Digital currency is any currency, money, or asset such as money that is managed, stored, or exchanged primarily in digital computer systems, particularly via the Internet.
Types of digital currency include cryptocurrencies, virtual currencies, and central bank digital currencies. Digital currency can be recorded in distributed databases on the Internet, centralized electronic computer databases owned by companies or banks, in digital files, or even on prepaid cards.
Digital currencies exhibit similar characteristics to traditional currencies, but generally lack the classic physical form of historical fiat currencies that you can hold directly in your hand, such as B. Currencies with minted banknotes or minted coins – but they have a physical form – a non-classical sense that comes from computer-to-computer and computer-to-human interactions and the information and processing power of the servers that handle the store and track money.
This non-classical physical form allows almost instantaneous transactions over the Internet and significantly reduces the costs associated with circulating banknotes and coins, e.g. money types in the UK economy 3% of banknotes and coins are 79% electronic money. Usually not issued by any government agency, virtual currencies are not considered legal tender and allow transfers of ownership across state borders.
This type of currency can be used to buy physical goods and services, but it can also be restricted to certain communities, for example for use in online games.
Digital money can be centralized, where there is a central point of control over the money supply, or decentralized, where control over the money supply is predetermined or democratically agreed upon.
History Of Digital Currency
In 1983, research by David Chaum introduced the idea of digital money. In 1989 he founded DigiCash, an electronic money company in Amsterdam, to commercialize his research ideas. In 1998 he filed for bankruptcy.
E-gold was the first widely used internet money, launched in 1996, and grew to tens of millions of users before the US government shut it down in 2008. E-gold has been dubbed a “digital currency” by US officials and scientists. In 1997, Coca-Cola offered vending machine purchases with mobile payments.
PayPal launched its US dollar-denominated service in 1998. In 2009, Bitcoin was introduced, marking the beginning of a decentralized blockchain-based digital currency with no central server and no physical assets held in reserve.
Blockchain-based digital currencies, also known as cryptocurrencies, have proven to be resistant to government attempts to regulate them because there is no central organization or person authorized to shut them down.
The origins of digital currency go back to the dot-com bubble in 1990. Another well-known digital currency services are Liberty Reserve, which was founded in 2006; allows users to convert dollars or euros into Liberty Reserve dollars or euros and exchange them freely among themselves for a 1% fee.
Several digital currency operations are believed to be used for Ponzi schemes and money laundering and are being sued by the US government for operating without an MSB license. Q Coins, or QQ Coins, were used as a type of commodity-based digital currency on Tencent’s QQ messaging platform and emerged in early 2005.
Q Coins are so effective in China that they are said to have a destabilizing effect on China’s currency, the yuan, due to speculation. The recent interest in cryptocurrencies has sparked renewed interest in digital currencies, with Bitcoin, launched in 2008, being the most widely used and accepted digital currency.
Types Digital Currency
The digital currency as a specific type and as a meta-group name
Digital Currency is a term that refers to a specific type of electronic currency with specific properties. Digital Currency is also a term used to include the meta-group of sub-types of digital currency, the specific meaning can only be determined within the specific legal or contextual case. Legally and technically, there already are myriad of legal definitions of digital currency and the many digital currency sub-types.
Combining different possible properties, there exists an extensive number of implementations creating many and numerous sub-types of Digital Currency. Many governmental jurisdictions have implemented their own unique definition for digital currency, virtual currency, cryptocurrency, e-money, network money, e-cash, and other types of digital currency. Within any specific government jurisdiction, different agencies and regulators define different and often conflicting meanings for the different types of digital currency based on the specific properties of a specific currency type or sub-type.
Digital versus virtual currency
Virtual currency was defined by the European Central Bank in 2012 as “a type of unregulated digital money that is issued and usually controlled by its developers and used and accepted by members of certain virtual communities”.
The US Treasury Department defined it more succinctly in 2013 as “a medium of exchange that functions as a currency in some settings but lacks all the characteristics of a real currency.” The US Treasury also states that “virtual currencies do not have legal tender status.” in any jurisdiction.” 
According to the 2015 European Central Bank report “Virtual Currency Schemes – Further Analysis”, virtual currency is a digital representation of value that is not issued by a central bank, credit institution or electronic money institution and can be used as an alternative in certain circumstances. can be for money.
An earlier October 2012 report defined virtual currency as an unregulated type of digital money that is issued and typically controlled by its developers and used and accepted by members of certain virtual communities.
According to the Bank for International Settlements’ November 2015 Digital Currency Report, these are assets that are represented in digital form and exhibit several monetary properties. Digital currency can be denominated in a sovereign currency and issued by the issuer who is responsible for buying digital money in cash.
In this case, digital currency is electronic money (e-money). Digital currencies that are denominated in their own unit of value or that are issued decently or automatically are considered virtual currencies. Thus, Bitcoin is a digital currency, but it is also a type of virtual currency. Bitcoin and its alternatives are based on cryptographic algorithms, therefore this type of virtual currency is also known as cryptocurrency.
Digital versus cryptocurrency
Cryptocurrency is a sub-type of digital currency and a digital asset that relies on cryptography to chain together digital signatures of asset transfers, peer-to-peer networking and decentralization. In some cases a proof-of-work or proof-of-stake scheme is used to create and manage the currency.
Cryptocurrencies can allow electronic money systems to be decentralized. When implemented with a blockchain, the digital ledger system or record keeping system uses cryptography to edit separate shards of database entries that are distributed across many separate servers. The first and most popular system is bitcoin, a peer-to-peer electronic monetary system based on cryptography.
Digital versus traditional currency
Most of the traditional money supply is bank money held on computers. They are considered digital currency in some cases. One could argue that our increasingly cashless society means that all currencies are becoming digital currencies, but they are not presented to us as such.