What is digital currency and how does it work?

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What is Digital Money?

Digital money, or digital currency, is any form of money or payment that exists only in electronic form. Digital money lacks a tangible form such as a bill, check, or coin. It is accounted for and transferred using electronic codes in computers. As technology becomes increasingly prominent, payments are becoming more digital, resulting in less use of tangible money.  What is digital currency and how does it work will explain in this article.

New forms of technology now allow for more secure and seamless use of digital money. Digital money can be transferred and exchanged with technologies like credit cards, smartphones, and online cryptocurrency exchanges.

Cryptocurrency refers to a type of digital money that is secured by cryptography, making it almost impossible to counterfeit or double-spend. It exists through decentralized networks based on blockchain technology, which is essentially a ledger that is stored through a network of computers. The significant feature of cryptocurrencies is that they are not issued by a central bank or government, which makes them free from the hindrance of government intervention or manipulation.

The history of digital money dates back to the invention of the internet. There were difficulties getting the population to adopt the use of digital money in the early days; however, as people become more comfortable with technology, and the technology itself becomes safer and more secure, more people are now willing to utilize digital monies. PayPal is considered one of the first successful companies to bring the idea of easy-use digital financial transactions to mass adoption.


The most common form of digital money is the money that is held by banks and central government deposits. The institutions hold a certain level of capital to weather economic stress; however, the money does not sit in a safe in some physical location.

Instead, it is housed electronically in the form of digital money. Banks and central governments handle transactions, including millions or billions of currencies, but are devoid of the use of physical cash.

Another prominent form of digital money is cryptocurrency. As explained earlier, it is a form of digital money that exists through a blockchain network. Some forms of cryptocurrency include:


Bitcoin is a type of digital currency that is created and stored electronically and is not backed by any government or central bank. It is decentralized and can be used to transfer money quickly and securely around the world, without involving traditional financial institutions. Transactions are verified by a network of computers and recorded in a digital ledger called a blockchain. Bitcoin can be used to purchase goods and services and is accepted by some businesses in many countries.


With the rise of Bitcoin (BTC), the cryptocurrency market has been validated. Because of this, new cryptocurrencies and coins have tried to penetrate the market and grab a slice of the pie. Ethereum is Bitcoin’s strongest competitor. It currently holds the second-largest market capitalization – recently tying with Bitcoin for first, before dropping back down to the second place.


Ripple is a payment protocol that uses blockchain technology to process international money transfers. It offers low transaction fees and extremely fast processing times, and it has partnered with loads of monetary establishments that use its technology.

There’s a commonplace regional misconception that Ripple is a cryptocurrency. Ripple itself is not a cryptocurrency, but it does have a neighbourhood cryptocurrency called XRP (CRYPTO: XRP)Those who like Ripple and need to spend money on it can purchase XRP.

Although Ripple has potential, it additionally has had a few high-profile issues. Most notably, the U.S. Securities and Exchange Commission (SEC) filed a lawsuit in opposition to it in the give up of 2020.


Litecoin (CRYPTO: LTC) is a cryptocurrency that was released in 2011 to finish cryptocurrency transactions speedy and cheaply. It became advanced with the usage of a duplicate of Bitcoin’s (CRYPTO: BTC) supply code, and it’s by far one of the first altcoins, a period used to consult each cryptocurrency apart from the marketplace chief Bitcoin.

Digital Money as Financial Services:

Nowadays, a growing number of banks and other financial service companies facilitate digital money transfers and other online transactions that wire or transfer money between parties across long distances. Digital money’s assisted in the globalization of economies around the world since trade is made more easily by sending and receiving digital money.

Digital money eliminates the need to physically transfer money; furthermore, banking is made much more convenient by allowing people to perform their personal banking without even the need to visit a physical branch or carry cash.

On the other hand, banks are reducing their retail employee headcount to meet the trend of digital money. Many branches are closed since they become redundant when more people increasingly bank with digital money. It comes at a cost, however, as the banks are not able to maintain personal relationships with customers and create any sort of loyalty. In addition, banks cannot cross-sell their other products without in-person sales opportunities.


Payment fraud is one significant risk that can be attributed to the increasing use of digital money is payment fraud. Payment fraud can be committed in many forms. However, in general, it includes fraudulent or unauthorized transactions completed by a cybercriminal. Some common forms of payments fraud include:

  • Fraudulent payments
  • Illegal payments
  • Internal manipulation
  • Data theft
  • Breach of embargos and sanctions

Because money is not transferred physically, it is impossible to know who is on the other side of a transaction. It gives rise to opportunities for cybercriminals to gain access to sensitive information or scam people through digital money.

Although payment security’s been increasing, the complexity o which cybercriminals commit fraud is becoming increasingly complex as well. Payments fraud activity is continuing to rise, and it shows no signs of declining.

Modern-day cyber criminals are becoming craftier than ever, continuously exploiting new weaknesses and devising different methods of manipulating digital money. Scammers are very persistent in their efforts to attack payment systems. If they face challenges with a particular method, they will just pivot and shift their focus to alternative payment methods.

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