Today, we have more than one way to exchange money. Our society is moving from paying in cash to more modern methods such as digital currencies. Electronic forms of currency are prominent in most financial systems. But what is digital currency? And how does it exactly work? We provide answers to help you understand the basics of digital currency and its advantages over physical cash.
What is digital currency & how does it work?
Digital currency is available exclusively in electronic form. While you can go to an ATM and withdraw physical money, the digital currency remains on a computer network wherein transactions are made solely via digital means. Instead of paying in physical notes, you can make transactions digitally and pay retailers using your mobile device. It functions like how you treat your money using payment apps such as Paypal, Venmo, and others.
The types of digital currency
There are three main categories of digital currencies: virtual currency, central bank digital currency, and cryptocurrency. We differentiate each of them.
- Virtual currency– Virtual currency was first coined by the EU in 2012. It is virtual money issued by a private organisation for a particular use online. Virtual currencies can be open or closed. Closed virtual currencies are restricted to a particular system. For example, Bartercard uses trade dollars for transactions within the business network. Online games also have closed currencies, such as spending gold in World of Warcraft. On the other hand, open currencies can be exchanged for other currencies outside a given platform.
- Central bank digital currency – the central bank of a specific country may elect to set up its own digital currency to complement or replace traditional government-issued money. While no national central bank has launched its own digital currency, 80% of central banks are currently looking into this and studying the technology.
- Cryptocurrency – “Cryptocurrency” uses cryptography to verify transactions in a decentralised system rather than a centralised authority.
What are the benefits of using digital currency?
One may prefer digital currency to physical cash because of its significant advantages. Here are some of them:
It is illegal to deface and destroy physical cash. But with digital currency, this would not even be possible.
Affordable international transfers
When making international transfers, you must pay additional fees to move funds from country to country. With digital currency, the cost of everything gets pushed down. Because there are fewer middlemen and third-party companies, the processing costs become more affordable.
While transferring existing money in the bank may take time outside regular hours because banks are closed and can’t confirm transactions, digital currency transactions work 24 hours a day, seven days a week.
Since transactions are done digitally, they can be made almost instantaneously. You no longer must wait for card machines when settling your bill, you don’t have to withdraw money when your cash on hand runs out, and you don’t have to wait for days for financial institutions to confirm your check.
Digital currency transactions are irreversible once authorised. Through blockchain technology, digital currencies are virtually impossible to counterfeit or duplicate. This protects from fraud compared to fiat currencies where fraud is prevalent.
Safer for merchants and retailers
Digital currency transactions are validated in seconds. This is an advantage for merchants and business owners as it means a reduced risk of bounced checks or attempted chargebacks.
Adapting to changing times
Using digital currency is slowly becoming the norm and is here to stay. While it may present some technical challenges that must be met, there’s no doubt that it makes transactions cheaper, easier, and more convenient.
Make your business adapt to changing times and join Bartercard today. Bartercard opens opportunities for businesses to boost their bottom line by using trade dollars. When you join Bartercard, you can earn trade dollars for the goods and services you sell, and this value is recorded electronically in your member account where you can spend on other goods and services from any other Bartercard member. Ready to learn more? Contact us today!