Digital currencies have become the buzzword in recent times. Elucidate different types of digital currencies currently prevailing globally. Discuss the advantages and disadvantages of using digital currencies.
Digital currencies have become the buzzword in recent times. Elucidate different types of digital currencies currently prevailing globally. Discuss the advantages and disadvantages of using digital currencies.
Digital Currencies
- Digital currencies are currencies that are only accessible with computers or mobile phones, as they only exist in electronic form.
- Since digital currencies require no intermediary, they are often the cheapest method to trade currencies.
Types:
1. Cryptocurrency:
Cryptocurrency is a digital currency where individual coin ownership records are stored in a decentralised digital ledger to secure transaction records. Ex:- Bitcoin, Ethereum etc
2. Central Bank Digital Currency (CBDC):
A Central Bank Digital Currency is a legal tender issued by a central bank in a digital form. In effect, it is just a digital version of the fiat currency, which in India’s case is the rupee. Unlike the cryptocurrency, the CBDC is a centralised system. Ex:- Sand Dollar, e-CNY etc
Advantages of Digital Currencies
- Lower transaction fees when compared to credit card charges
- Faster receipt of funds when compared to traditional currencies
- The thorny issue of inflation could be controlled
- The fraud associated with chargebacks could be effectively curtailed
- International business could receive a major boost
Disadvantages of Digital currencies:
- Vulnerability to cyberattacks
- Price volatility, tied to a lack in inherent value
- Difficult to regulate them, especially in a federal setting
- Difficulty in scaling up its usage (in case of financial illiteracy, especially in countries like ours)
Way Forward:
Though the digital currencies have some inherent challenges, it is impossible for us to set aside them in the era of the fourth Industrial revolution. The governments and other major stakeholders should work shoulder to shoulder to subdue its negativities.
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