You Think Digital Currencies Will Not Thrive? Think Again.

Digital currency, unlike physically tangible paper currency and coins, refers to the currency exists in digital form. Digital currency also termed as virtual currency and owned mostly by banking institutions. A famous form of digital currency is cryptocurrency bitcoins. Digital currency can be classified into three types, which include cryptocurrency, virtual currency and central bank digital currency (CBDC). Thanks to the digital currency, banks today are able to successfully control their cost of doing business. The most successful digital currency is Bitcoin, which enjoys a worldwide acceptability among a large numbers of retailers. Cryptographic algorithms are mainly responsible for securitization of Bitcoins. It has a vast potential to become a mean of payment for e-commerce transactions. It also presents a daunting challenge to traditional money transfer service providers. It is incorrect to assume that digital currencies will not thrive. They will.

Evolution of digital currency: It was in year 2011 that the name “Bitcoin” first hit the global financial arena. Although its idea was conceived in the year 2008 by a group of computer programmers. As an unconventional first digital currency, Bitcoin swiftly gained momentum and attraction for redefining the common conception of currency.

Unlike legal tenders, Bitcoin are not controlled or monitored by a central bank. On the contrary, an individual or institution with a computer systems or an Application-Specific Integrated Circuit (ASIC), which is a purpose-built machine, can create Bitcoins by a process called mining, which refers to the earning in Bitcoins by answering computational puzzles. Bitcoins augmented the mining concept as everyone with internet enabled computer system can engaged in mining.

According to the World Economic Forum, roughly 86% of the world’s central banks are exploring the benefits and drawbacks of central bank digital currency.

The most common types of digital currency: The number and popularity of digital currencies keep on increasing. As on 2021, there are over 6,000 digital currencies operating globally. Some of the most common types of digital currencies are discussed below.

Bitcoin: Bitcoin is a popular digital currency, also known as cash of the internet, created by a group of computer programmers. Bitcoins are often called cryptocurrency as cryptography enables Bitcoins’ creation and transactions. There are currently over 18.7 Million Bitcoins in circulation. This figure varies in every 10 minutes.

Bitcoin Cash: It was introduced in the year 2017. It differs with Bitcoins only in respect of its block size: 8MB. Owing to its big size, Bitcoin cash ensures swifter transaction processing.

Litecoin: It was created in the year 2011 by Charlie Lee, a former Google employee. Its dynamics and functions are almost same as that of Bitcoins. It was primarily designed to further improve Bitcoins system with faster processing time and lower fee with concentrated miners.

Ethereum: Unlike Bitcoins, Ethereum is a decentralised computing platform that structures smart contract functionality. Instead of a digital currency, it is better to treat it an app store. It deals in the Ethereum Virtual Machine (EVM), a decentralized virtual machine that performs contracts using a cryptocurrency known as Ether among different stakeholders like original creators and middlemen.

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Ripple: Ripple is a digital currency more commonly used by large institutions instead of individuals. It involves transfer of large amount money in the coinage of XRP across the globe. Specifically, Ripple functions as a real-time money exchanger, remittance network and settlement system. It ensures swift and cost-effective international payments, which are also known as Ripple protocol or the Ripple Transaction Protocol (RTXP).

Steller: Designed in 2014 by Ripple co-founder Jed McCaleb, Steller is run by a non-profit organization known as Steller.org. Like Ripple, it also deals in money transfer swiftly and in cost-effective manner.

NEO: Developed in China, NEO is all set to play a major role in global cryptocurrency transactions, competing with Ethereum. It facilitates the execution of smart digital contracts without the aid of intermediary.

Some other cryptocurrencies are Cardano, IOTA, Dash, Peercoin, Dogecoin, Primecoin, Chinacoin and Ven.

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Is digital currency thriving? This is a million dollar question. It can be gauged by the fact that Elan Musk has recently announced that Tesla would begin accepting Bitcoins as a mode of payments for its products i.e. driverless cars. Tesla would buy $1.5 Billion worth of cryptocurrency. These facts put the digital currencies in limelight in an unprecedented fashion. Digital currencies are undoubtedly destined to impact global financial systems. According to World Economic Forum, over 86% of central bankers are exploring the pros and cons of central bank digital currency (CBDC). It is interesting to assess the rise of digital currencies in different parts of the globe.

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Digital Currency and China: China is already leading the race for a digital currency revolution. President Xi Jinping has emphasized the need of active participation in formulating international rules on digital currency and taxation to explore new avenues of competitive advantages. Presently, as per reports, China holds more than 80 percent of Bitcoin and Altcoins transactions. China’s financial system is fast changing for the digitization. The new Digital Currency Electronic Payment (DCEP) – an electronic payment and processing network run by the China’s central bank – and its digital currency, the electronic or digital yuan (e-CNY), are anticipated to fully take place of physical cash.

Digital Currency and Asia: Industry observers say that Singapore is poised to secure the status of the Asia crypto hub. The Monetary Authority of Singapore (MAS) has asked the several digital payments service providers to be licensed to operate freely and legally in the city-state. As far as India is concerned, it is still far from a well-regulated and transparent digital currency transaction policy. Reserve Bank of India (RBI) has banned in 2018 the Indian banks to engage in digital currencies transactions and payments. Though, this ban was annulled in 2020.

Digital Currency and Africa: Africa is swiftly adopting crypto currency system as a substitute for the vast unbanked population of Africa, where living in rural areas is a big hurdle to accessing formal banks in the bigger cities. With widespread internet accessibility in the continent, Africans find it convenient to be facilitated by crypto exchanges instead of traditional banks or DFIs. Accepting Bitcoins as a legal tender has enormously facilitated the day to day transactions like payments of utility bills or groceries. Nigeria-Africa’s largest economy is fast embracing crypto currencies to improve its unimpressive economic conditions. An economy based on crypto currency can assists Nigerians who have no access to traditional bank accounts. Crypto transaction are fast gaining momentum in Nigeria.

Digital Currency and Europe: The announcement of Facebook’s digital currency Libra has caused a stir in European financial markets. It is felt by the governments and central banks that crypto is no longer a passing fad and can offer convenience in financial transactions and transfers in cost effective way. Libra has generated in Europe a sense of legging behind in global digital transactions platforms.

The writing is on the wall about future of cryptocurrency. All that required for cryptocurrency to thrive are integrity, acceptability and a warm welcome by regulatory authorities. Financial literacy and awareness of latest technology are the areas that deserve much-needed attention. Much progress has been made in the development of digital currencies and much is awaited.