What is Digital Currency?
Digital currency is a currency as in physical money in digital form which have certain value that being hold or exchanged in a financial system, especially in the internet. Main difference Digital currency with money is in its form, which money has its physical form while digital money’s form is in digital form.
Digital currency being used through technologies system such as internet, blockchain, crypto exchanges, smartphones, peer-to-peer, credit cards, and so on.
Digital currency types and forms
There are severals currency under digital currency category. Some of them including Cryptocurrency, Virtual Money (Virtual currency), and the latest one is Central Bank Digital Currency (CBDC).
Cryptocurrency is currencies that use cryptographic methods to secure its network. The first known popular cryptocurrency is Bitcoin, which is created back then in 2009 by Satoshi Nakamoto. It was introduced through bitcoin whitepaper with title “Bitcoin: A Peer-to-Peer Electronic Cash System”.
Its introduction says “Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based model.”.
This idea of trust-less financial system which based on mathematical formula later known as blockchain technology, will be a base foundation of most cryptocurrency created later on known as altcoin (alternative coin of Bitcoin). Blockchain innovation is very huge some people consider it same as innovation of internet.
Meanwhile virtual currency is digital currencies issued and backed by specific company for a specific usage. Example of virtual currency is in-game money, electronic money, or loyalty currency for a shop. These currency is issued by a certain company/entity to be used on their platform or market as a mean to trades in which they couldn’t use physical money for the transaction. This method make the transaction in their platform become easier by giving their user access to their “currency” to trades there in exchange of cash deposit or equivalent.
CBDC – Central Bank Digital Currency
The latest one is CBDC, in simple terms is the same as digitalized physical money into a digital banknote. This means the identity of physical money’s serial number will be bring into digital form. This digital banknote will carry out the identity which could the central bank to control and analyze the usage of the money within the country. It would help country to have a better understanding about the country currency spending and might help to make a better financial decision for it. It is also one tools to fight corruption since the CBDC will be traceable by Central Bank.
Digital currency use case
Even so digital currency has no physical form, it still be used between its users as a mean of payments and goods exchanges mostly over the internet because it ease of transfer and usage which allows almost instantenous transaction with digital form. This main advantages over the physical money led to digital currency transaction become more popular nowadays in internet era. Transaction no longer needs to be paid hand-on-hand to be paid.
Differences between form of digital currency
The popular digital currencies are Cryptocurrency, Virtual Money, and Central Bank Digital Currency (CBDC). The differences between these 3 is as shown in the table below :
|Aspect||Paper Money||Cryptocurrency||Virtual Money||CBDC|
|Issuer||Central Bank||Decentralized ( Network participants , i.e. Miners and/or stakers)||Third party settlement agency||Central Bank|
|Owner anonimity||Full anonimity||Partial anonimity||Controllable anonimity||Controllable anonimity|
|Transparency of transaction||Non-transparent||Transparent||Non-transparent||Non-transparent|
|Sources of Value||Legal Currency||None||Full Reserver System||Legal Currency|
Sources : rieti.go.jp
Challanges of digital currency
Eventough digital currency offers various advantages to make people live’s easier, there are still several challenges to implement digital currency as main currency to be used in daily terms. These challenges may differ from country to country and time to time considering technology grow exponentially meanwhile regulation and human understanding not. Following are the three major challenges of digital currency.
The most discussed about the digital currency usage lies on the regulation for the digital currency. Regulation is needed to protect its users from any misuse or fraud. The regulation has not yet covered most of the digital currency aspects, but it has made considerable progress to regulate digital currency usage within its country.
Even so, not all countries are accepting digital currency usage within its country. Some of them consider digital currency to have a big risk to its users because of the system failure risk contained within a digital technology. Some of them consider the anonymity offered by some digital currency would lead to corruption and money laundering schemes. Regulation tries to approach these problems and see if they can manage the risk or not.
To make digital currency available for daily usage, it needs secure and abundant infrastructures to make the transaction have no or less problems. Anything tied to financial technology would need very high security , Anti Money Laundering prevention, and protection to its customers.
One of many infrastructures that has been developed right now is Bitcoin ATM. A Bitcoin ATM is a kiosk that allows a person to purchase Bitcoin and other cryptocurrencies by using cash or debit card. Some Bitcoin ATMs offer bi-directional functionality enabling both the purchase of Bitcoin as well as the sale of Bitcoin for cash. According to coinATMradar , there are already 19429 locations that has bitcoin ATM accross the United States only.
New technologies nowadays are always being used by scammers to do their actions. Coupled with the ignorance of many users about cryptocurrencies and its security, allows scammers to commit fraud. This problems is very huge in 2018 ICO trend, there are thousands of frauds company taking profit off the trends.
Popular Cryptocurrency: Bitcoin and altcoin
Since Bitcoin creation back then in 2009 by entity known as “Satoshi Nakamoto”, cryptocurrency gain its popularity through multiple bull market on cryptocurrency exchanges. Based on nasdaq analysis, at least 46 millions Americas own bitcoin. In the early 2009 – 2010, only a small handful people use the network. Even more, multiple of big cryptocurrency mining companies built on several countries such as China and Norway.
The first transaction using bitcoin not happening until in 22nd May 2020 , a Florida man ask in the forum if he could get pizza using his bitcoin. Some other users replied his request and provide him 2 Papa John’s pizza valued at $25 delivered to the man in exchanges with 10,000 bitcoin.
Fast forward to 2011, some miners and users create new network to improve blockchain use case. Then Ethereum and LiteCoin was born. This application of new use case later will bring more users into research and develop cryptocurrency use case into daily activities, including logistics tracking, decentralized advertisement, electoral voting, and many more. These coin besides bitcoin is popularly known as altcoin.
How to own your first digital currencies
The rise of digital currencies popularity leads to increase in cryptocurrency demands. There are several ways to get your hands on digital currencies, especially cryptocurrency. Some of them is easy to do , while the other way is complex.
The complex way is by mining cryptocurrency. Some of cryptocurrency use Proof-of-Work method to secure their network. Bitcoin miners will build their mining rig using dedicated machines to give hash power to secure the network. This method will rewards its participants (a.k.a. miners) by giving its cryptocurrency to the selected miners. By become a miner , you can get your cryptocurrency while having your machines working for you.
The easiest way to get your hands on cryptocurrency is by buying it from exchanges. Some exchanges even offer to bought it straight from your credit card such as Pionex , Coinbase, and others. You only need to prepare the account and do the Know-Your-Customer verification data and you can straight buy your very first cryptocurrency. Pionex offers an easy method to buy straight from your credit cards using friendly mobile apps. You also can trade it with any other cryptocurrency and even get free robot trading to help you maximize your gain.