Digital currency (digital money, electronic money or electronic currency) is any currency, money, or money-like asset that is primarily managed, stored or exchanged on digital computer systems, especially over the internet. Types of digital currencies include cryptocurrency, virtual currency and central bank digital currency. Digital currency may be recorded on a distributed database on the internet, a centralized electronic computer database owned by a company or bank, within digital files or even on a stored-value card.
Digital currencies exhibit properties similar to traditional currencies, but generally do not have a physical form, unlike currencies with printed banknotes or minted coins. This lack of physical form allows nearly instantaneous transactions over the internet and removes the cost associated with distributing notes and coins. Usually not issued by a governmental body, virtual currencies are not considered a legal tender and they enable ownership transfer across governmental borders.
These types of currencies may be used to buy physical goods and services, but may also be restricted to certain communities such as for use inside an online game.
Digital money can either be centralized, where there is a central point of control over the money supply (for instance, a bank), or decentralized, where the control over the money supply is predetermined or agreed upon democratically.
History of Digital Currency
In 1983, a research paper by David Chaum introduced the idea of digital cash. In 1989, he founded DigiCash, an electronic cash company, in Amsterdam to commercialize the ideas in his research. It filed for bankruptcy in 1998.
e-gold was the first widely used Internet money, introduced in 1996, and grew to several million users before the US Government shut it down in 2008. e-gold has been referenced to as “digital currency” by both US officials and academia. In 1997, Coca-Cola offered buying from vending machines using mobile payments. PayPal launched its USD-denominated service in 1998. In 2009, bitcoin was launched, which marked the start of decentralized blockchain-based digital currencies with no central server, and no tangible assets held in reserve. Also known as cryptocurrencies, blockchain-based digital currencies proved resistant to attempt by government to regulate them, because there was no central organization or person with the power to turn them off.
Origins of digital currencies date back to the 1990s Dot-com bubble. Another known digital currency service was Liberty Reserve, founded in 2006; it lets users convert dollars or euros to Liberty Reserve Dollars or Euros, and exchange them freely with one another at a 1% fee. Several digital currency operations were reputed to be used for Ponzi schemes and money laundering, and were prosecuted by the U.S. government for operating without MSB licenses. Q coins or QQ coins, were used as a type of commodity-based digital currency on Tencent QQ’s messaging platform and emerged in early 2005. Q coins were so effective in China that they were said to have had a destabilizing effect on the Chinese Yuan currency due to speculation. Recent interest in cryptocurrencies has prompted renewed interest in digital currencies, with bitcoin, introduced in 2008, becoming the most widely used and accepted digital currency.