus virtual currency:
According to the European Central Bank's “Virtual currencies - in further analysis” report of February 2015, virtual currency is a digital representation of value, not issued by a central bank, credit institution or electronic monetary institution, which can be used in some circumstances as an alternative to money. In the previous report issued in October 2012, virtual currency was defined as a type of unregulated digital money, issued by its developers, and used among members of a specific virtual community. According to the International Bank for Settlements’ “Digital Currencies” report issued in November 2015, a digital currency is an asset represented in digital form and has some monetary characteristics. Digital currency can be denominated in a sovereign currency and issued by an issuer responsible for redeeming digital funds for cash. In this case, digital currency represents electronic money. A digital currency denominated by its units of value or by a decentralized or automatic issuance will be considered a virtual currency.
Therefore, Bitcoin is not only considered a digital currency, but also a type of virtual currency. Bitcoin and its alternatives are based on cryptographic algorithms, so these types of virtual currencies are also called cryptocurrency (cryptocurrency).
Digital currency versus traditional currency:
Most of the traditional money supply is bank money held on computers. This is also considered a digital currency. One could argue that our increasingly cashless society means that all currencies are becoming digital (sometimes referred to as “electronic money”), but it is not presented to us as such.
Types of digital currencies
Default currency:
Virtual currency was defined in 2012 by the European Central Bank as “a type of unregulated digital money, issued and usually controlled by developers, that is used and accepted among members of a particular virtual community.” The US Treasury Department in 2013 defined it more succinctly as “a medium of exchange that functions as currency in some environments, but does not have all the characteristics of real currency.” The main feature of a virtual currency according to these definitions is the status as legal tender.
Cryptocurrency:
A cryptocurrency is a type of digital token that relies on cryptography to chain together digital signatures for token transfers, peer-to-peer networks and decentralization. In some cases a Proof of Work scheme is used to create and manage the currency.
How digital currencies work
Cryptocurrencies use cryptographic technologies to regulate the issuance of monetary units and verify the transfer of funds. This technology works through blockchain.
Here are the steps for making digital currencies:
Creation: Cryptocurrencies are created through a process called mining. Miners use powerful computing devices to solve complex mathematical problems, which verify and record transactions on the blockchain. As a reward for their efforts, they receive an amount of digital currency.
Transactions: When someone wants to send digital currency to another person, they create a transaction. This transaction is then broadcast to the network of computers that make up the blockchain.
Verification: Blockchain miners verify the transaction by solving mathematical problems to confirm that the sender has enough digital currency to send, and that the transaction is legitimate.
Recording: Once the transaction is verified, it is recorded on the blockchain. This creates a permanent and immutable record of the transaction that can be viewed by anyone.
Security: Cryptocurrencies are considered very safe because they use advanced encryption techniques to protect against hacking and fraud. The blockchain network is open and decentralized, meaning it is not controlled by any single party, making it difficult to trace.