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Digital currency digital money or electronic money or electronic currency is a type of currency available only in digital form, not in physical such as banknotes and coins. It exhibits properties similar to physical currencies, but allows for instantaneous transactions and borderless transfer-of-ownership. Examples include virtual currencies and cryptocurrencies [1] or even central bank issued " digital base money ".
Like traditional money , these currencies may be used to buy physical goods and services , but may also be restricted to certain communities such as for use inside an online game or social network. Digital currency is a money balance recorded electronically on a stored-value card or other device. Another form of electronic money is network money, allowing the transfer of value on computer networks , particularly the Internet. Electronic money is also a claim on a private bank or other financial institution such as bank deposits.
Digital money can either be centralized, where there is a central point of control over the money supply, or decentralized, where the control over the money supply can come from various sources. In , a research paper by David Chaum introduced the idea of digital cash. In , Coca-Cola offered buying from vending machines using mobile payments. Origins of digital currencies date back to the s Dot-com bubble. One of the first was E-gold , founded in and backed by gold.
Both services were centralized, reputed to be used for money laundering, and inevitably shut down by the U. Q coins were so effective in China that they were said to have had a destabilizing effect on the Chinese Yuan currency due to speculation.
According to the European Central Bank 's "Virtual currency schemes — a further analysis" report, virtual currency is a digital representation of value, not issued by a central bank, credit institution or e-money institution, which, in some circumstances, can be used as an alternative to money. According to the Bank for International Settlements ' November "Digital currencies" report, it is an asset represented in digital form and having some monetary characteristics.
In that case, digital currency represents electronic money e-money. Digital currency denominated in its own units of value or with decentralized or automatic issuance will be considered as a virtual currency. As such, bitcoin is a digital currency but also a type of virtual currency. Bitcoin and its alternatives are based on cryptographic algorithms, so these kinds of virtual currencies are also called cryptocurrencies. Most of the traditional money supply is bank money held on computers.
This is also considered digital currency. One could argue that our increasingly cashless society means that all currencies are becoming digital sometimes referred to as " electronic money " , but they are not presented to us as such. Currency can be exchanged electronically using debit cards and credit cards using electronic funds transfer at point of sale. A number of electronic money systems use contactless payment transfer in order to facilitate easy payment and give the payee more confidence in not letting go of their electronic wallet during the transaction.
A cryptocurrency is a type of digital asset that relies on cryptography for chaining 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 allow electronic money systems to be decentralized. The first and most popular system is bitcoin , a peer-to-peer electronic monetary system based on cryptography. A virtual currency has been defined in by the European Central Bank as "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 ".
Since , the European Union has implemented the E-Money Directive "on the taking up, pursuit and prudential supervision of the business of electronic money institutions" last amended in Such a merger could mean that electronic money is of the same nature as bank money or scriptural money. Provider's responsibility and consumer's liability are regulated under Regulation E.
Virtual currencies pose challenges for central banks, financial regulators, departments or ministries of finance, as well as fiscal authorities and statistical authorities.
Bank Secrecy Act applied to persons creating, exchanging, and transmitting virtual currencies. In May the U. Securities and Exchange Commission SEC "warned about the hazards of bitcoin and other virtual currencies".
In addition, over 90 central banks are engaged in DLT discussions, including implications of a central bank issued digital currency. The Bank of Canada have explored the possibility of creating a version of its currency on the blockchain.
A deputy governor at the central bank of China , Fan Yifei, wrote that "the conditions are ripe for digital currencies, which can reduce operating costs, increase efficiency and enable a wide range of new applications". The Danish government proposed getting rid of the obligation for selected retailers to accept payment in cash, moving the country closer to a "cashless" economy. A law passed by the National Assembly of Ecuador gives the government permission to make payments in electronic currency and proposes the creation of a national digital currency.
The electronic currency will be backed by the assets of the Central Bank of Ecuador", the National Assembly said in a statement. The German central bank is testing a functional prototype for the blockchain technology-based settlement of securities and transfer of centrally-issued digital coins. Unlike traditional mobile wallets, which takes a specified amount of money from user and stores it in its own accounts, UPI withdraws and deposits funds directly from the bank account whenever a transaction is requested.
Government-controlled Sberbank of Russia owns Yandex. Money — electronic payment service and digital currency of the same name. South Korea plans national digital currency using a Blockchain.
Sweden is in the process of replacing all of its physical banknotes, and most of its coins by mid However the new banknotes and coins of the Swedish krona will probably be circulating at about half the peak of 12, kronor per capita. The Riksbank is planning to begin discussions of an electronic currency issued by the central bank to which "is not to replace cash, but to act as complement to it". No decision has been currently made about the decision to create "e-krona".
In her speech Skingsley states: In , a city government first accepted digital currency in payment of city fees. Zug, Switzerland , added bitcoin as a means of paying small amounts, up to SFr. In order to reduce risk, Zug immediately converts any bitcoin received into the Swiss currency.
Swiss Federal Railways , government-owned railway company of Switzerland, sells bitcoins at its ticket machines. The chief economist of Bank of England , the central bank of the United Kingdom, proposed abolition of paper currency. The Bank has also taken an interest in bitcoin.
One suggests that the economic benefits of issuing a digital currency on a distributed ledger could add as much as 3 percent to a country's economic output. Hard electronic currency does not have the ability to be disputed or reversed when used.
It is nearly impossible to reverse a transaction whether it is justified or not. It is very similar to cash. Advantages of this system include it being cheaper to operate, and transactions are instantaneous. Western Union, KlickEx and Bitcoin are examples of this type of currency. Soft electronic currencies are the opposite of hard electronic currencies.
Payments can be reversed. Usually when a payment is reversed there is a "clearing time. Examples of soft currencies are PayPal and any type of credit card. A hard currency can be "softened" with a third party service. Many of existing digital currencies have not yet seen widespread usage, and may not be easily used or exchanged. Banks generally do not accept or offer services for them.
As such, they may be shut down or seized by a government at any time. From Wikipedia, the free encyclopedia. For the 20th century brand, see ecash. List of digital currencies. Retrieved 1 December Retrieved 24 January Retrieved 18 April Retrieved 28 May Retrieved 14 May Retrieved 1 February Archived PDF from the original on 6 November A Guide to the Most Promising Cryptocurrencies".
Retrieved 7 January Retrieved 30 December Federal Deposit Insurance Corporation. Financial Crimes Enforcement Network. Archived from the original on Retrieved 2 October Retrieved 3 October Retrieved 8 October The New York Times. Denmark to allow shops to ban paper money". Retrieved 20 December Retrieved 19 November Should the Riksbank issue e-krona? Archived from the original on 20 September Retrieved 20 September