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Everything You Need To Know About Digital Currencies
According to a recent survey by Accenture, 90% of top major banks across Europe and North America are seriously looking at how they can explore blockchain technology for payments. The recent interest in blockchain technology in the banking sector has brought digital currencies to the forefront. Bitcoin is again gaining popularity as a virtual currency in the payment system.
In traditional financial systems, transactions between two parties are carried out with the help of an independent intermediary. Typically these third parties are banks that provide a centralized payment system to ensure secure processing of payments. All transactions are recorded by the bank and the responsibility of recording a correct, secure transaction rests with the bank.
The Rise of Digital Currency
The wikipedia defines digital currency as an internet based currency that has properties similar to physical currencies but allows for instant transactions. What’s more digital currencies are not limited to national borders - they facilitate borderless transfer of ownership. Bitcoins are one form of digital currency.
Digital currencies has been around for 20 years - their origin dates back to the 1990s. E gold and Liberty Reserve were amongst the first virtual currencies in circulation. Q coins were very popular in China, to the extent that they had a destabilizing effect on the Chinese currency. Today bitcoin is the most popularly used digital currency. Bitcoin is a decentralized cryptocurrency that functions on a peer to peer network. It uses cryptography to control its creation and distribution. It was created by Satoshi Nakamoto. There are currently over 12 million bitcoins in circulation today.
Here are some things that you should know about digital currency:
Digital, Virtual, and Cryptocurrencies:- Virtual currencies are not dependent on the traditional banking system, in fact, they were created due to trust issues with existing financial systems. The European central bank defines virtual currency as unregulated digital money that is used by members of a specific community. Digital currency, on the other hand, is used to specifically refer to the virtual currency that is created and stored electronically. If it uses cryptography during this electronic storage and transmission then it is referred to as cryptocurrency. Cryptocurrency is very difficult to counterfeit.
Digital currencies are decentralized and regulations regarding them could differ from country to country. However, there has been concern regarding their misuse for money laundering activities as the more anonymous a currency is the more attractive it is to criminals. Bitcoins, for example, have been known to be used for transactions involving drugs and other illegal items. Bitcoins can be traded on Coinbase which is like a virtual exchange for Bitcoins. Many payment platforms support Bitcoins and allow you send and receive funds using this digital currency. Similarly, there are many places that allow you to purchase goods and services using bitcoins. You can store your coins in a bitcoin wallet.
The Future of Digital Currency
As bitcoins continue to grow in popularity, it is expected that security issues around bitcoins and other digital currencies will get resolved through the development of better technology and systems. Not only bitcoins but the underlying mechanism on which they function viz. Blockchain technology is garnering a lot of interest today. All major banks of the world understand the disruption being caused by decentralized virtual currencies and blockchain technology and are looking at ways and means to integrate these into their products and services.
The recent growth in eCommerce and globalization has led to a rapid increase in cross border payments and there are ample opportunities for digital currencies as they are borderless and do not depend on any central authority for their transactions.
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