Digital currencies have seemingly sprung from nowhere to become front-page news overnight. The truth is rather more nuanced than that, but their increasing adoption is pushing digital currencies, such as Bitcoin, into the mainstream.

Rather than being the gimmick or fad that many economic commentators initially labeled them, digital currencies are based upon incredibly advanced technology that could transform the way we use money.

Although the most famous digital currency is undoubtedly Bitcoin, there are over 9,000 different cryptocurrencies currently in circulation. This demonstrates the widespread adoption that has already taken place, but also the number of different problems that digital currencies could potentially solve.

Despite the initial presumption that every digital currency is directly competing against one another, they are mostly housed within sub-markets which attempt to solve a particular issue.

Bitcoin, for instance, is not intended to be used to purchase everyday items. It is far more suitable as a store of value, energy or time – acting more like incredibly advanced digital gold than conventional currency.

Therefore, understanding digital currency is incredibly useful, as it could quickly become part of everyday life.

This is what you need to know:

What Is Digital Currency?

A digital currency is, as the name suggests, a currency which is mainly stored, interacted with, and traded in the digital realm.

The most famous form of digital currency is a cryptocurrency – such as Bitcoin, Ethereum, and Cardano. A cryptocurrency is a currency housed on a decentralized digital ledger called a blockchain. This means that they function on a peer-to-peer basis, without the need for a third party.

It is for this reason that they have risen to popularity so quickly. As government-backed national currencies become increasingly beset with high levels of inflation, the inability to tamper with or censor crypto makes it an appealing alternative to traditional finance.

Considering that prices of cryptocurrency fluctuate considerably, you are best advised to check prices – such as the Terra price USD – regularly.

However, digital currency forms a far wider umbrella than merely crypto. Many governments have been busy creating their own, centrally controlled forms of digital currencies – called central bank digital currency (or CBDC for short).

One of the most significant obstacles for both cryptic and CBDC is how they are going to interact in the future – if at all.

What Are the Benefits and Limitations of Digital Currency?

There are several benefits of digital currency, as well as a few drawbacks, which should also be considered.

Firstly, digital currencies involve far less friction than traditional currency, making it easier to store wealth, as well as spend it.

Given that most people use credit or debit cards, Apple Pay and other digital payment rails, the jump toward a fully digital currency are somewhat inevitable.

What makes cryptocurrency so compelling is that it is fully interoperable. This means you can directly buy, sell, and trade between different cryptocurrencies without having to be stung by a steep exchange rate. Given how large the digital economy currently is and how vast it might one day become, this is a massive benefit.

However, it is worth pointing out that once all currency is digitalized, it may be less practical to pay for goods if there is an internet or electrical problem – when simply handing over cash suffices.

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