The world of cryptocurrency has been around since 2009, when Bitcoin was first introduced to the market. Since then, it has boomed and exploded with many new cryptocurrencies and altcoins.
While the terms and meanings may be confusing, we’re here to help you digest them.
What Is Digital Currency?
There are some controversies surrounding digital and virtual currencies. But typically, when someone refers to digital currency, they’re referring to cryptocurrency.
Virtual currency is arguably the correct term to use when discussing cryptocurrency, and digital currency is a broader term capturing both crypto and online banking.
Digital currencies are types of money only available digitally. In other words, it’s not available in paper or coin money.
Digital currencies are used in the same manner as traditional money. It can be used for goods or services, and each currency may have specific uses (such as virtual in-game money).
For the sake of this article, we’ll be discussing cryptocurrency.
What are the perks of digital currency versus traditional currency?
You may be wondering what the perks of digital currency are compared to traditional currencies. Here are the upsides and the downsides:
Digital currency pros
Digital currencies have fast transactions. They can be bought and sold within minutes on some platforms. Payments can be sent and made just as quickly with digital currency.
For comparison, if you make a payment from your bank account to pay a bill, it could take days to clear your account. If you want to deposit a check, it can take hours or even days to go through, especially if you use a banking app. With cryptocurrency, you’ll see transactions within minutes.
Investing in cryptocurrency is affordable for the public, not just the middle to upper classes. For example, some platforms require a minimum purchase amount of $1-5, but others have no minimum purchase or sell amount.
Some investing accounts (like a Roth IRA) require as much as $500-1000 down. Cryptocurrency is available to anyone and does not discriminate between classes.
While centralized banks or the FDIC may not back cryptocurrencies, they are still secure transactions.
Every transaction is recorded on the blockchain, which creates a digital receipt. Here’s how:
- This receipt is forever inked on the blockchain, making it impossible to erase or steal.
- This is possible due to cryptology (code). Every transaction is recorded on the digital ledger.
Each country has its own currency. For example, the United States has the American dollar. The best part about cryptocurrencies is that they are a global currency. You can buy or sell bitcoin with any currency (if it’s legal!).
Once you convert your currency to Bitcoin (or other cryptocurrencies), it’s equivalent all over the world. That money is usable all over the globe (where cryptocurrency is usable, that is). One bitcoin is one bitcoin, no matter where you travel.
If you decide to invest in a stable coin, most pay high-interest rates. For example, the Gemini Dollar is a stable coin found in the Gemini digital wallet.
This cryptocurrency pays 8% interest on your investment, and it’s always going to be 1:1 with the American dollar.
So, the interest rates on stable coins are much higher than those on savings accounts.
Digital currency cons
Digital currency is not backed by any centralized bank, and most of them fluctuate, which means that your $1 could be $4 tomorrow or $0.50.
Most cryptocurrencies are an investment, and as with all investments, this involves risk. There are some stable coins (like the Gemini mentioned above the dollar), but many cryptocurrencies will rise and fall. So, the risk falls on the investor, and there are no guarantees.
Digital currency is not tangible, which means you can’t hold it in your hand, but only in a virtual online wallet. This requires an internet connection and an internet-capable device. If you suddenly find yourself without either of these, you lose access to your assets.
What are the different types of digital currency?
When digital currency is discussed, you may hear terms like “coins,” “altcoins,” and “tokens.” Let’s discuss the difference between them.
Coins
A digital coin has a blockchain. It can store value and be used in many of the same ways that traditional money can be used. Examples include Bitcoin or Litecoin (discussed later in the article).
Altcoins
Bitcoin was the first cryptocurrency created, and everything created after that is considered an altcoin. In other words, all cryptocurrency is either Bitcoin or an alternative coin (altcoin).
Tokens
A digital token is created on a blockchain. A token can be used as part of a software application. For example, it can represent something unique, such as NFTs (non-fungible tokens), verify identity, or track products.
Is digital currency the future?
With trade and commerce becoming more of an online experience, brands and businesses can reach across the globe.
In addition, digital currency could be used for international transactions to reduce the need for currency exchange rates and services.
Common and popular cryptocurrencies
There are well over 4,000 cryptocurrencies out there. The number keeps growing as developers create new cryptocurrencies for different uses. Here are some of the standard and popular cryptocurrencies you may or may not have heard of:
- Bitcoin: Bitcoin first appeared on the market in 2009, and it was the first digital currency. It has a fork called Bitcoin Cash.
- Ethereum: Ethereum is the second most digital currency. It is both a cryptocurrency and a software development sandbox. Ether is a token on the Ethereum network.
- Dogecoin: Dogecoin was created as a joke but has since taken off. It’s used as a digital payment like Bitcoin, but it has a market cap.
- Tether: Tether is an example of a stable coin. A stable coin is tied to a governed currency but can be used without the need for financial intermediaries (i.e., banks).
- Binance: Binance is a coin available for exchange, it can be used as currency, or it can be used to pay fees.
Will There be More Cryptocurrencies?
Cryptocurrencies were created to be secure and anonymous transactions. Since they were created, more have been invented. For example, Dogecoin was initially created as a joke, but it’s a legitimate cryptocurrency now. As cryptocurrencies expand globally, we will likely see an increase in the number of cryptocurrencies.
Blockchain technology is not regulated. Instead, it’s open-source, allowing developers to use the original code to create something new and unique.
Where can I invest?
If you’re looking for a digital wallet, you can find them on the App Store and Google Play. Here are some of the possible digital wallets available:
- Robinhood.
- Webull.
- Cash App.
- SoFi.
- Gemini.
- PayPal.
Image by: [Vjkombajn]