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Digital currency (digital money, electronic money or electronic currency) is any
currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins. A more general def ...
,
money Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are as ...
, or money-like asset that is primarily managed, stored or exchanged on digital computer systems, especially over the
internet The Internet (or internet) is the global system of interconnected computer networks that uses the Internet protocol suite (TCP/IP) to communicate between networks and devices. It is a '' network of networks'' that consists of private, pub ...
. Types of digital currencies include
cryptocurrency A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it. It i ...
,
virtual currency Virtual currency, or virtual money, is a digital currency that is largely unregulated and issued and usually controlled by its developers and used and accepted electronically among the members of a specific virtual community. In 2014, the Europ ...
and central bank digital currency. Digital currency may be recorded on a
distributed database A distributed database is a database in which data is stored across different physical locations. It may be stored in multiple computers located in the same physical location (e.g. a data centre); or maybe dispersed over a network of interconnect ...
on the internet, a centralized electronic
computer database In computing, a database is an organized collection of data stored and accessed electronically. Small databases can be stored on a file system, while large databases are hosted on computer clusters or cloud storage. The design of databases spa ...
owned by a company or bank, within digital files or even on a
stored-value card A stored-value card (SVC) is a payment card with a monetary value stored on the card itself, not in an external account maintained by a financial institution. This means no network access is required by the payment collection terminals as funds ...
. Digital currencies exhibit properties similar to traditional currencies, but generally do not have a classical physical form of fiat currency historically that you can directly hold in your hand, like currencies with printed
banknotes A banknote—also called a bill (North American English), paper money, or simply a note—is a type of negotiable instrument, negotiable promissory note, made by a bank or other licensed authority, payable to the bearer on demand. Banknotes w ...
or minted
coins A coin is a small, flat (usually depending on the country or value), round piece of metal or plastic used primarily as a medium of exchange or legal tender. They are standardized in weight, and produced in large quantities at a mint in order to ...
- however they do have a physical form in an unclassical sense coming from the computer to computer and computer to human interactions and the information and processing power of the servers that store and keep track of money. This unclassical physical form allows nearly instantaneous transactions over the internet and vastly lowers the cost associated with distributing notes and coins: for example, of the types of money in the UK economy, 3% are notes and coins, and 79% as electronic money (in the form of bank deposits). Usually not issued by a governmental body, virtual currencies are not considered a
legal tender Legal tender is a form of money that courts of law are required to recognize as satisfactory payment for any monetary debt. Each jurisdiction determines what is legal tender, but essentially it is anything which when offered ("tendered") in pa ...
and they enable
ownership Ownership is the state or fact of legal possession and control over property, which may be any asset, tangible or intangible. Ownership can involve multiple rights, collectively referred to as title, which may be separated and held by different ...
transfer across governmental
border Borders are usually defined as geographical boundaries, imposed either by features such as oceans and terrain, or by political entities such as governments, sovereign states, federated states, and other subnational entities. Political borders c ...
s. This type of currency may be used to buy physical
goods In economics, goods are items that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not tran ...
and
services Service may refer to: Activities * Administrative service, a required part of the workload of university faculty * Civil service, the body of employees of a government * Community service, volunteer service for the benefit of a community or a p ...
, but may also be restricted to certain
communities A community is a Level of analysis, social unit (a group of living things) with commonality such as place (geography), place, Norm (social), norms, religion, values, Convention (norm), customs, or Identity (social science), identity. Communiti ...
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 Decentralization or decentralisation is the process by which the activities of an organization, particularly those regarding planning and decision making, are distributed or delegated away from a central, authoritative location or group. Conce ...
, where the control over the money supply is predetermined or agreed upon democratically.


History

In 1983, a research paper titled "Blind Signatures for Untraceable Payments" by
David Chaum David Lee Chaum (born 1955) is an American computer scientist, cryptographer, and inventor. He is known as a pioneer in cryptography and privacy-preserving technologies, and widely recognized as the inventor of digital cash. His 1982 dissertatio ...
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 e-gold was a digital gold currency operated by Gold & Silver Reserve Inc. (G&SR) that allowed users to open an account on their web site denominated in grams of gold, or other precious metals, and that let users make instant transfers of value ...
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 PayPal Holdings, Inc. is an American multinational financial technology company operating an online payments system in the majority of countries that support online money transfers, and serves as an electronic alternative to traditional paper ...
launched its USD-denominated service in 1998. In 2009,
bitcoin Bitcoin ( abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...
was launched, which marked the start of decentralized
blockchain A blockchain is a type of distributed ledger technology (DLT) that consists of growing lists of records, called ''blocks'', that are securely linked together using cryptography. Each block contains a cryptographic hash of the previous block, a ...
-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 The dot-com bubble (dot-com boom, tech bubble, or the Internet bubble) was a stock market bubble in the late 1990s, a period of massive growth in the use and adoption of the Internet. Between 1995 and its peak in March 2000, the Nasdaq Compo ...
. Another known digital currency service was
Liberty Reserve Liberty Reserve was a Costa Rica-based centralized digital currency service that billed itself as the "oldest, safest and most popular payment processor, serving millions all around a world". The site had over one million users when it was shut ...
, 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 Tencent QQ (), also known as QQ, is an instant messaging software service and web portal developed by the Chinese technology company Tencent. QQ offers services that provide online social games, music, shopping, microblogging, movies, and group ...
'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 A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank A bank is a financial i ...
has prompted renewed interest in digital currencies, with
bitcoin Bitcoin ( abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...
, introduced in 2008, becoming the most widely used and accepted digital currency.


