What is a Digital Currency?

We hear a lot about digital currency today. It’s not just about something you keep in a digital wallet.

A digital currency is actually considered an asset that has characteristics similar to more traditional money that we are used to seeing, like coins and cash. However, these currencies aren’t physical and don’t have physical representations.

As we become an increasingly cashless society, digital money becomes more important. Traditional money supply expressed digitally continues to grow, and the increasing popularity of cryptocurrencies like Bitcoin points us to the possibility of truly moving away from paper and coin.

Blockchain and the Rise of Cryptocurrencies

Digital currency relies on secure transactions. They are often native to the digital realm and represented as information. Bitcoin is one of the most popular, with many companies accepting them. You can even use Bitcoin in concert with PayPal.

I even have my own Bitcoin wallet, even though I haven’t actually done business using Bitcoin as a medium of exchange yet.

But Bitcoin isn’t the only game in town. There are a number of digital currencies available that you can use to manage your transactions. The reason that digital currency is becoming so popular has to do with how easy it is to use:

  • Instant transfer: You don’t have to wait for a clearinghouse to manage the transaction. Gone are the one to five business days you wait when you transfer money other ways. Instead, with a cryptocurrency, the transfer is instantaneous.
  • No fees: With most of these digital currencies, you don’t have to worry about fees. You send your Bitcoin, or whatever it is, and that’s it.
  • No foreign transaction concerns: Digital currency is borderless. You don’t have to worry about foreign transactions or exchange rates. It’s true that you do have to pay attention when you exchange your digital currency for whatever more traditional currency you have, but your cross-border transactions are easy to manage.
  • Secure: In most cases, cryptocurrencies are very secure. You do need to be careful about your wallet, though. Because you don’t keep this type of money in a bank, you are responsible for what you have. If you have a cryptocurrency wallet, make sure you back it up each day so you don’t lose it.

Being able to do business this way changes the game — as long as you can find people willing to transact business with you using digital currencies.

Will We See More Regulation in the Future?

So far, efforts to regulate digital currency have been minimal. But central banks are getting interested in studying ledgers that make it possible for them to use Bitcoins in much the same way they store gold, currencies, and other assets (except they would have to collect and store cryptocurrencies digitally). On top of that, major banks are becoming interested in digital currencies. Mizuho Bank is currently looking into a digital currency developed with IBM Japan.

As a result, it wouldn’t be surprising if governments and others started getting interested in how to manage digital money in a way that benefits them.

For now, though, it’s a fairly free interchange. You can use digital currency to transact business freely with others, and agree on an exchange that makes sense for your situation.