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Digital & Virtual Currencies: Definition, Types & Forms

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Instructor: Yuanxin (Amy) Yang Alcocer

Amy has a master's degree in secondary education and has been teaching math for over 9 years. Amy has worked with students at all levels from those with special needs to those that are gifted.

Digital and virtual currencies are electronic types of money that can be used without going through a bank. Explore the definition, types, and forms of digital and virtual currencies, including cryptocurrencies and a digital wallet. Updated: 01/21/2022

What Is Digital Currency?

You can do almost anything online, including paying others with digital currency, which is currency that's not held in physical form. Some hold no real value except within a certain community, such as the coins used in the game FarmVille. Others, such as the Bitcoin, do have real-world value. As of June 2020, 1 Bitcoin is worth about $9,460 US dollars.

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  • 0:04 What Is Digital Currency?
  • 0:33 Forms
  • 2:50 Types
  • 3:58 Digital Wallet
  • 4:53 Lesson Summary
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Forms of Digital Currency

There are two major forms of digital currency.

Virtual currency is digital currency that's used within a specific community. For example, all FarmVille players have access to the in-game virtual currency coins with which they can purchase items for their farm. Virtual currency is only valid within the specified community. You can't take your FarmVille coins and use them to buy a hamburger from McDonald's; therefore, it has no real-world value.

Cryptocurrency, on the other hand, is digital currency that does have real-world value, like Bitcoin. This type of digital currency is based on mathematical algorithms with tokens being transferred electronically over the internet via peer-to-peer networking.

A benefit to cryptocurrency is that it's not tied in to the economy of any one country. This form is decentralized, and doesn't rely on any one regulatory agency. This means that if the economy of one country crashes, your digital currency will remain the same.

With no regulatory agencies to go through, cryptocurrency makes it easier to conduct international transactions. Cryptocurrency can also be exchanged for any type of physical currency. And it's completely private. Though transactions are digitally confirmed, they're anonymous. Your personal details are never attached to your transactions, so there's no money trail as there is with some physical currency.

Cryptocurrency transactions are irreversible. You know how if you deposit a fake check, the bank will then reverse that transaction and take that money back out of your account? This can't happen in cryptocurrency. There is little room for mistakes as all transactions are conducted via complex algorithms that transfer tokens from one person to another.

Though all this privacy is usually considered a good thing, cryptocurrency has also been used for illegal transactions such as money laundering and purchasing illegal drugs. It has also been connected with ransomware, which is when a virus hijacks your computer and demands payment in cryptocurrency to release your data.

Types of Currency

While there are only two forms of digital currency, there are actually many types.

There are as many types of virtual currencies as there are communities that have them. Virtual currencies typically cannot be traded or exchanged with each other. You can't trade or exchange FarmVille currency for Diner Dash currency. Each is only valid in its own gaming community or app.

There are many different cryptocurrencies to choose from as well. Some are accepted at more places than others, but the most popular is currently Bitcoin. When you shop with Bitcoins, you'll actually be spending satoshis, which is the smallest fraction of Bitcoin (at least for now). One Bitcoin is equal to 100,000,000 satoshis.

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