Sub-types of digital currency and comparisons


Digital currency as a specific type and as a meta-group name

Digital Currency is a term that refers to a specific type of electronic currency with specific properties. Digital Currency is also a term used to include the meta-group of sub-types of digital currency, the specific meaning can only be determined within the specific legal or contextual case. Legally and technically, there already are a myriad of legal definitions of digital currency and the many digital currency sub-types. Combining different possible properties, there exists an extensive number of implementations creating many and numerous sub-types of Digital Currency. Many governmental jurisdictions have implemented their own unique definition for digital currency, virtual currency, cryptocurrency, e-money, network money, e-cash, and other types of digital currency. Within any specific government jurisdiction, different agencies and regulators define different and often conflicting meanings for the different types of digital currency based on the specific properties of a specific currency type or sub-type.


Digital versus virtual currency

A virtual currency has been defined in 2012 by the
European Central Bank The European Central Bank (ECB) is the prime component of the monetary Eurosystem and the European System of Central Banks (ESCB) as well as one of seven institutions of the European Union. It is one of the world's Big Four (banking)#Intern ...
as "a type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific
virtual community A virtual community is a social network of individuals who connect through specific social media, potentially crossing geographical and political boundaries in order to pursue mutual interests or goals. Some of the most pervasive virtual communi ...
". The
US Department of Treasury The Department of the Treasury (USDT) is the national treasury and finance department of the federal government of the United States, where it serves as an executive department. The department oversees the Bureau of Engraving and Printing and t ...
in 2013 defined it more tersely as "a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency". The US Department of Treasury also stated that, "Virtual currency does not have legal-tender status in any jurisdiction." According to the
European Central Bank The European Central Bank (ECB) is the prime component of the monetary Eurosystem and the European System of Central Banks (ESCB) as well as one of seven institutions of the European Union. It is one of the world's Big Four (banking)#Intern ...
's 2015 "Virtual currency schemes – a further analysis" report, virtual currency is a digital representation of value, not issued by a central bank, credit institution or e-money institution, which, in some circumstances, can be used as an alternative to money. In the previous report of October 2012, the virtual currency was defined as a type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community. According to the
Bank for International Settlements The Bank for International Settlements (BIS) is an international financial institution owned by central banks that "fosters international monetary and financial cooperation and serves as a bank for central banks". The BIS carries out its work thr ...
' November 2015 "Digital currencies" report, it is an asset represented in digital form and having some monetary characteristics. Digital currency can be denominated to a sovereign currency and issued by the issuer responsible to redeem digital money for cash. In that case, digital currency represents electronic money (e-money). Digital currency denominated in its own units of value or with decentralized or automatic issuance will be considered as a virtual currency. As such, bitcoin is a digital currency but also a type of virtual currency. Bitcoin and its alternatives are based on cryptographic algorithms, so these kinds of virtual currencies are also called cryptocurrencies.


Digital versus cryptocurrency

Cryptocurrency A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it. It i ...
is a sub-type of digital currency and a digital
asset In financial accountancy, financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value ...
that relies on
cryptography Cryptography, or cryptology (from grc, , translit=kryptós "hidden, secret"; and ''graphein'', "to write", or ''-logia'', "study", respectively), is the practice and study of techniques for secure communication in the presence of adver ...
to chain together
digital signature A digital signature is a mathematical scheme for verifying the authenticity of digital messages or documents. A valid digital signature, where the prerequisites are satisfied, gives a recipient very high confidence that the message was created b ...
s of asset transfers,
peer-to-peer Peer-to-peer (P2P) computing or networking is a distributed application architecture that partitions tasks or workloads between peers. Peers are equally privileged, equipotent participants in the network. They are said to form a peer-to-peer n ...
networking and
decentralization Decentralization or decentralisation is the process by which the activities of an organization, particularly those regarding planning and decision making, are distributed or delegated away from a central, authoritative location or group. Conce ...
. In some cases a
proof-of-work Proof of work (PoW) is a form of cryptographic proof in which one party (the ''prover'') proves to others (the ''verifiers'') that a certain amount of a specific computational effort has been expended. Verifiers can subsequently confirm this expe ...
or
proof-of-stake Proof-of-stake (PoS) protocols are a class of consensus mechanisms for blockchain A blockchain is a type of distributed ledger technology (DLT) that consists of growing lists of records, called ''blocks'', that are securely linked togethe ...
scheme is used to create and manage the currency.What does Cryptocurrency mean?
technopedia, 01-07-2013
Cryptocurrencies can allow electronic money systems to be decentralized. When implemented with a blockchain, the digital ledger system or record keeping system uses
cryptography Cryptography, or cryptology (from grc, , translit=kryptós "hidden, secret"; and ''graphein'', "to write", or ''-logia'', "study", respectively), is the practice and study of techniques for secure communication in the presence of adver ...
to edit separate shards of database entries that are distributed across many separate servers. The first and most popular system is
bitcoin Bitcoin ( abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...
, a peer-to-peer electronic monetary system based on cryptography.


Digital versus traditional currency

Most of the traditional
money supply In macroeconomics, the money supply (or money stock) refers to the total volume of currency held by the public at a particular point in time. There are several ways to define "money", but standard measures usually include Circulation (curren ...
is bank money held on computers. They are considered digital currency in some cases. One could argue that our increasingly cashless society means that all currencies are becoming digital currencies, but they are not presented to us as such.


