Digital currency is a form of virtual currency or medium of exchange that is electronically created and stored. Some digital currencies, such as Bitcoin, are cryptocurrencies. Like traditional money these currencies may be used to buy physical goods and services but could also be restricted to certain communities such as for example for use inside an on-line game or social network.
Digital versus traditional currency
Limits on being currency
On 20 March 2013, the Financial Crimes Enforcement Network (FinCen), a bureau of the United States Department of the Treasury, issued a document providing interpretive guidance to clarify the applicability of the Bank Secrecy Act (BSA) to persons creating, exchanging and transmitting digital or "virtual currencies".
A cryptocurrency is a type of digital token that relies on cryptography for chaining together digital signatures of token transfers, peer-to-peer networking and decentralization. In some cases a proof-of-work scheme is used to create and manage the currency.
Bitcoin is the most widely used and well known cryptocurrency. Many of the current cryptocurrencies are based on Bitcoin.
- Many of these currencies have not yet seen widespread usage, and may not be easily used or exchanged. Banks generally do not accept or offer services for them.
- There are concerns that cryptocurrencies are extremely risky due to their very high volatility and potential for pump and dump schemes.
- Regulators in several countries have warned against their use and some have taken concrete regulatory measures to dissuade users.
- The non-cryptocurrencies are all centralized. As such, they may be shut down or seized by a government at any time.
- The more anonymous a currency is, the more attractive it is to criminals, regardless of the intentions of its creators.
- Anyone with the right skills can issue Digital Currency. It can be compared to issuing bonds with zero interest rate, no real security behind them and thus no real obligation for the issuer to pay back the amount. This means that the issuer who succeeds in selling his currency to other users, can earn a great deal of actual money at the expense of his users.
- Forbes writer Tim Worstall was written that the value of bitcoin is largely derived from speculative trading.
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