Many investors who follow the financial market have probably heard about digital currency though a lot of people do not know what Digital Currency is.
Thus, as it is a subject discussed in the specialized media in finance and capital markets, it is worth knowing what digital currency is and how it works.
What is digital currency?
Digital currency is any currency or money-like asset that can be stored and exchanged in the virtual environment without physically existing.
It can be a national currency that simply ceased to exist in its physical format or even a cryptocurrency that is a kind of digital currency.
In summary, a digital currency is an intangible asset that is not physically possible to have, unlike paper money. However, digital currency can be backed up, as in the case of stablecoins that are issued based on some tangible good.
How does digital currency work?
When the digitization of a currency comes from a government, it works like any other currency, with the difference that there is no printed paper. That way it can be used for shopping, for example.
Digital currency refers to any currency category that exists in the virtual environment but does not exist in the physical world. Therefore, the concept is a little broader than cryptocurrencies, which are decentralized currencies.
In the case of cryptocurrencies, which are a kind of digital currencies, they are decentralized so they do not suffer government interference. However, its price can fluctuate according to supply and demand.
In summary, a digital currency can be issued by a country’s central bank, whereas a cryptocurrency is decentralized and uses Blockchain technology, also called “trust protocol”.
What are the main types of cryptocurrencies?
Cryptocurrencies tend to attract different investors around the world. Thus, one of the main cryptocurrencies are:
Bitcoin appeared in 2009, developed based on a blockchain system, which was created by a group of developers, having as leader Satoshi Nakamoto.
The main purpose of creating this cryptocurrency was to make it a global medium of exchange, without the need for backing or control by any central bank.
However, as it does not have collateral and becomes scarcer every four years, the value of this cryptocurrency began to fluctuate a lot, making it more of an asset than a currency per se.
After Bitcoin, another virtual currency that has also become famous is Ether. It was programmed on the Ethereum platform.
This platform enables decentralized application programming, smart contracts, and Ether cryptocurrency transaction, as well as others.
Ethereum was created by Canadian programmer Vitalik Buterin in the year 2013 and went online on July 30, 2015 with 11.9 million pre-mined ethers.
Tether is a stable coin, having been the first cryptocurrency to adopt this concept. Its circulation is dollar-backed.
As such, any Tether issued has a $1 reserve. Besides Tether, there are also other stablecoins backed by other assets.
Therefore, this currency does not suffer the same price variations as Bitcoin and Ether, and it can even function as electronic money.
Read Also: Top 10 Best Cryptocurrencies To Invest In
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