Types of systems


Centralized systems

Currency can be exchanged electronically using
debit card A debit card, also known as a check card or bank card is a payment card that can be used in place of cash to make purchases. The term '' plastic card'' includes the above and as an identity document. These are similar to a credit card, but u ...
s and
credit card A credit card is a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods and services based on the cardholder's accrued debt (i.e., promise to the card issuer to pay them for the amounts plus the o ...
s using
electronic funds transfer at point of sale Electronic funds transfer at point of sale (EFTPOS; ) is an electronic payment system involving electronic funds transfers based on the use of payment cards, such as debit or credit cards, at payment terminals located at points of sale. EFTPOS t ...
.


Mobile digital wallets

A number of electronic money systems use
contactless payment Contactless payment systems are credit cards and debit cards, key fobs, smart cards, or other devices, including smartphones and other mobile devices, that use radio-frequency identification (RFID) or near-field communication (NFC, e.g. Samsun ...
transfer in order to facilitate easy payment and give the payee more confidence in not letting go of their electronic wallet during the transaction. * In 1994
Mondex Mondex was a smart card electronic cash system, implemented as a stored-value card and owned by Mastercard. Pioneered by two bankers from NatWest in 1990, it was spun-off to a separate consortium later on, then sold again to Mastercard. Mond ...
and
National Westminster Bank National Westminster Bank, commonly known as NatWest, is a major retail and commercial bank in the United Kingdom based in London, England. It was established in 1968 by the merger of National Provincial Bank and Westminster Bank. In 2000, it ...
provided an "electronic purse" to residents of
Swindon Swindon () is a town and unitary authority with Borough status in the United Kingdom, borough status in Wiltshire, England. As of the 2021 Census, the population of Swindon was 201,669, making it the largest town in the county. The Swindon un ...
* In about 2005
Telefónica Telefónica, S.A. () is a Spanish multinational telecommunications company headquartered in Madrid, Spain. It is one of the largest telephone operators and mobile network providers in the world. It provides fixed and mobile telephony, broadba ...
and BBVA Bank launched a payment system in
Spain , image_flag = Bandera de España.svg , image_coat = Escudo de España (mazonado).svg , national_motto = ''Plus ultra'' (Latin)(English: "Further Beyond") , national_anthem = (English: "Royal March") , i ...
called Mobipay which used simple
short message service Short Message/Messaging Service, commonly abbreviated as SMS, is a text messaging service component of most telephone, Internet and mobile device systems. It uses standardized communication protocols that let mobile devices exchange short text ...
facilities of
feature phones A feature phone (also spelled featurephone) is a type or class of mobile phone that retains the form factor of earlier generations of mobile telephones, typically with press-button based inputs and a small non-touch display. They tend to use an ...
intended for pay-as-you-go services including taxis and pre-pay phone recharges via a BBVA current bank account debit. * In January 2010,
Venmo Venmo is an American mobile payment service founded in 2009 and owned by PayPal since 2013. Venmo was aimed at friends and family who wish to split bills, e.g. for movies, dinner, rent, or event tickets etc. Account holders can transfer funds ...
launched as a mobile payment system through SMS, which transformed into a social app where friends can pay each other for minor expenses like a cup of coffee, rent and pay a share of the restaurant bill when one has forgotten their wallet. It is popular with college students, but has some security issues. It can be linked to a bank account, credit/debit card or have a loaded value to limit the amount of loss in case of a security breach. Credit cards and non-major debit cards incur a 3% processing fee. * On 19 September 2011,
Google Wallet Google Wallet (or simply Wallet) is a digital wallet platform developed by Google. It is available for the Android, Wear OS, and Fitbit OS operating systems, and was announced on May 11, 2022, at the 2022 Google I/O keynote. It began rollin ...
released in the United States to make it easy to carry all one's credit/debit cards on a phone. * In 2012
Ireland Ireland ( ; ga, Éire ; Ulster Scots dialect, Ulster-Scots: ) is an island in the Atlantic Ocean, North Atlantic Ocean, in Northwestern Europe, north-western Europe. It is separated from Great Britain to its east by the North Channel (Grea ...
's O2 (owned by
Telefónica Telefónica, S.A. () is a Spanish multinational telecommunications company headquartered in Madrid, Spain. It is one of the largest telephone operators and mobile network providers in the world. It provides fixed and mobile telephony, broadba ...
) launched Easytrip to pay road tolls which were charged to the mobile phone account or prepay credit. * The UK's O2 invented O2 Wallet at about the same time. The wallet can be charged with regular bank accounts or cards and discharged by participating retailers using a technique known as 'money messages'. The service closed in 2014. * On 9 September 2014,
Apple Pay Apple Pay is a mobile payment service by Apple Inc. that allows users to make payments in person, in iOS apps, and on the web. It is supported on these Apple devices: iPhone, Apple Watch, iPad, and Mac. It digitizes and can replace a cred ...
was announced at the
iPhone 6 The iPhone 6 and iPhone 6 Plus are smartphones that were designed and marketed by Apple Inc. They are the eighth generation of the iPhone, succeeding the iPhone 5, iPhone 5C and iPhone 5S, and were announced on September 9, 2014, and rele ...
event. In October 2014 it was released as an update to work on
iPhone 6 The iPhone 6 and iPhone 6 Plus are smartphones that were designed and marketed by Apple Inc. They are the eighth generation of the iPhone, succeeding the iPhone 5, iPhone 5C and iPhone 5S, and were announced on September 9, 2014, and rele ...
and
Apple Watch Apple Watch is a line of smartwatches produced by Apple Inc. It incorporates fitness tracking, health-oriented capabilities, and wireless telecommunication, and integrates with iOS and other Apple products and services. The Apple Watch was rel ...
. It is very similar to
Google Wallet Google Wallet (or simply Wallet) is a digital wallet platform developed by Google. It is available for the Android, Wear OS, and Fitbit OS operating systems, and was announced on May 11, 2022, at the 2022 Google I/O keynote. It began rollin ...
, but for Apple devices only.


