Digital Currency 101 – A Complete Guide

THE DIFFERENCE BETWEEN DIGITAL CURRENCY, VIRTUAL CURRENCY, CRYPTOCURRENCY

When it comes to learning about the different types of currency options on the market, there are a few ways to tell the difference between the three main types on the market. Whichever you decide to pursue, these helpful tips will give you the tools you need to tell the difference.

Digital Currency

This form of currency is available only as digital or electronic currency, not physical form. Digital currency is also known as electronic money, digital money, electronic currency, and cybercash. Digital currency isn’t something tangible, but it can be owned and spent through electronic platforms. 

• You can access digital currency through computers or mobile phones
• They require no mediation and are cheap to trade
• All cryptocurrency is a digital currency, but not all digital currency is a cryptocurrency

Virtual Currency

This term refers to an unregulated digital currency that can only be accessed electronically. It’s stored and spent through specific software, applications, and digital wallets. Virtual currency is considered a division of digital currency, which also includes cryptocurrency.

• Virtual currency is currently held in the blockchain network and isn’t controlled by a banking authority
• Virtual currency is different from digital currency as a bank doesn’t issue it
• This form is unregulated, so it experiences major price shifts based on consumer interest

Cryptocurrency

The definition of cryptocurrency is based on cryptography, which means that it’s almost impossible to counterfeit or double-spend the funds. Decentralized networks hold most cryptocurrencies based on blockchain technology.

• This form is the newest currency form and is distributed across many computers. Cryptocurrency allows the currency to exist outside of government and central authority control
• The term refers to the techniques used to encrypt the funds onto a secured network
• This form of currency faces a lot of criticism because it has been used for illegal activities, infrastructure vulnerabilities, and drastic changes in the exchange rate
• This form is portable, divisible, and resistant to inflation.

THE FUTURE OF BLOCKCHAIN AND DIGITAL CURRENCIES

All of the different digital currency forms use DLT (distributed ledger technology), known as the blockchain. These blockchains are a decentralized way to record and document all transactions utilizing your currency. 

In simple terms, a blockchain is a transaction ledger that keeps copies of your ledger on the different computers in the network. This ledger maintenance system keeps the blockchain secure. For more information about blockchains and crypto trading, these webinars and tutorials can help you figure out where to start.

Blockchain technology applications reach across many different industries. It’s used to manage identity, contracts, analysis, and more. This technology’s full potential still isn’t clear, but there are many different opportunities on the horizon!

How Many Virtual Currencies Exist Today?

At the writing of this article, there are 5,392 different virtual currencies currently traded in the market. 

The ten largest options from Bitcoin (BTC) to Ethereum (ETH) and Polkadot (DOT) to Cardano (ADA), ranked by Market Cap, are:

The Pros and Cons of Using Virtual Currency

Many people are interested in investing in virtual currency, and as more people utilize it, it won’t take long for it to become as common as a credit card. But before you invest, this quick reference guide can help you better understand where your money will go and what it will do.

Pros:

• With the use of an open ledger, you will have complete transparent banking options to better track the movement of your funds
• Since the funding is entirely online, you will always have instant access to all of your finds, from anywhere in the world
• Virtual currency is anonymous, so your online privacy will always stay secure

Cons:

• It’s tricky to understand how it works, at first
• Many different things can cause the market to fluctuate
• If you experience a loss, there is no security on your funds

Will Virtual Currency Ever Replace Physical Currency?

If the current trend continues, it seems that a virtual currency future could replace the options currently available. But what advantages and disadvantages could this future hold?

Advantages:

Because cryptocurrencies can’t be changed as quickly as physical currency because of their unregulated status, they would better support the idea of a universal currency. Everyday usage would result in removing intermediaries for daily transactions and reducing costs for both businesses and customers.

Disadvantages:

If virtual currency outpaces the use of cash, the traditional currency will start to lose value. If it takes over completely, a new structure will need development, and the world will have to adapt to the change. There will most likely be challenges with cash transactions, people lose out on their assets, and financial institutions will have to adjust to the new formats. 

What Is Virtual Currency Mining?

Virtual currency mining, or “cryptomining,” is the process of different cryptocurrencies being verified and added to the blockchain. Cryptomining is growing in popularity as the currency becomes more common because each transaction triggers a “cryptominer” into action. The cryptominer makes sure that the purchase is authentic and automatically updates the blockchain for the transaction.

Where to Start

With the basics of digital currency under your belt, choosing which option you want to pursue is the best place to start. There are many different aspects to cryptocurrency, and since it’s still in the early stages, things are continually changing and adapting to meet consumer demands. Soon you will be able to buy and spend cryptocurrencies via your Visa, Mastercard, as well as within your PayPal Account. Therefore, you better get ready and used to it.

To learn more about blockchain and virtual currency, check out the other informative articles on our crypto blog. If you’re ready to talk with our experts to learn more about cryptocurrencies or digital currency, book a consultation today!

FAQ ABOUT DIGITAL CURRENCY

What is Digital Currency?

This form of currency is available as a digital (electronic) asset only. Like a piece of code. There is no physical form. Digital currency, also known as electronic money or cybercash, is not tangible but it can be owned and spent through electronic platforms via the internet.

Where to buy Digital Currency?

There are hundreds of platforms (websites) where you can buy digital currency. Some of the most popular platforms are: Coinbase – Best overall platform; Robinhood – Best Low Cost in the US; Square Cash – Is very Versatility; Binance – Great for Low Rates with High Performance; and Coinmama – Best for Easy Transactions. Just make sure you’re holding your assets yourself safe on a hardware wallet.

Is Cryptocurrency Taxed?

Yes! Most governments have changed their laws and regulations. Most tax offices treat cryptocurrency as property for tax purposes. Just like other forms of assets like stocks, bonds, or real estate, you incur a tax reporting liability on the capital gains and losses from your cryptocurrency transactions. Please contact your local tax office for more information.