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What is Digital Currency? Types, Advantages and Disadvantages

In this article, we will know what is Digital Currency and its types, advantages and disadvantages. The utility of digital currency is similar to that of physical currencies. They can be used to buy goods and pay for services. Today many countries are on the way to give government recognition to digital currency in their country. In the coming days, this currency will prove to be common in many countries.

What is Digital Currency? Types, Advantages and Disadvantages

What is Digital Currency

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 Cybercash. Digital currency does not have a physical form, it is available only in digital form. Meaning you can’t touch it. It is stored on your internet account. Transactions involving digital currency are carried out using an electronic wallet connected to a computer or internet network.

In contrast, physical currencies, such as banknotes and coins, are tangible, which means that you can touch them and give them directly to someone else. This means that the bank-notes or coins we use, it is physical money and which we can spend only through internet is digital money.

Digital currency enables the function of instant transactions, which even the borders of countries cannot stop. For example, today it is immediately possible for a person based in the US to pay in digital currency to a counterparty living in Singapore, provided they are both connected to the same network. If this transaction was normal, it would undoubtedly take time.

Types of Digital Currency

1. Cryptocurrency

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. Depending on the jurisdiction, cryptocurrencies may or may not be regulated.

2. Virtual Currency

Virtual currency is an unregulated digital currency controlled by a founding organization consisting of developers or various stakeholders involved in the process. Virtual currencies can also be controlled algorithmically by a defined network protocol. An example of a virtual currency is a gaming network token whose economics are defined and controlled by the developers.

3. Central Bank Digital Currencies

Central Bank Digital Currencies (CBDCs) are regulated digital currencies issued by a country’s central bank. CBDCs can complement or replace traditional fiat currencies. Unlike fiat currency, which exists in both physical and digital form, a CBDC exists in a purely digital form. England, Sweden and Uruguay are some of the countries considering plans to launch digital versions of their native fiat currencies.

Advantages of Digital Currency

1. Fast transaction process

Digital currencies generally exist within a single network and carry out transfers without intermediaries, so the behavior associated with digital currencies is quite fast or dynamic.

2. No need to physically store

Since this currency is virtual, you do not need to carry it in your pocket. You store it in your digital currency account, so you can spend it in any corner of the world.

3. Affordable transaction costs

Digital currencies enable direct interaction within the network. For example, a customer can pay a shopper directly as long as they are located in the same network.

Disadvantages of Digital Currency

1. Internet essentials

For example, wherever you can store physical currency. But you need internet for storing digital currency. You cannot use this currency without internet connection and internet device (eg – mobile, computer).

2. Hacking a problem in digital currency

Their digital origin makes digital currency vulnerable to hacking. Hackers can steal digital currency from online wallets or change the protocol of digital currencies, making them unusable. As many cases of hacks in cryptocurrencies have been proven, securing digital systems and currencies is a work-in-progress.

3. Price volatility of digital currency

The digital currency used for trading can fluctuate wildly in price. For example, the decentralized nature of cryptocurrencies has resulted in very few capitalized digital currencies, whose prices are prone to sudden changes depending on the wishes of the investor.

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