Central Bank Digital Currency (CBDC)

Central Bank Digital Currencies are a form of universally accessible digital money in a nation and hold the same value as the countries paper currency. Like
cryptocurrency A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it. It i ...
, CBCD's are held in the form of tokens. CBDC's are different than regular digital cash forms like in online bank accounts because CBDC's are established through the central bank within a country, with liabilities held by one's government, rather than from a commercial bank. Approximately nine countries have already established a Central Bank Digital Currency, with interest in the system increasing highly throughout the world. In these nations, CBDC's have been used as a form of exchange and a way for governments to try and prevent risks from occurring within their financial systems.


Decentralized systems

Digital Currency has been implemented in some cases as a
decentralized Decentralization or decentralisation is the process by which the activities of an organization, particularly those regarding planning and decision making, are distributed or delegated away from a central, authoritative location or group. Conce ...
system of any combination of currency
issuance Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations (or other non-debt assets which generate receivables) and selling ...
,
ownership Ownership is the state or fact of legal possession and control over property, which may be any asset, tangible or intangible. Ownership can involve multiple rights, collectively referred to as title, which may be separated and held by different ...
record, ownership transfer
authorization Authorization or authorisation (see spelling differences) is the function of specifying access rights/privileges to resources, which is related to general information security and computer security, and to access control in particular. More for ...
and validation, and currency storage. Per the
Bank for International Settlements The Bank for International Settlements (BIS) is an international financial institution owned by central banks that "fosters international monetary and financial cooperation and serves as a bank for central banks". The BIS carries out its work thr ...
(BIS), "These schemes do not distinguish between users based on location, and therefore allow value to be transferred between users across borders. Moreover, the speed of a transaction is not conditional on the location of the payer and payee."


Law

Since 2001, the European Union has implemented the
E-Money Directive The E-Money Directive or the ''electronic money directive'' (2009/110/EC, originally 2000/46/EC) regulates electronic payment systems in the European Union. The aim is to enable new and secure electronic money services and to foster effective com ...
"on the taking up, pursuit and prudential supervision of the business of electronic money institutions" last amended in 2009. In the United States, electronic money is governed by Article 4A of the
Uniform Commercial Code The Uniform Commercial Code (UCC), first published in 1952, is one of a number of Uniform Acts that have been established as law with the goal of harmonizing the laws of sales and other commercial transactions across the United States through UC ...
for wholesale transactions and the Electronic Fund Transfer Act for consumer transactions. Provider's responsibility and consumer's liability are regulated under Regulation E.


Regulation

Virtual currencies pose challenges for central banks, financial regulators, departments or ministries of finance, as well as fiscal authorities and statistical authorities.


Adoption by governments

As of 2016, over 24 countries are investing in distributed ledger technologies (DLT) with $1.4bn in investments. In addition, over 90
central bank A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union, and oversees their commercial banking system. In contrast to a commercial bank, a central ba ...
s are engaged in DLT discussions, including implications of a central bank issued digital currency. *
Hong Kong Hong Kong ( (US) or (UK); , ), officially the Hong Kong Special Administrative Region of the People's Republic of China ( abbr. Hong Kong SAR or HKSAR), is a city and special administrative region of China on the eastern Pearl River Delt ...
's Octopus card system: Launched in 1997 as an electronic purse for public transportation, is the most successful and mature implementation of contactless smart cards used for mass transit payments. After only 5 years, 25 percent of Octopus card transactions are unrelated to transit, and accepted by more than 160 merchants. *
London London is the capital and largest city of England and the United Kingdom, with a population of just under 9 million. It stands on the River Thames in south-east England at the head of a estuary down to the North Sea, and has been a majo ...
Transport’s
Oyster card The Oyster card is a payment method for public transport in London (and certain areas around it) in England, United Kingdom. A standard Oyster card is a blue credit-card-sized stored-value contactless smart card. It is promoted by Transport ...
system: Oyster is a plastic smartcard that can hold pay-as-you-go credit, Travelcards and Bus & Tram season tickets. An Oyster card can be used to travel on bus, Tube, tram, DLR, London Overground and most National Rail services in London. *
Japan Japan ( ja, 日本, or , and formally , ''Nihonkoku'') is an island country in East Asia. It is situated in the northwest Pacific Ocean, and is bordered on the west by the Sea of Japan, while extending from the Sea of Okhotsk in the north ...
's
FeliCa FeliCa is a contactless Radio-frequency identification, RFID smart cards, smart card system from Sony in Japan, primarily used in electronic money cards. The name stands for ''Felicity Card''. First utilized in the Octopus card system in Hong Kong, ...
: A contactless RFID
smart card A smart card, chip card, or integrated circuit card (ICC or IC card) is a physical electronic authentication device, used to control access to a resource. It is typically a plastic credit card-sized card with an embedded integrated circuit (IC) c ...
, used in a variety of ways such as in ticketing systems for public transportation, e-money, and residence door keys. * The
Netherlands ) , anthem = ( en, "William of Nassau") , image_map = , map_caption = , subdivision_type = Sovereign state , subdivision_name = Kingdom of the Netherlands , established_title = Before independence , established_date = Spanish Netherl ...
'
Chipknip Chipknip (a portmanteau of ''chip card'' and ''knip'', Dutch for purse) was a stored-value payment card system used in the Netherlands. Based on the Belgian Proton system, it was started by Interpay on October 26, 1995, as a pilot project in ...
: As an electronic cash system used in the Netherlands, all ATM cards issued by the Dutch banks had value that could be loaded via Chipknip loading stations. For people without a bank, pre-paid Chipknip cards could be purchased at various locations in the Netherlands. As of 1 January 2015, payment can no longer be made with Chipknip. *
Belgium Belgium, ; french: Belgique ; german: Belgien officially the Kingdom of Belgium, is a country in Northwestern Europe. The country is bordered by the Netherlands to the north, Germany to the east, Luxembourg to the southeast, France to th ...
's
Proton A proton is a stable subatomic particle, symbol , H+, or 1H+ with a positive electric charge of +1 ''e'' elementary charge. Its mass is slightly less than that of a neutron and 1,836 times the mass of an electron (the proton–electron mass ...
: An
electronic purse 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 cu ...
application for
debit cards A debit card, also known as a check card or bank card is a payment card that can be used in place of cash to make purchases. The term ''plastic card'' includes the above and as an identity document. These are similar to a credit card, but unl ...
in Belgium. Introduced in February 1995, as a means to replace cash for small transactions. The system was retired on 31 December 2014. In March 2018, the
Marshall Islands The Marshall Islands ( mh, Ṃajeḷ), officially the Republic of the Marshall Islands ( mh, Aolepān Aorōkin Ṃajeḷ),'' () is an independent island country and microstate near the Equator in the Pacific Ocean, slightly west of the Internati ...
became the first country to issue their own cryptocurrency and certify it as legal tender; the currency is called the "sovereign".


