The world has moved on and so does the way of transactions, trade, and investments. Digital Currencies are becoming popular. It is safe to say that this is the era of digital currencies as it is also an exciting and revolutionary concept. But what exactly is digital currency?
Is it e-money or something that is just a paper concept? Let’s dive deep into the world of Digital Currencies. Digital currency is a form of money that exists only electronically.
Digital currency is used today by billions of people around the world, including individuals and businesses. Very interesting right? Digital currencies are not issued by a government or central bank and are not regulated by any country’s central banking system.
Instead, they are generated through a process called mining, which involves solving complex mathematical puzzles with computers.
How Does Digital Currency Work?
Digital currency is an online method of storing and transferring money from one person to another. It’s also an electronic payment system used for buying goods and services over the Internet without using traditional banking institutions such as banks or credit card companies.
These transactions are recorded on a ledger called a blockchain which can be accessed by anyone with an internet connection.
Types of Digital Currency
Mainly you can categorize these currencies into three main categories – stablecoins, central bank digital currency, and cryptocurrency which is the most popular one.
Stablecoins are designed to maintain their price over time. Stablecoins are cryptocurrencies that are pegged to the value of another asset, such as gold or silver. The downside is that this system can be expensive, as it requires a lot more storage space than other cryptocurrencies.
Stablecoins can be created in several ways, one of which includes using the algorithm to automatically redeem existing coins into new ones. The most popular example to understand stablecoins is Tether (USDT) which has pegged its value to $1 since its launch.
2- Central Bank Digital Currency
Central bank digital currency is a type of digital currency issued by a central bank. A central bank can issue the currency in order to make financial transactions easier and more practical for its citizens, as well as to improve the efficiency of the financial system.
Central banks have been experimenting with digital currencies since the late 1990s, and they are now becoming increasingly common. CBDC works like any other form of money. it’s accepted for payment of goods and services in exchange for real goods or services.
Unlike traditional forms of money, which are subject to inflation over time because they’re backed by physical assets like gold or silver, CBDCs are not subject to inflation at all.
Because they’re backed by nothing but the trustworthiness of their issuing institution, they’re considered a “pure” store of value with no counterparty risk—and thus offer greater stability than traditional currencies.
Cryptocurrency is a digital or virtual currency that uses cryptography for security. It’s decentralized and independent of government-issued money. Cryptocurrencies use peer-to-peer technology to operate without any intermediaries, such as central banks or other regulatory agencies.
Cryptocurrency is often used to refer to virtual currency such as Bitcoin or Ethereum because these currencies use blockchain technology—a public record of all transactions that are available online or on a specific software platform like Ethereum.
You could also say that cryptocurrency is a type of virtual money because it relies on computer code to create units of currency (like dollars). While these digital currencies are making efforts to make difference in the world, they certainly do not come with any negative points. There are many positive revolutions bought by digital currencies.
Advantages of Digital Currency
After the introduction and the function of digital currency, it is also important that be aware of its advantages and disadvantages of it. First, let’s have a look at the advantages of digital currency.
1- More Secured
Unlike physical money, digital currency is more secure. The digital transaction once authorized is irreversible. It does not require personal information to complete the transaction, as it is needed for the fiat currency.
2- Faster Transactions
Digital currency is fast and helps in making easy mobile payments online. You can use it anywhere in the world and anywhere at any time of the day or night.
It can be used to send money quickly, even for people who do not have access to banks or other financial institutions.
3- Wipes Out the Risk of Manufacturing
Digital currency is not physically manufactured, which adds the advantage of cutting down on the cost of manufacturing.
It does not indicate that digital currency manufacturing doesn’t cost but in fact, it is much lower than physical currency. It also decreases the possibility of getting damaged as it is maintained in blockchain and other processes.
4- Cheaper Than Fiat Money
One of the most important advantages of cryptocurrencies over traditional currencies is that they allow users to avoid the costs associated with running a currency through banks.
Because there’s no central authority, blockchain-based digital currencies can be traded directly between users and don’t need to pass through an intermediary bank.
Disadvantages of Digital Currency
Now we also need to know the disadvantages of digital currency. I am explaining here some of the most common but important disadvantages here. Let’s understand them one by one.
There is the issue of storage and infrastructure. Digital currency is stored on your computer, phone, or tablet and is encrypted for security purposes.
This means that if your computer or device malfunctions or gets stolen, the value of your coins will be lost forever.
2- Fluctuating Value
Digital currencies do not have a set value like dollars or euros. Instead, they fluctuate based on supply and demand. For example, if there is an increase in demand for Bitcoin during an economic crisis then its price will increase with the market’s supply and demand.
However, this can lead to volatility when buying or selling digital currency at different times during different months due to changes in supply/demand within the economy as well as external factors such as political unrest or natural disasters (such as hurricanes).
3- Multiple Options
The most common disadvantage of digital currency is that there are too many options available. The number of digital currencies available today is crazy—there are over 1,500 different types of digital currencies out there! And the number keeps growing—every day new ones pop up.
4- Uncertain Future Growth
Digital currency is becoming popular. However, there is still a large percentage of the audience who don’t see potential or any future. It does not have physical value and hence sometimes people don’t have a clear picture of digital currency. It is not black and white like physical money.
Scope of Digital Currency
Digital currency is one of the fastest-growing markets in the world, with many businesses already accepting it as payment. But there are still many questions about it. What is the best way to invest in digital currency? Which government will support digital currency?
We made all this easy for you. The best way to invest in digital currencies is through an online brokerage account. With this service, you can buy and sell digital currencies without having to deal with the hassle of setting up your own wallet or computer setup.
You can also use this service to help manage your investments and track their performance over time by keeping track of all your assets using one platform instead of having several different accounts set up separately for each asset class (stocks vs bonds vs real estate).
Governments worldwide are already looking into how they should regulate cryptocurrencies, with many considering them illegal. Countries like China and Russia have already made moves to ban transactions using digital currencies like Bitcoin and Ethereum, while others such as Australia have decided against doing so.
To conclude whether digital currencies have a future, here is what we believe from the trend. Globally digital currency gained popularity however they aren’t yet fully accepted by every country as a mode of transaction. There is also news that government will now start its own digital currencies in order to make the scope wider.
Now that will be interesting to see if they are able to maintain the currency hype in the coming years with their own currencies. It is definitely an investment that investors will want to get their hands on.
While doing the Investment, make sure you are aware of the possible online frauds, so keep your Investing on one platform that makes it easier for you. There are several Apps in the market that allows you to maintain your digital currency investment safe and secured all in one.
While popular currencies like Bitcoin, and Ethereum have shown maximum growth, we can never forget the news of dogecoin. Every Investment is smart if you understand every market easily.