Digital currencies are a type of currency available through the use of electronic devices and the Internet.
Q: How does digital currency work?
A: Digital currencies are used across the world to trade, exchange, buy, and sell commodities and goods just as normal currencies may be but maybe limit to certain restrictions or regulations. Instead of using material representations like metal or paper they instead a numerical representation in an electronic ledger. They require the use of electronic devices, and often Internet, to be used.
Q: What are some examples of digital currency?
A: Three main types of digital currencies exist, namely electronic cash, virtual currency, and cryptocurrency.
Electronic cash refers to the money accounted for in your wallet by central agencies such as bank, applications or companies. They offer a centralized payment method through their applications or cards but necessitate a high transaction fee, to trust in the provider, and accounts may be frozen at any time.
Virtual currencies are currencies created by third parties, lack regulations, are not backed by physical assets, and are only accepted within a restricted community and; thus, may not be redeemed outside said community. Examples of this are e-gift cards, in-game/app paid for currencies, and miles.
Cryptocurrencies are a form of peer-to-peer electronic cash that doesn’t require trust, is impervious to central manipulations, allows pseudonymity, cannot be counterfeited, is verifiable by all, is divisible to the 8th decimal, and allows for immutable transactions. They offer quick border-less transfers from peer-to-peer without requiring a middle-man and are thus only a fraction of the price of traditional electronic cash. They may or may not be backed by physical assets and while not fully regulated they have been increasing efforts to regulate cryptocurrencies.
Q: How to do digital currency investment?
A: There are two main ways to invest using digital currencies.
The first one is investing in digital currencies themselves as many, particularly cryptocurrencies, have high volatility allowing savvy traders to profit from both bullish and bearish markets. For example, since their appearance in 2009 cryptocurrencies have also seen their value multiplied in the hundreds, thousands, or even millions for a few. This lead to the appearance of so-called crypto billionaires who started early and lead to a widespread adoption of what is commonly called hodling. The currencies can be either held over an extended period of time in the hopes of large price fluctuations or intraday traded for a profit on small price fluctuations.
The second way to invest using digital currencies is to use said currencies to invest in other assets and commodities either through a broker, exchange or another peer. Over the years, traditional investments have shifted from an over the counter payment method to a nearly purely online payment method.
Q: What are some digital currency pros and cons?
A: Digital currencies are still relatively new and as such may be subject to a number of problems including, but not limited to, scams, pump and dumps schemes, Ponzi schemes, a lack of regulations, limited availability and usage, programming errors, hacks, and volatility.
But for all the risks they bring digital currencies are beginning to see a widespread adoption for all the advantages they hold. Some of those advantages are border-less immediate and low fee transfers, potential access to a wider range of products and services, elimination of unnecessary third parties, and are constantly changed and updated to increase their features, advantages, and uses.
This concludes today’s article about digital currencies. This article was brought to you by Bybit, a cryptocurrency derivatives exchange aiming to create a fairer crypto market through transparency, speed, and bringing a more human touch to an otherwise cold and unregulated industry. We hope to see you back soon, and are happy to see you share our interest in the world of cryptocurrencies.