Digital currency has the potential to completely change how society thinks about money. The rise of Bitcoin, Ethereum and thousands of other cryptocurrencies that exist only in electronic form has led global central banks to research how national digital currencies might work.
What Is Digital Currency?
Digital currency is any currency that’s available exclusively in electronic form. Electronic versions of currency already predominate most countries’ financial systems. In the U.S., for instance, the physical U.S. currency in circulation is only about one-tenth of the overall money supply; the remainder is held in various bank deposits in electronic form.
What differentiates digital currency from the electronic currency currently in most Americans’ bank accounts is that it never takes physical form. Right now, you could go to an ATM and turn an electronic record of your currency holdings into physical dollars. Digital currency, however, never takes physical form. It always remains on a computer network and is exchanged via digital means.
For example, instead of using physical dollar bills, you’d make purchases by transferring digital currency to retailers using your mobile device. Functionally, this may be no different than how you currently treat your money using platforms like Venmo, Paypal or Apple Pay.