What is Digital Money? Types, Working, Benefits, & Risks

  • Soumyaa Rawat
  • Apr 27, 2021
  • Financial Analytics
What is Digital Money? Types, Working, Benefits, & Risks title banner

Introduction to digital money 

 

As the name itself suggests, digital money is monetary value that is existent in the digital form. Digital money is present over the internet and can be in the form of various currencies. 

 

For example- Bitcoin, Litecoin, Ripple, etc. As opposed to offline money that is available in the form of coins and cash, digital money is present in digital form of currency and cannot be accessed or touched by anyone. 

 

Digital money is relevant across the globe and can be accessed by anyone on Earth with proper knowledge. The future of the global economy, digital money is all we need to know about before getting started to know about it more. 

 

 

How does Digital Currency work? 

 

Different from national currencies that are specific to a nation or a country, digital money is present worldwide with global access. The working of digital money is an interesting concept to know about. 

 

Let us discover more about the same. Also known as cryptocurrency, digital currency or digital money money exists in an intangible form that cannot be felt or touched. 

 

The working of digital money is something similar to the working of real money that exists on paper. Stored in bank accounts, digital money can be regulated much like real cash except the fact that it cannot be withdrawn in the form of real cash. 

 

Stored as digital codes, digital money is kept secure in digital banks that can be accessed through mobile phones or computers. Facilitated by blockchain that is an amalgamation of digital nodes, digital money is designed by a set of protocols that are unique and uniform. 

 

As the digital money concept is transparent yet private in terms of saving money from any fraud or scams, cryptocurrency is registered under a blockchain that is controlled by a group of currency owners. 

 

A public blockchain ledger or a record of all transactions made for that specific cryptocurrency is provided to every buyer. As and when a new buyer enters the loop, the ledger gets updated and so, the whole list of records is kept transparent to those who own a share of the digital currency. 

 

The role of miners in this system is immense. As miners are responsible for approving a new block or a transaction, they tend to create hashes that lead them to receive new units of cryptocurrency which they further distribute.

 

Due to the vast expanse of such networks, the regulation of digital money is tough. Yet the organized operations keep the concept accountable, transparent, and secure. 

 

 

Benefits of Digital Money 

 

As we have been through the working of digital money, let us move on to read about the advantages of digital money that will help us explore more. 

 

  1. Elimination of Middlemen

 

The first and foremost advantage of digital money is that it eliminates the middlemen who tend to charge their commission while dealing with transfers of money. 

This means that since digital money can be transferred or received at any point of time, no middleman is required for the payer and payee to carry out that process. 

 

 

  1. Less or no Fee

 

While real cash cards require one to send/receive money, digital money cuts this cost and simply makes it less or no fee at all. 

 

For instance, credit cards charge a certain amount of money when you wish to pay overseas. However, this cost can be cut when you deal in cryptocurrency and perhaps the additional charges can be done away with. 

 

 

  1. Permanence of Records

 

Since it is digital, it is permanent! Real cash frauds are everywhere to be heard about. However, digital money is known to be accountable, secure, and transparent. 

 

This implies that the permanence of records makes it trustworthy and reliable for individuals to deal with. Furthermore, this suggests that no frauds can take place due to the utter security that is omnipresent in the working process of digital money. 

 

 

  1. Global Reach

 

While real cash can be categorized into different currencies that pertain to a particular nation or a country, digital money looks beyond such territories and has a global reach. 

 

For instance, earlier an individual who wanted to pay in the US had to purchase USD cash. However, with the coming of digital currency, an individual sitting in Thailand can easily make a payment to another individual residing in Peru. 

 

 

  1. No Inflation

 

Another one from the benefits of digital money is that it cannot be inflated to deal with economic turmoil. As opposed to real cash that can face the wrath of inflation due to economic competition among countries, digital money is subject to no inflation as the cryptocurrency is separate from real cash. This makes it highly beneficial for users of digital money. 

 

(Suggested read: What is Mortgage?)

 

 

Risks With Digital Money

 

While there are endless benefits of digital money, there are numerous risks of the concept that one should know about. Let us get started right away! 

 

  1. Underdeveloped Infrastructure

 

One of the biggest risks of digital currency is that it still exists in an environment with an underdeveloped infrastructure. 