United States of America


US Commodity Futures Trading Commission guidance

The US
Commodity Futures Trading Commission The Commodity Futures Trading Commission (CFTC) is an independent agency of the US government created in 1974 that regulates the U.S. derivatives markets, which includes futures, swaps, and certain kinds of options. The Commodity Exchange Ac ...
(CFTC) has determined virtual currencies are properly defined as commodities in 2015. The CFTC warned investors against
pump and dump Pump and dump (P&D) is a form of securities fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements, in order to sell the cheaply purchased stock at a higher price. Once the operat ...
schemes that use virtual currencies.


US Internal Revenue Service guidance

The
US Internal Revenue Service The Internal Revenue Service (IRS) is the revenue service for the United States federal government, which is responsible for collecting U.S. federal taxes and administering the Internal Revenue Code, the main body of the federal statutory ta ...
(IRS) ruling Notice 2014-21 defines any virtual currency, cryptocurrency and digital currency as property; gains and losses are taxable within standard property policies.


US Treasury guidance

On 20 March 2013, the Financial Crimes Enforcement Network issued a guidance to clarify how the U.S.
Bank Secrecy Act The Bank Secrecy Act of 1970 (BSA), also known as the Currency and Foreign Transactions Reporting Act, is a U.S. law requiring financial institutions in the United States to assist U.S. government agencies in detecting and preventing money laund ...
applied to persons creating, exchanging, and transmitting virtual currencies.


US Securities and Exchange Commission guidance

In May 2014 the US
Securities and Exchange Commission The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...
(SEC) "warned about the hazards of bitcoin and other virtual currencies".


New York state regulation

In July 2014, the
New York State Department of Financial Services The New York State Department of Financial Services (DFS or NYSDFS) is the department of the Government of New York (state), New York state government responsible for regulating financial services and products, including those subject to the Consol ...
proposed the most comprehensive regulation of virtual currencies to date, commonly called
BitLicense A BitLicense is the common term used for a business license for virtual currency activities, issued by the New York State Department of Financial Services (NYSDFS) under regulations designed for companies. The regulations are limited to activities i ...
. It has gathered input from bitcoin supporters and the financial industry through public hearings and a comment period until 21 October 2014 to customize the rules. The proposal per NY DFS press release "sought to strike an appropriate balance that helps protect consumers and root out illegal activity". It has been criticized by smaller companies to favor established institutions, and Chinese bitcoin exchanges have complained that the rules are "overly broad in its application outside the United States".


Canada

The
Bank of Canada The Bank of Canada (BoC; french: Banque du Canada) is a Crown corporation and Canada's central bank. Chartered in 1934 under the ''Bank of Canada Act'', it is responsible for formulating Canada's monetary policy,OECD. OECD Economic Surveys: Ca ...
have explored the possibility of creating a version of its currency on the blockchain. The Bank of Canada teamed up with the nation’s five largest banks – and the blockchain consulting firm R3 – for what was known as Project Jasper. In a simulation run in 2016, the central bank issued CAD-Coins onto a blockchain similar
Ethereum Ethereum is a decentralized, open-source blockchain with smart contract functionality. Ether (Abbreviation: ETH; sign: Ξ) is the native cryptocurrency of the platform. Among cryptocurrencies, ether is second only to bitcoin in market capita ...
. The banks used the CAD-Coins to exchange money the way they do at the end of each day to settle their master accounts.


