Can Digital Currency be the future of money?

Article

In 2009, the first cryptocurrency i.e. Bitcoin was created and despite operating inefficiencies and security concerns, digital currencies are becoming a popular method of payment around the world. Over the years, there has been a significant increase in the use and investment of digital currencies, with governments and central banks considering how digital currencies could be rolled out alongside fiat currency.

What is Digital Currency

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Digital currency is any currency that is available only in electronic form. Virtual Currency and Central Bank’s Digital Currency are a few types of digital currency. Digital currency, however, never takes physical form. It is only present on a computer network and is exchanged via digital means.

Digital currency’s existence is backed by digital storage devices organized by highly efficient databases and managed by centralized or decentralized bodies. Its behavior is similar to a traditional currency like banknotes, bills and minted coins. While some central banks around the world are researching the possibility of creating their own digital currencies, some communities and nations boycott their use and disallow its services. Some of the digital currencies are controlled by centralized bodies like the central bank & governed by the government, known as CBDC, whereas some are totally decentralized, which means that no single body is able to distribute and control it.

Virtual currency is a type of unregulated digital currency, which is not issued or controlled by a central bank. Cryptocurrency is a type of virtual currency that relies on cryptography to chain together digital signatures of asset transfers, peer-to-peer networking, and decentralization. Cryptocurrencies work through blockchain, a decentralized technology spread across many computers that manage and record transactions.

Central Bank Digital Currency (CBDC) utilizes technology to represent a country’s official currency in digital form. Unlike decentralized cryptocurrency projects, a CBDC is centralized and regulated by a country’s monetary authority.

Benefits of using Digital currency

  • Lower transaction fees
  • Faster receipt of funds
  • International trading and transactions become easier
  • 24/7 access

Disadvantages of using Digital currency

  • Numerous digital currencies being traded at the same time
  • Volatility in the prices of Digital currencies make businesses reluctant to use it as means of exchange
  • Developing regulated form of Digital currency (CBDC) is difficult, time consuming, & still hypothetical
  • It is difficult to understand how to use and invest in digital currency

How International Bodies see Digital Currency?

Governments around the world have responded differently to the use of cryptocurrencies. Some governments, such as Singapore and Switzerland are active cryptocurrency hubs; they have been attracting and developing cryptocurrency industries in their countries. Some governments, such as India, China, and South Korea, have banned the use of cryptocurrencies or specific activities associated with them. However, some governments, including many European countries and the United States, are seeking a balance between financial innovation and risk-management through regulation of cryptocurrencies.

As per the Bank of International Settlements, Digital Currency is

An asset represented in digital form, having some monetary characteristics
which means that it can be denominated to a sovereign currency and issued by the issuer responsible to redeem digital money for cash.

As per the European Central Bank, Digital Currency is

A type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community

As per the US Department of Treasury

Virtual currency does not have legal-tender status in any jurisdiction
It is a medium of exchange that operates like a currency in some countries, but does not have all the attributes of a real currency

THE FINAL
TAKE

%

Accessibility & Convenience

At least 80% of central banks are currently researching this technology.

Users of cryptocurrencies state that digital currency will be the future of money. While digital currencies have become popular over the years, there are still some issues with cryptocurrencies being used as money, as mentioned above. Recently, a few countries such as China have also banned the use of cryptocurrency, leading to huge volatility in their prices. China has also started testing its state-regulated digital currency (CBDCs) and the national banks of several countries are looking at integrating blockchain technology into their financial systems – and it’s possibly going to change the way people view digital currency in the future.

Author

Hiba Hashim

[email protected]

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