 

Since almost all cryptocurrencies hail from start-ups, there is no strong foundation for the evolution of digital money and so, it lacks an adequately built infrastructure that can help the growth of digital money at a fast pace. 

 

  1. Uncertainty of Profits

 

Another very valid risk of digital money is that it is uncertain when it comes to profit-making capacity of the investors. 

 

As the prices of cryptocurrencies are highly volatile and tend to go up and down in an instant, investors fear the uncertainty of the digital money and rather feel they can be at loss if things go south. 

 

Perhaps the worth of digital money is way too unprecedented and keeps fluctuating throughout. 

 

  1. Lack of Trust

 

Unlike real money, digital money lacks trust of the common masses. People are more comfortable in spending a currency that is tangible to them and their savings. 

 

Even though the internet has opened up many doors for security and safety, it is still felt that digital money or cryptocurrency has a long way to go when it comes to people's trust. 

 

  1. Unidentifiable Beneficiaries 

 

Another risk that many people suggest is the presence of unidentifiable beneficiaries in the concept of digital money. The payment of real money assures the identification of the receiver and the sender of money. However, it is different in the case of digital money. 

 

As the transactions take place over the internet, one cannot identify the other person and so the beneficiaries are unidentifiable making the concept way too risky for people to invest in. 


 

Top 3 Digital Currencies 

 

So far we have discussed the various aspects of digital money. However, we will now discuss the top 3 digital currencies that are leading the realm of cryptocurrency. 


Bitcoins, Ethereum and Litecoin are among the top three digital currencies.

Top digital currencies


  1. Bitcoin (BTC)

 

Brought into circulation in the year 2009, Bitcoin is traded by the symbol of BTC.  The topmost cryptocurrency in the sphere of digital money, Bitcoin is currently leading the charts with the Bitcoin price of over $64,000. 

 

Expected to grow higher in the coming time, the Bitcoin blockchain uses peer-to-peer transfer protocol to generate payments from one corner of the world to another. 

 

 

  1. Ethereum (ETH)

 

Established in the year 2015, Ethereum is another cryptocurrency that continues to be on the top of the chart. Operating on the basis of a decentralized and blockchain protocol, Ethereum is the topmost cryptocurrency when it comes to the usage of blockchain. 

 

With a monetary value of $2460 according to the Ethereum chart,  Ethereum is one of the rapidly growing cryptocurrencies in the contemporary world. With an open-source software, this digital currency is sure to reach higher! 

 

 

  1. Litecoin (LTC)

 

With a strong foundation, Litecoin is another cryptocurrency with a monetary value of $270 as per current data. From time to time Litecoin predictions have successfully proven that it is a reliable investment when it comes to digital money. 

 

Launched in 2011, this digital currency is also an open-source platform where digital money can be traded. 


 

Future of Digital Money 

 

The future of digital money is expected to be brighter than what it is today. As more and more cryptocurrencies are emerging on the surface, the authenticity of such a system is gaining weight in the eyes of the masses. 

 

As technological experts suggest, the future of digital money points towards a cashless, global economy that will unite people under the name of digital money. With high chances that cryptocurrency will enter the share market, banks will be more receptive to the monetary value of such currencies and perhaps a twist of turns will be witnessed. 

 

However, on the other hand, some also believe that due to the high fluctuation rate of cryptocurrency, it will be nothing more than a passing cloud for the economic realm. 

In the coming days, the topmost popular cryptocurrency Bitcoin is expected to multiply in terms of its economic value. 

 

The leading cryptocurrency in the field, Bitcoin is one of the biggest determinant factors in the future of cryptocurrency. The widespread presence of digital money will only lead to a reduction in the use of real money. This will further lead to an independent monetary system where governments will have very less or almost no control. 


 

Conclusion

 

To conclude, digital money can also be referred to as electronic money that is present on the internet and nowhere else. Some of the best cryptocurrency to invest in are Bitcoin, Ethereum, and Litecoin.

 

With multiple benefits and risks attached to digital money, cryptocurrency is expected to grow further in terms of monetary importance and popularity in the future ahead. 

0%

Comments

  • ubaid.rehman

    May 27, 2021

    Can the normal currency ever reach to the heights of digital currencies right now ? <a href="https://www.mtfxgroup.com/"> Check the rates, and bit coin rates it seems bitcoin is from another world cost more than a diamond ? why ?