Types of digital currencies,keyTakeways,pros&cons,future uses

 What is a digital currency?

Digital currency is a form of currency that is only available  in digital or electronic form. It is also called digital money, electronic money, electronic currency or cyber cash.

 

KEY TAKEAWAYS

Digital currencies are currencies that can only be accessed with computers or mobile phones as they only exist in electronic form. Typical digital currencies do not require intermediaries and are often the cheapest way to trade currencies. All cryptocurrencies are digital currencies, but not all. Digital currencies are cryptocurrencies. Some of the benefits of digital currencies are that they allow for a seamless transfer of value and can reduce transaction costs. 

Understanding digital currency

Digital currencies  have no physical attributes and are only available  in digital form. Digital currency transactions are carried out using computers or electronic wallets connected to the Internet or certain networks. In contrast, physical currencies such as minted bills and coins are tangible, meaning they have specific physical attributes and properties. Transactions with such coins are only possible if their holders are physically in possession of these  coins. Digital currencies have  similar uses as physical currencies. They can be used to buy goods and pay for services. They also have limited use in certain online communities such as gaming sites, betting portals or social networks. Digital currencies also enable instant transactions that can be carried out seamlessly  across borders. For example, it is possible for a  United States resident to make  digital currency payments to a Singapore, -based counterparty as long as they are  connected to the same network.

Type of currencies

• Digital currencies

Regulated or unregulated currency  available only in digital or electronic form

• Virtual currencies

An unregulated digital currency  controlled by its developers, its founding organization, or its defined network protocol.

• Cryptocurrencies

A virtual currency that uses cryptography to secure and verify transactions, and to manage and control the creation of new monetary units.

Pros and Cons of digital currencies

Pros

•  Faster transaction times.
•  They require no physical crafting. 
• Lower transaction costs. 
• They facilitate the implementation of monetary and fiscal policy.

Cons

•  Can be difficult to store and use. 
• They can be hacked. 
• Prices can be volatile.

Future of digital currencies

Cryptocurrencies like Bitcoin have skyrocketed in value but  are largely used for speculation or buying other speculative assets. Although there are some signs of commercial adoption in countries like El Salvador, the high volatility and complexity of these currencies make them impractical for most everyday uses. Many companies have tried to reduce volatility by launching stable coins, whose value is linked to the price of fiat currency. This is usually done by depositing an amount equal to   fiat, which can be used to redeem the tokens. However, stable coin issuers like Tether have used these deposits for more speculative investments, raising concerns that they are vulnerable to a market crash. Another possible application is  central bank digital currencies, which could be issued by a country's bank or monetary authority. They would be used and stored in online wallets similar to cryptocurrencies, but would allow the central bank to issue and freeze tokens at will. Several countries, such as China, have proposed digital versions of their currencies.