I often hear the word “digital currency” in the news these days, but can you explain about digital currency?
In my mind, I was always fluffy reading news related to digital currencies, mixed up with e-commerce and virtual currencies.
This time, I would like to dig deeper into this digital currency.
Definition
According to Daijisen, which is one of Japanese dictionaries, digital currency is “a currency used in virtual spaces such as online games and the Metaverse. It is issued and distributed without the intervention of public institutions such as the government and central banks.”
I feel like that the more I leaning about the digital currency, the more I’m getting lost.
Furthermore, according to the definition of Daijisen, there is no intervention by the central bank, but the definition is not firmly applied because there is news that the Bank of Japan will start a demonstration experiment of digital currency issued by the central bank from April 2021.
Therefore, it may be considered that the definition of digital currency is changing every day.
Therefore, I would like to dig deeper into the content of digital currencies at the time of writing this article.
Looking at each news, it seems that we can call electronic money and virtual currencies converted into non-cash digital data as digital currencies.
In the next topic, I will introduce each type of digital currency roughly divided.
Type of Digital Currencies
Electronic Money
First, I would like to introduce electronic money, which is the most familiar digital currency to everyone.
Electronic money includes transportation IC cards, such as Suica and Pasmo, distribution Nanaco issued by Seven & i Holdings, and PayPay that allows QR code payment with smartphones.
The feature is that electronic commerce is a digitized legal tender, accounting processing is faster than cash, payment can be done just by holding it up, and it does not require strict screening like credit card.
Crypto Currency
The next digital currencies to be introduced are crypto currencies.
You may have heard of the name Bitcoin, which runs at the top of crypt currencies, even if you have never used it, but many of these crypt currencies are often aimed at decentralization from the government. You can trade encrypted digital currencies on the Internet with people all over the world, without being based on fiat currencies such as dollars or yens.
The big difference from electronic money is whether it is based on legal tender, crypt currency does not have a guarantee of a specific country, and users of crypt currency approve transactions to build a system that does not depend on the country.
Cryptocurrencies are basically currencies that are not controlled by any nation or organization, so their value fluctuates drastically depending on the balance between supply and demand.
Therefore, nowadays, the main usage is to trade crypt currencies for speculative purposes, rather than using them as digital currencies for payments.
Central Bank Digital Currency (CBDC)
Lastly, I would like to introduce you to the Central Bank Digital Currency (CBDC).
CBDC is a digital currency issued by the central bank of the nation, and it exists only as data like electronic money and crypt currency without having cash such as banknotes and coins, assuming that it is denominated in legal tender such as dollars and yen.
On the national side, thorough security measures against cracking and counterfeiting are required, but it has the advantage of preventing remittances to illegal organizations, money laundering, and tax evasion because usage history remains, and costs related to the manufacture, distribution, management and disposal of banknotes and coins can be reduced.
On the other hand, on the public side, it is expected that all stores will be required to support CBDC for businesses, which is expected to be very costly. It reduces the risk of theft and makes it easier to pay taxes because all income and expenses are recorded electronically.
Nowadays, the Bahamas, an island nation in the Caribbean Sea of Central America, and Cambodia in Asia have already issued digital currencies, and Japan has also started demonstration experiments in April 2021.
It can be considered that the number of nations adopting CBDC will continue to increase in the future.
Summary
In this article, I introduced you to digital currencies, but how was it?
Compared to other digital currencies, the introduction period of CBDC is still short, and it is expected that some problems will be raised in the future, but considering the merits, it will be adopted all over the world in recent years.
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