Copyright

Digital & Virtual Currencies: Definition, Types & Forms

Instructor: Yuanxin (Amy) Yang Alcocer

Amy has a master's degree in secondary education and has taught math at a public charter high school.

Why is digital currency becoming more popular? Read this lesson to find out why, and hear about different types of digital currency like Bitcoin, Ripple, Monero, Litecoin, as well as what a digital wallet is.

What is Digital Currency?

You can do almost anything online, including paying others with digital currency, 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 fall 2017, 1 Bitcoin is worth about $4800 US dollars.

Digital currency is code with monetary value and is backed by software
digital currency

Forms

There are two major forms of digital currency.

Virtual currency is digital currency that is 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 though 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 is 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. It can also be exchanged for any type of physical currency. And it is completely private. Though transactions are digitally confirmed, they are anonymous. Your personal details are never attached to your transactions, so there is no money trail as there is with some physical currency.

Transactions are also 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

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. Right now, you can use your Bitcoins to make purchases at Overstock.com, Expedia, eBay, Shopify, Etsy, DISH Network, and Microsoft.

When you shop with Bitcoins, you'll actually be spending satoshis, which is the smallest fraction of Bitcoin (at least for now). 1 Bitcoin is equal to 100,000,000 satoshis.

In addition to Bitcoins, Overstock also accepts all major alt-coins, other cryptocurrencies created after the Bitcoin. The Bitcoin is still number 1 as far as cryptocurrencies are concerned. The other major cryptocurrencies include Litecoin (launched in 2011), Ripple (launched in 2012), Dash (launched in 2014), Monero (launched in 2014), and Ethereum (launched in 2015),

To unlock this lesson you must be a Study.com Member.
Create your account

Register to view this lesson

Are you a student or a teacher?

Unlock Your Education

See for yourself why 30 million people use Study.com

Become a Study.com member and start learning now.
Become a Member  Back
What teachers are saying about Study.com
Try it risk-free for 30 days

Earning College Credit

Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it risk-free for 30 days!
Create an account
Support