What you need to know about the types of digital currencies

 

What is digital currency?

Digital currency is a digital version of cash.

There are three types of digital currency:

Cryptocurrency

1980s; 2008 (Bitcoin).

Attempt at creating a currency that did not rely on central banks.

High volatility, limited acceptance, and interoperability.

Generally not used as a form of payment .

Examples: Bitcoin, Ether.

Stablecoin

Mid 2010s.

Developed to mitigate the volatility and limited use of crypto for payments.

Issued by private entities and can be backed by assets, i.e.

pegged to fat currencies or gold, or non-collateralized.

Exampes: USDC, Diem

Central Bank Digital Currency

Late 2010s

New form of money issued by

a central bank directly to its citizens,

exists exclusively in digital form

Basically cash but in a digital

form, able to be received and

spent directly

Examples: eCNY (China), e-Krona(Sweden)

Two types of CBDCs

Digital Currency: Visa’s Vision for Supporting the Future of Money Visa Public 5

Retail CBDC: for transactions

between consumers and businesses

Wholesale CBDC: interbank transfers and settlements

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Types of digital currencies

There are three types of digital currencies: cryptocurrency, stablecoins, and central bank digital currency (CBDC).

The most well-known cryptocurrency is bitcoin

Bitcoin‘s decentralized blockchain network went live in 2009 after the publication of a white paper in 2008 by an unknown person or group calling itself Satoshi Nakamoto.

Visa views this segment of digital currency as a commodity

or ‘digital gold.’ Cryptocurrencies are typically not used as a form of payment at this time due to a number of reasons, such as their high volatility, low transaction throughput, and limited acceptance.

Stablecoins are fat-backed

Stablecoins have the potential to be used as payments in global commerce, much like fat currency.

Whereas cryptocurrencies are decentralized and volatile, stablecoins are designed to ofer stability. The limited volatility increases the possibility of digital currencies being used for payment. And unlike fat currencies, stablecoins can transcend borders with transactions that can be near instant.

CBDC is gaining momentum

Recently CBDC has gained signifcant interest among a growing number of central banks, with three in fve conducting pilots or proof of concepts6—spurred in part by growing interest in cryptocurrencies as prices appreciate and the development of stablecoins such as USDC.

Several countries and regions have CBDC research projects underway (e.g., Riksbank Sweden).

The development of digital currencies began decades ago

Ecash was created by David Chaum in 1983 as an anonymous cryptographic electronic money signed by banks.

Subsequently, there were other attempts at creating other decentralized virtual currencies, such as Bit Gold and b-money in the 1990s.