China

In 2016, Fan Yifei, a deputy governor of China's central bank, the
People's Bank of China The People's Bank of China (officially PBC or informally PBOC; ) is the central bank of the People's Republic of China, responsible for carrying out monetary policy and regulation of financial institutions in mainland China, as determined by ...
(PBOC), wrote that "the conditions are ripe for digital currencies, which can reduce operating costs, increase efficiency and enable a wide range of new applications". According to Fan Yifei, the best way to take advantage of the situation is for central banks to take the lead, both in supervising private digital currencies and in developing digital legal tender of their own. In October 2019, the PBOC announced that a digital
renminbi The renminbi (; symbol: ¥; ISO code: CNY; abbreviation: RMB) is the official currency of the People's Republic of China and one of the world's most traded currencies, ranking as the fifth most traded currency in the world as of April 2022. ...
would be released after years of preparation. The version of the currency, known as DCEP ( Digital Currency Electronic Payment), is based on
cryptocurrency A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it. It i ...
which can be "decoupled" from the banking system. The announcement received a variety of responses: some believe it is more about domestic control and surveillance. In December 2020, the PBOC distributed million worth of digital renminbi to the residents of
Suzhou Suzhou (; ; Suzhounese: ''sou¹ tseu¹'' , Mandarin: ), alternately romanized as Soochow, is a major city in southern Jiangsu province, East China. Suzhou is the largest city in Jiangsu, and a major economic center and focal point of trade ...
through a lottery program to further promote the government-backed digital currency. Recipients of the currency could make both offline and online purchases, expanding on an earlier trial that did not require internet connection through the inclusion of online stores in the program. Around 20,000 transactions were reported by the e-commerce company
JD.com JD.com, Inc., also known as Jingdong (), internationally known as Joybuy and formerly called 360buy,
in the first 24 hours of the trial. Contrary to other
online payment An e-commerce payment system (or an electronic payment system) facilitates the acceptance of electronic payment for offline transfer, also known as a subcomponent of electronic data interchange (EDI), e-commerce payment systems have become incre ...
platforms such as
Alipay Alipay () is a third-party mobile and online payment platform, established in Hangzhou, China in February 2004 by Alibaba Group and its founder Jack Ma. In 2015, Alipay moved its headquarters to Pudong, Shanghai, although its parent company An ...
or
WeChat Pay WeChat Pay () is a mobile payment and digital wallet service by WeChat based in China that allows users to make mobile payments and online transactions. As of March 2016, WeChat Pay had over 300 million users. WeChat Pay's main competitor in Ch ...
, the digital currency does not have transaction fees.


Denmark

The Danish government proposed getting rid of the obligation for selected retailers to accept payment in cash, moving the country closer to a "cashless" economy. The Danish Chamber of Commerce is backing the move. Nearly a third of the Danish population uses
MobilePay MobilePay is a mobile payment application developed by Danske Bank. The service allows payments by means of a smartphone application and was published on May 7, 2013, after Danske Bank discontinued its cooperation with other Danish banks on a commo ...
, a smartphone application for transferring money.


Ecuador

A law passed by the National Assembly of Ecuador gives the government permission to make payments in electronic currency and proposes the creation of a national digital currency. "Electronic money will stimulate the economy; it will be possible to attract more Ecuadorian citizens, especially those who do not have checking or savings accounts and credit cards alone. The electronic currency will be backed by the assets of the Central Bank of Ecuador", the National Assembly said in a statement. In December 2015, Sistema de Dinero Electrónico ("electronic money system") was launched, making Ecuador the first country with a state-run electronic payment system.


El Salvador

On Jun 9, 2021, the
Legislative Assembly of El Salvador The Legislative Assembly ( es, Asamblea Legislativa) is the legislative branch of the government of El Salvador. Structure The Salvadoran legislature is a unicameral body. It is made up of 84 deputies, all of whom are elected by direct popu ...
has become the first country in the world to officially classify
Bitcoin Bitcoin ( abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...
as legal currency. Starting 90 days after approval, every business must accept
Bitcoin Bitcoin ( abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...
as legal tender for goods or services, unless it is unable to provide the technology needed to do the transaction.


Netherlands

The
Dutch central bank De Nederlandsche Bank NV (DNB) is the central bank of the Netherlands. Founded by William I of the Netherlands, King William I in 1814, it is part of the European System of Central Banks (ESCB). De Nederlandsche Bank is a public limited company ...
is experimenting with a blockchain-based virtual currency called "DNBCoin".


India

The Unified Payments Interface (UPI) is a real-time payment system for instant money transfers between any two bank accounts held in participating banks in India. The interface has been developed by the National Payments Corporation of India and is regulated by the Reserve Bank of India. This digital payment system is available 24*7*365. UPI is agnostic to the type of user and is used for person to person, person to business, business to person and business to business transactions. Transactions can be initiated by the payer or the payee. To identify a bank account it uses a unique Virtual Payment Address (VPA) of the type 'accountID@bankID'. The VPA can be assigned by the bank, but can also be self specified just like an email address. The simplest and most common form of VPA is 'mobilenumber@upi'. Money can be transferred from one VPA to another or from one VPA to any bank account in a participating bank using account number and bank branch details. Transfers can be inter-bank or intra-bank. UPI has no intermediate holding pond for money. It withdraws funds directly from the bank account of the sender and deposits them directly into the recipient's bank account whenever a transaction is requested. A sender can initiate and authorise a transfer using a two step secure process: login using a pass code → initiate → verify using a passcode. A receiver can initiate a payment request on the system to send the payer a notification or by presenting a QR code. On receiving the request, the payer can decline or confirm the payment using the same two step process: login → confirm → verify. The system is extraordinarily user friendly to the extent that even technophobes and barely literate users are adopting it in huge numbers.


