Digital currency

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Digital currency is a category of currency that exists electronically.

Added advantages that digital currency has over physical currency include, but not limited to:

- instantaneous transactions

- automatic update of accounting ledger

- cross-border transfer of ownership

Digital currencies are not new. The idea of virtual currencies started in the world of online games, known as gold-farming[1]. Digital currencies exist upon any general-purpose 1 technology (GPT), including the internet or emerging new technology like digital ledger technology (DLT).

Characteristics of Digital Currencies

Digital currencies can be used to exchange for funds or other digital currencies. They are a digital representation of value that can be used for payment or investment purpose. Unlike digital assets, digital currencies are a more specific area of asset class that focuses on medium of exchange, a unit of account and store of value.

3 Types Of Digital Currencies

  1. Virtual currency
  2. Privately issued cryptocurrency
  3. Central bank digital currency
Digital Currencies
Types Definition Characteristics
Virtual currency Digital form of currency in virtual ecosystem.

E.g. WOW gold, Second Life Linden Dollars,

QQ coins

Digital presentation of value

Not legal tender

Accepted in virtual ecosystem

Not unnecessary pegged to fiat currency

Unregulated

Privately issued

cryptocurrency

Digital form of currency built on DLT.

E.g. Bitcoin, Ripple, Tether

Based on cryptographic algorithms

Not legal tender

Can be pegged to fiat currency as as a representative of legal tender

Governed with varying levels of centralization

Can be pegged to a basked of goods/services

Can be an independent invented currency

A private payment medium

Central bank

digital currency

Digital form of fiat legal tender currency

issued by the central bank.

E.g. China's CBDC, Uruguay digital pesos

Legal tender

Issued by central bank

Established by government regulation of law

Part of nation's base money supply

Governed by a central authority: the central bank

  1. Castronova, E. (2001). Virtual worlds: A first-hand account of market and society on the cyberian frontier.