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What is Digital Currency? How Digital Currency works?

What is digital currency? How Digital Currency works? Currencies are famous all around the world, but they are found mostly in the physical form. These currencies are either found in the form of paper currencies or in the form of metal coins. So, what do you mean by a digital currency?

Digital currency is a type of virtual payment method. This is a medium of exchange that exists only in the electronic form. Digital currency is not available in the physical form. Digital currency can be generated, stored and transferred electronically. Digital Currency is a type of Virtual Currency. This can be transferred between parties with the help of computers, smartphones, and the internet. Digital currency can also be called as a cryptocurrency.  Cryptocurrency can be used in transactions. It also allows borderless transfer of ownership. Unlike physical currencies that differ from country to country, Digital currencies are not associated with any country’s government. It is also not represented in any physical form.

Where is digital currency being used?

Digital currency has not yet gained its desired worth in the worldwide market. It is still not as popular as the physical currency. Digital currency also has a constricted user base.  Payments could be made directly between the person paying and the person receiving the payment using digital currency. With the help of digital currency, we could eliminate intermediaries and process steps. Digital Currency can also help in reducing infrastructural costs. Fund flows can become simpler transparent if the digital currency is used for the transaction.

How does the Digital Currency Work?

“What is digital currency? How Digital Currency works?” There are many different types of Digital Currency that could be found all around the world. The working of all these different currencies are basically almost the same. The most difficult part to understand in the working of digital currency is the blockchain network. The blockchain is a technology that is the foundation for all the digital currencies, but they are not bound to any single type of currency. Blockchain of digital money is a specific protocol that the digital currency follows. This protocol helps the creation and use of digital money. Some criteria are specified by the blockchain protocol that must be unique to every currency being produced. These criterions are as follows:

  1. Unique and non-replicable
  2. Limited in supply
  3. Durable
  4. Divisible
  5. Uniform
  6. Non- refundable.

Blockchain protocol is compulsory while developing a digital currency. Once the digital currency is created, it must be accessible to people for use. Here comes the concept of “mining”.

The digital currency’s network is a place where all sorts of transactions related to the currency have taken place. Any new transactions are divided into “blocks”. These blocks are confirmed by the miners and validated by multiple users throughout the network before they are added to the end of the chain. Once the block is confirmed, it is sealed and recorded on the public blockchain ledger.

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After the digital currency is mined, or transferred between users, it must be stored in some place. That storage space is called the Digital currency Wallet. These are software that is capable to keep the digital currencies securely for an infinite period. The digital currencies are encrypted. So, they have a public key and at least one private key. Some digital wallets are secured using the feature of multi-signature.

Benefits of Digital Currency

Digital Currencies come with a lot of benefits. It carries with itself the ability to provide easy transactions without latency or delay. It also has very low transaction cost. Digital currencies also help organizations in many ways. It could easily eliminate or reduce the exposure risks as these could be used as transport currency. The digital money could be used in place of traditional money to buy and sell goods. Digital currency can also be decentralized or it can have a central authority over the emission process. Digital currency can also be backed by other currency or liquid asset. It can also work without backing.

Disadvantages of Digital Money

Cybercash is progressive and useful, but it is not widespread. At present, digital currency is not accepted by banks. These currencies cannot earn interest from individuals or organizations. The Digital currency also comes with some risks. These risks are security, currency volatility, and payment beneficiary identification. There is some uncertainty related to cyber cash such as compliance with regulations and customer identification.

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What is digital currency? How Digital Currency works?

Examples of CyberCash

 There are a few digital currencies that are prevalent in the market. Cryptocurrencies and virtual currencies are examples of digital currencies. Cryptocurrencies are the most common example in this category. The cryptocurrency relies mostly on encryption to secure the processes involved in generated units and conducting transactions. The cryptocurrency is also used as traditional money for online purchases and is being hugely accepted by people worldwide. Bitcoin is the first cryptocurrency that is widely accepted. Virtual currency is also a type of cryptocurrency. In this, the medium of exchange is confined to some software based on environments. One of the earliest virtual currencies was Linden dollar.

We hope that you liked this ‘What is digital currency? How Digital Currency works? ‘ article. If you have any query related to this, feel free to contact us

About Garima Das

She is an engineer by profession and a writer at heart. She has a bachelor’s degree in Technology with specialization in Computer Science and Engineering. She is an enthusiast learner who is more into creating things using latest technology than modifying the existing ones. She also has a certification in PHP.

4 comments

  1. Hi, Good article.. hope to see an article on Bitcoins.

  2. Informative article on one of the trending topic.

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