Russia

Government-controlled
Sberbank of Russia PJSC Sberbank (russian: Сбербанк, initially a contraction of russian: сберегательный банк, translit=sberegatelnyy bank, lit=savings bank, link=no) is a Russian majority state-owned banking and financial services compan ...
owns
Yandex.Money YooMoney branded as ЮMoney, formerly known as Yandex.Money (russian: Яндекс.Деньги), is Russia's second largest electronic payment service after "Sberbank Online" according to a 2020 research by Mediascope. It is an online payment ...
– electronic payment service and digital currency of the same name.


Sweden

Sweden Sweden, formally the Kingdom of Sweden,The United Nations Group of Experts on Geographical Names states that the country's formal name is the Kingdom of SwedenUNGEGN World Geographical Names, Sweden./ref> is a Nordic country located on ...
is in the process of replacing all of its physical banknotes, and most of its coins by mid-2017. However, the new banknotes and coins of the
Swedish krona The krona (; plural: ''kronor''; sign: kr; code: SEK) is the official currency of the Kingdom of Sweden. Both the ISO code "SEK" and currency sign "kr" are in common use; the former precedes or follows the value, the latter usually follows it ...
will probably be circulating at about half the 2007 peak of 12,494 kronor per capita. The
Riksbank Sveriges Riksbank, or simply the ''Riksbank'', is the central bank of Sweden. It is the world's oldest central bank and the fourth oldest bank in operation. Etymology The first part of the word ''riksbank'', ''riks'', stems from the Swedish ...
is planning to begin discussions of an electronic currency issued by the central bank to which "is not to replace cash, but to act as complement to it". Deputy Governor
Cecilia Skingsley Cecilia Skingsley (''née'' Bystedt; born 18 August 1968) is a Swedish banker, economist and journalist. She is the current Head of the BIS Innovation Hub, at the Bank for International Settlements. From November 2019 to August 2022 she was First ...
states that cash will continue to spiral out of use in Sweden, and while it is currently fairly easy to get cash in Sweden, it is often very difficult to deposit it into bank accounts, especially in rural areas. No decision has been currently made about the decision to create "e-krona". In her speech, Skingsley states: "The first question is whether e-krona should be booked in accounts or whether the ekrona should be some form of a digitally transferable unit that does not need an underlying account structure, roughly like cash." Skingsley also states: "Another important question is whether the Riksbank should issue e-krona directly to the general public or go via the banks, as we do now with banknotes and coins." Other questions will be addressed like interest rates, should they be positive, negative, or zero?


Switzerland

In 2016, a
city government Local government is a generic term for the lowest tiers of public administration within a particular sovereign state. This particular usage of the word government refers specifically to a level of administration that is both geographically-loca ...
first accepted digital currency in payment of city fees.
Zug, Switzerland , neighboring_municipalities = Cham, Baar, Walchwil, Steinhausen, Unterägeri , twintowns = Fürstenfeld (Austria), Kalesija (Bosnia-Herzegowina) Zug (Standard German: , Alemannic German: ; french: Zoug it, Zugo r ...
, added bitcoin as a means of paying small amounts, up to , in a test and an attempt to advance Zug as a region that is advancing future technologies. In order to reduce risk, Zug immediately converts any bitcoin received into the Swiss currency.
Swiss Federal Railways Swiss Federal Railways (german: link=no, Schweizerische Bundesbahnen, ''SBB''; french: link=no, Chemins de fer fédéraux suisses, ''CFF''; it, Ferrovie federali svizzere, ''FFS'') is the national railway company of Switzerland. It is usuall ...
, government-owned railway company of Switzerland, sells bitcoins at its ticket machines.


UK

In 2016, the UK's chief scientific adviser, Sir Mark Walport, advised the government to consider using a blockchain-based digital currency. The chief economist of
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the English Government's banker, and still one of the bankers for the Government of ...
, the central bank of the United Kingdom, proposed the abolition of paper currency. The Bank has also taken an interest in blockchain. In 2016 it has embarked on a multi-year research programme to explore the implications of a central bank issued digital currency. The Bank of England has produced several research papers on the topic. One suggests that the economic benefits of issuing a digital currency on a distributed ledger could add as much as 3 percent to a country's economic output. The Bank said that it wanted the next version of the bank’s basic software infrastructure to be compatible with distributed ledgers.


Adoption by financial actors

Government attitude dictates the tendency among established heavy financial actors that both are risk-averse and conservative. None of these offered services around cryptocurrencies and much of the criticism came from them. "The first mover among these has been
Fidelity Investments Fidelity Investments, commonly referred to as Fidelity, earlier as Fidelity Management & Research or FMR, is an American multinational financial services corporation based in Boston, Massachusetts. The company was established in 1946 and is on ...
,
Boston Boston (), officially the City of Boston, is the state capital and most populous city of the Commonwealth of Massachusetts, as well as the cultural and financial center of the New England region of the United States. It is the 24th- mo ...
based
Fidelity Digital Assets Fidelity is the quality of faithfulness or loyalty. Its original meaning regarded duty in a broader sense than the related concept of ''fealty''. Both derive from the Latin word ''fidēlis'', meaning "faithful or loyal". In the City of London fin ...
LLC will provide enterprise-grade custody solutions, a cryptocurrency trading execution platform and institutional advising services 24 hours a day, seven days a week designed to align with blockchain's always-on trading cycle". It will work with
Bitcoin Bitcoin ( abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...
and
Ethereum Ethereum is a decentralized, open-source blockchain with smart contract functionality. Ether (Abbreviation: ETH; sign: Ξ) is the native cryptocurrency of the platform. Among cryptocurrencies, ether is second only to bitcoin in market capita ...
with general availability scheduled for 2019.


