what is a digital currency 
the term digital currency refers to a form of currency that is available only in digital or electronic form it is also called digital money electronic money electronic currency or cybercash this means that there is no physical form as such it cannot be handled stored or manipulated consumers and businesses can use digital currencies to execute transactions and trades these currencies may not be used by all countries or communities understanding digital currenciesdigital currencies do not have physical attributes and are available only in digital form transactions involving digital currencies are made using computers or electronic or digital wallets connected to the internet or designated networks in contrast physical currencies such as banknotes and minted coins are tangible meaning they have definite physical attributes and characteristics transactions involving such currencies are made possible only when their holders have physical possession of these currencies digital currencies have utility similar to physical currencies they can be used to purchase goods and pay for services they can also find restricted use among certain online communities such as gaming sites gambling portals or social media networks digital currencies also enable instant transactions that can be seamlessly executed across borders for instance someone in the united states may make payments to a counterparty in singapore using digital currency provided they are both connected to the same network characteristics of digital currenciesas mentioned earlier digital currencies only exist in digital form they do not have a physical equivalent digital currencies can be centralized or decentralized fiat currency which exists in physical form is a centralized system of production and distribution by a central bank and government agencies prominent cryptocurrencies such as bitcoin and ethereum are examples of decentralized digital currency systems digital currencies can transfer value using digital currencies requires a mental shift in the existing framework for currencies where they are associated with sale and purchase transactions for goods and services digital currencies however extend the concept for example a gaming network token can extend the life of a player or provide them with extra superpowers this is not a purchase or sale transaction but instead represents a transfer of value types of digital currenciesdigital currency is an overarching term that can be used to describe different types of currencies that exist in the electronic realm broadly there are three different types of currencies cryptocurrencies are digital currencies that use cryptography to secure and verify transactions in a network 1 cryptography is also used to manage and control the creation of such currencies bitcoin and ethereum are examples of cryptocurrencies depending on the jurisdiction cryptocurrencies may or may not be regulated cryptocurrencies are considered virtual currencies because they are unregulated and exist only in digital form virtual currencies are unregulated digital currencies controlled by developers or a founding organization consisting of various stakeholders involved in the process 2 virtual currencies can also be algorithmically controlled by a defined network protocol an example of a virtual currency is a gaming network token whose economics is defined and controlled by developers central bank digital currencies cbdcs are regulated digital currencies issued by the central bank of a country a cbdc can be a supplement or a replacement for a traditional fiat currency unlike fiat currency which exists in both physical and digital form a cbdc exists purely in digital form england sweden and uruguay are a few of the nations that are considering plans to launch a digital version of their native fiat currencies 3the use of cbdcs has been suggested as a means of enhancing the speed and security of centralized payment systems lowering the costs and dangers of handling cash and promoting greater financial inclusion for people and companies without access to conventional banking services they may also make cross border payments easier and lessen the need for foreign exchange the introduction of a u s cbdc presents certain difficulties for instance for congress to authorize the issuance of a cbdc there must be robust privacy and security infrastructures put in place the government must also weigh the possible impacts on monetary policy and the operational management of the switch from conventional money to a cbdc advantages and disadvantages of digital currenciesfaster transaction timesno physical manufacturing requiredlower transaction costsmake it easier to implement monetary and fiscal policygreater privacy than other forms of currencycan be difficult to store and useprone to hackingvolatile prices that result in lost valuemay not allow for irrevocability of transactionslimited acceptabilityfuture of digital currenciescryptocurrencies like bitcoin have exploded in value but they are largely used for speculation or to buy other speculative assets although there have been some signs of merchant adoption in countries like el salvador the high volatility and complexity of these currencies make them impractical for most daily applications many companies have tried to reduce volatility by introducing stablecoins whose value is fixed to the price of fiat currency this is usually done by depositing an equivalent amount of fiat which can be used to redeem the tokens however stablecoin issuers such as tether have used these deposits on more speculative investments raising concerns that they are vulnerable to a market crash another possible application is in central bank digital currencies which could be issued by a country s bank or monetary authority these would be used and stored in online wallets similar to cryptocurrencies but allowing the central bank to issue and freeze tokens at will several countries such as china have proposed digital versions of their currencies examples of digital currenciessome major central banks around the world have looked into issuing their digital currencies some of the larger more notable examples include the countries below can you invest in central bank digital currencies cbdcs are unlikely to be useful for speculative investments since they will likely be pegged to the value of an underlying currency however it will still be possible to invest in those currencies through the forex markets 