Digital Currency explained, for beginners - with pros and cons

Digital currency explained for beginners - with pros and cons

Digital currency, in plain words is any currency which is not bank notes or coins. One can use it to buy and sell stuff/services or trade on stock exchanges by using mobile, computers or any electronic devise. Typically used digital currencies are cryptocurrency (because they are encrypted and have got codes), virtual currency, Ethereum, in-gaming currency and gift cards. The money transaction, as mentioned, can be made through any electronic or coded devise and associated terms are P2P transfers, wallet transaction, Internet banking, NFC/barcoding or touch-less transactions, mobile transactions etc. There are various back-end infrastructure put in place to enable transactions, most famous is blockchain. So remember when you book a cab and money is directly debited from your wallet or you pay for your metro ride just by scanning a card? These are all examples of digital currency.

However, of late, a term which has become synonymous with digital currency is “Bitcoin”. It gained fame as its prices on stock exchanged started to rise and people were able to make money by arbitration on it.

Majorly, government’s world over are encouraging the use of digital money for varied reasons. First, it apparently is much easier to track payments in G2C mode (government to citizen mode) made in digital currency and so the transparency. Further, digital currency minimizes losses that arise due to printing, pilfering or spoiling of physical currency. The greatest example advocating such development perhaps is India, which in 2016 banned certain currency overnight. The idea was to stop black money or illegal transactions but the result was multifold increase in the use of digital currency. Similarly, m-pesa launched in Kenya was a massive hit.

The straight advantages of digital currency are ease of using it, it cannot be counterfeited so minimizes burn on economy, it is cheaper and attracts the tech-savvy population of today.

The disadvantages however, are numerous. For starters, there is a huge question mark on safety and security of digital money. Of course people are careful, but what if one leaves the phone unlocked erroneously? Further,there are multiple case studies on how hackers are able to open password-protected bank accounts and are able to divert money. While in most of such cases, authorities are able to source fraud, but they are unable to retrieve the lost money. Consequently, either a person or a bank writes off losses. With bitcoins, the fraud seems to go a level up because it is hugely coded and it is impossible to track the source or break the code. See an example of how bitcoins are used by scamsters on goo.gl/KBxLU7.

Again, as digital footprints are not easily trackable, money laundering and money diverted towards anti-social causes is huge.

The market volatility in case currencies are traded on stock are another concern. While regulatory bodies world over are encouraging digital currencies but legalizing and trade on them are still ambiguous. It is after all virtual, so tomorrow, Bitcoin crashes, there is no limit on looses.

From a business level, the money in bank fetches certain interest rate or can become collateral for money lending. In case of digital money, none of these features is available. Multiple start-ups are on the way to work in this sphere but as of now, if money is sitting inside your Uber wallet, know that it is not earning any interest.

In the longer run, one can hope that there will be features and checks in place that will be able to make digital currency secure. Work is on by experts going to make digital footprints traceable and regulators are putting their heads together on how to bring transactions under judicial ambit. Considering all this, the future of digital looks bright but until then, one should be immensely careful.