What is Digital Money?
Digital money is a form of money that is not tangible. It is available only in pure electronic form. Digital money is a digital representation of value. These values or money can be transferred digitally using an internet or mobile application from one account to another. They can also be converted into physical cash under the conditions of the central bank of the country. Digital money liquid assets that are very safe and usually referred to as e-money.
How did it all start?
History of digital money is as old as the internet today. It was difficult for people to adapt to the technology, however it became more comfortable to people as they learnt and practised. Paypal is said to be the first successful startup to bring the idea of easy-use digital transactions to the masses. Now there are more than a billion registered mobile money accounts across 95 countries. Per day there are over $2 billion transactions taking place.
Examples of Digital Money
Some examples of digital money are Cryptocurrencies, Central bank digital currencies and Stablecoins. These electronic currencies are tied to speculative exchange where one can purchase, sell and exchange. Widely there are 3 different types of digital currencies:
- Cryptocurrency – Cryptocurrency got its name from cryptography. It is a programming language that protects information, communication and transaction, manages and controls the flow of these currencies. Some popular cryptocurrency are Bitcoin, Ethereum and Litecoin. Bitcoin is said to be the first crypto currency launched in 2008. It maintains to be the biggest, most influential and best-known digital currency.
- Virtual currencies – Virtual currency is a type of digital currency that is not handled by the country or government. It is an unregulated digital currency. virtual currencies are controlled by developers or organisations where many stakeholders are part of the process. Centralised and decentralised are two types of virtual currencies.
- Central Bank Digital Currencies – Central Bank Digital Currency is issued by a central bank rather than commercial banks. It is traditional money but in digital form. It is represented in national units of each country. This form of digital currency is more secure and less volatile. CBDCs have the ability to replace notes and coins and are easy to access and available.
Advantages of digital currency
Fast transfer and transaction: Traditional money is monitored by the central bank of a country. This money can satisfy the requirements of commercial banks. Digital money performs faster than traditional money. If suppose money was transferred overseas, it would take days to reach the receiver but with digital currency/ net banking it reaches immediately or much quicker. Cuts down transaction costs: Initially, the cost of using digital money is extremely low. The money in your account is basically yours but since the bank needs to make some profit,
it charges some amount as ATM fee, transfer fee and inter bank charges. Through digital transactions major of these charges are cut down to minimum. Can track payment: The only method where there is transparency and immediate notification on every transaction is digital currency. In the traditional method we have to get printed every time on the passbook from the bank to check the income and transaction made. Because of blockchain technology we are able to track our transactions. Since everyone has access to it, people are able to track their transactions more accurately in less time.
Disadvantages of digital currency
At risk of Hacking: Just like pickpocketing wallets for our pockets, digital currencies can also be pickpocketed through hacking. Digital money is as risky as bank loot. The blockchain technology makes hacking difficult but the probability of being hacked is at stake. The security infrastructure has to be better controlled and maintained than what currently exists. Unstable Valuation: Due to inflation, the value of physical currency and digital currency is like a seesaw. One day the price is up and profitable, the other day you are at a loss. With this unstable nature it becomes difficult for an investor to lend out their cash. Just like any commodities or assets, price depends on supply and demand. Unclear Future: On one hand traditional currency is slow but it has a fixed and clear future, whereas on the other digital currency has a very fluctuating and unpredictable future as it is still new and in the stage of development.
Every coin has two sides, similarly there is risk in digital currency but there is accessibility as well. It all depends on the individual how wisely they invest, share and evaluate their digital wallet. With the modernisation of expenses, income and savings has to walk ahead of time.