Hard vs. soft digital currencies

Hard electronic currency does not have the ability to be disputed or reversed when used. It is nearly impossible to reverse a transaction, justified or not. It is very similar to cash. Soft electronic currencies are the opposite of hard electronic currencies. Payments can be reversed. Usually, when a payment is reversed there is a "clearing time." A hard currency can be "softened" with a third-party service.


Criticism

Many existing digital currencies have not yet seen widespread usage, and may not be easily used or exchanged. Banks generally do not accept or offer services for them. There are concerns that cryptocurrencies are extremely risky due to their very high volatility and potential for
pump and dump Pump and dump (P&D) is a form of securities fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements, in order to sell the cheaply purchased stock at a higher price. Once the operat ...
schemes. Regulators in several countries have warned against their use and some have taken concrete regulatory measures to dissuade users. The non-cryptocurrencies are all
centralized Centralisation or centralization (see spelling differences) is the process by which the activities of an organisation, particularly those regarding planning and decision-making, framing strategy and policies become concentrated within a particu ...
. As such, they may be shut down or seized by a government at any time. The more anonymous a currency is, the more attractive it is to criminals, regardless of the intentions of its creators. Bitcoin has also been criticised for its energy inefficient SHA-256-based
proof of work Proof of work (PoW) is a form of Cryptography, cryptographic proof (truth), proof in which one party (the ''prover'') proves to others (the ''verifiers'') that a certain amount of a specific computational effort has been expended. Verifiers can s ...
. According to
Barry Eichengreen Barry Julian Eichengreen (born 1952) is an American economist and economic historian who holds the title of George C. Pardee and Helen N. Pardee Professor of Economics and Political Science at the University of California, Berkeley, where he ha ...
, an economist known for his work on monetary and financial economics, "cryptocurrencies like Bitcoin are too volatile to possess the essential attributes of money. Stablecoins have fragile currency pegs that diminish their utility in transactions. And central bank digital currencies are a solution in search of a problem."


Popularity

Digital Currencies have become popular due to their convenient nature. Many users believe digital currency allows them to transfer money quicker and in a simpler manner. Many countries have adopted forms of digital currency due to doubts in the strength of their banking systems and distrust in the state of their economy. Other users prefer digital currency due to the freedom it gives them in their spending habits. Due to the fact that regulation over digital currencies is weak, many users can go around typical rules and regulations that are upheld with
fiat currencies Fiat money (from la, fiat, "let it be done") is a type of currency that is not backed by any commodity such as gold or silver. It is typically designated by the issuing government to be legal tender. Throughout history, fiat money was sometime ...
. In times of financial predicaments within a country, digital currencies may also help protect a user's assets.


List


Non-cryptocurrencies


See also

*
Complementary currency A complementary currency is a currency or medium of exchange that is not necessarily a national currency, but that is thought of as supplementing or complementing national currencies. Complementary currencies are usually not legal tender and thei ...
*
Automated clearing house An automated clearing house (ACH) is a computer-based electronic network for processing transactions, usually domestic low value payments, between participating financial institutions. It may support both credit transfers and direct debits. The ...
*
Cashless catering Cashless catering is a prepay point of sale (POS) technology that allows transactions with the absence of cash at the time of purchase. It is used in canteens, particularly those in schools. The use of the technology has expanded to include music ...
*
Cashless society In a cashless society, financial transactions are not conducted with physical banknotes or coins, but instead with digital information (usually an electronic representation of money). Cashless societies have existed from the time when human so ...
*
Community Exchange System The Community Exchange System (CES) is an internet-based global trading network which allows participants to buy and sell goods and services without using a national currency. It may be described as a type of local exchange trading system (LET ...
*
Cryptocurrency exchange A cryptocurrency exchange, or a digital currency exchange (DCE), is a business that allows customers to trade cryptocurrencies or digital currencies for other assets, such as conventional fiat money or other digital currencies. Exchanges may acc ...
*
Cryptocurrency wallet A cryptocurrency wallet is a device, physical medium, program or a service which stores the public and/or private keys for cryptocurrency transactions. In addition to this basic function of storing the keys, a cryptocurrency wallet more often a ...
* Central bank digital currency *
Digital wallet A digital wallet, also known as an e-wallet, is an electronic device, online service, or software program that allows one party to make electronic transactions with another party bartering digital currency units for goods and services. This can ...
*
E-commerce payment system An e-commerce payment system (or an electronic payment system) facilitates the acceptance of electronic payment for offline transfer, also known as a subcomponent of electronic data interchange (EDI), e-commerce payment systems have become incre ...
* Electronic Money Association *
Electronic funds transfer Electronic funds transfer (EFT) is the electronic transfer of money from one bank account to another, either within a single financial institution or across multiple institutions, via computer-based systems, without the direct intervention of b ...
*
Local exchange trading system A local exchange trading system (also local employment and trading system or local energy transfer system; abbreviated LETS) is a locally initiated, democratically organised, not-for-profit community enterprise that provides a community infor ...
*
Payment system A payment system is any system used to settle financial transactions through the transfer of monetary value. This includes the institutions, instruments, people, rules, procedures, standards, and technologies that make its exchange possible.Biago ...
*
Private currency A private currency is a currency issued by a private entity, be it an individual, a commercial business, a nonprofit or decentralized common enterprise. It is often contrasted with fiat currency issued by governments or central banks. In many count ...


References

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