Digital Currency

Digital currencies are a form of money that exists only in electronic or digital form. Unlike physical cash, they do not have a tangible counterpart like coins or banknotes. Digital currencies leverage technology for creation, storage, and transactions.

Key Characteristics of Digital Currencies

• Intangible: No physical form; exist only digitally.
• Decentralized or Centralized: Some are managed by central authorities, while others use decentralized networks like blockchain
• Quick Transactions: Enable fast transfers globally
• Low Transaction Costs: Often cheaper than traditional banking systems
• Borderless: Can be used internationally without currency exchange complexities

Types of Digital Currencies

Cryptocurrencies

• Definition: Decentralized digital currencies that use cryptography and blockchain technology for security and transaction verification.
• Examples: Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC).
• Key Features:
  – Operate on peer-to-peer networks.
  – Transactions are immutable and transparent.
  – Not controlled by governments or central banks.

Central Bank Digital Currencies (CBDCs)

• Definition: Digital versions of a country’s official currency, issued and regulated by central banks.
• Examples: Digital Yuan (China), eNaira (Nigeria).
• Key Features:
  – Backed by a nation’s central bank, ensuring stability.
  – Designed to complement or replace cash.
  – Offer enhanced control over monetary policy.

Stablecoins

• Definition: Cryptocurrencies pegged to a stable asset like fiat currency (USD) or commodities (gold).
• Examples: Tether (USDT), USD Coin (USDC).
• Key Features:
  – Reduce volatility compared to traditional cryptocurrencies.
  – Used for transactions, savings, or trading in volatile markets.

Virtual Currencies

• Definition: Unregulated digital currencies often used within specific ecosystems, like gaming platforms or loyalty programs.
• Examples: Robux (Roblox), Linden Dollars (Second Life).
• Key Features:
  – Limited to specific platforms.
  – Not generally interchangeable with fiat currencies.