currency (digital money, electronic money or electronic currency) is a
balance or a record stored in a distributed database on the Internet, in
an electronic computer database, within digital files or within a
stored-value card. Examples of digital currencies include
cryptocurrencies, virtual currencies, central bank digital currencies
Digital currencies exhibit properties similar to other currencies, but
do not have a physical form of banknotes and coins. Not having a
physical form, they allow for nearly instantaneous transactions. Usually
not issued by a governmental body, virtual currencies are not considered
a legal tender and they enable ownership transfer across governmental
These types of currencies may be used to buy physical goods and
services, but may also be restricted to certain communities such as for
use inside an online game. One type of digital currency is often traded
for another digital currency using arbitrage strategies and techniques.
Digital money can either be centralized, where there is a central point
of control over the money supply, or decentralized, where the control
over the money supply can come from various sources.
Digital Currency is a term that refers to as a specific electronic
currency type with specific properties. Digital Currency is also a term
used to include the meta-group of sub-types of digital currency, the
specific meaning can only be determined within the specific legal or
contextual case. Legally and technically, there already are a myriad of
legal definitions of digital currency and the many digital currency
sub-types. Combining different possible properties, there exists an
extensive number of implementations creating many and numerous sub-types
of Digital Currency. Many governmental jurisdictions have implemented
their own unique definition for digital currency, virtual currency,
cryptocurrency, e-money, network money, e-cash, and other types of
digital currency. Within any specific government jurisdiction, different
agencies and regulators define different and often conflicting meanings
for the different types of digital currency based on the specific
properties of a specific currency type or sub-type.
versus virtual currency:
currency has been defined in 2012 by the European Central Bank as "a
type of unregulated, digital money, which is issued and usually
controlled by its developers, and used and accepted among the members of
a specific virtual community". The US Department of Treasury in 2013
defined it more tersely as "a medium of exchange that operates like a
currency in some environments, but does not have all the attributes of
real currency". The US Department of Treasury also stated that, "Virtual
currency does not have legal-tender status in any jurisdiction."
According to the European Central Bank's 2015 "Virtual currency schemes
– a further analysis" report, virtual currency is a digital
representation of value, not issued by a central bank, credit
institution or e-money institution, which, in some circumstances, can be
used as an alternative to money. In the previous report of October 2012,
the virtual currency was defined as a type of unregulated, digital
money, which is issued and usually controlled by its developers, and
used and accepted among the members of a specific virtual community.
According to the Bank for International Settlements' November 2015
"Digital currencies" report, it is an asset represented in digital form
and having some monetary characteristics. Digital currency can be
denominated to a sovereign currency and issued by the issuer responsible
to redeem digital money for cash. In that case, digital currency
represents electronic money (e-money). Digital currency denominated in
its own units of value or with decentralized or automatic issuance will
be considered as a virtual currency. As such, bitcoin is a digital
currency but also a type of virtual currency. Bitcoin and its
alternatives are based on cryptographic algorithms, so these kinds of
virtual currencies are also called cryptocurrencies.
Cryptocurrency is a sub-type of digital currency and a digital asset
that relies on cryptography to chain together digital signatures of
asset transfers, peer-to-peer networking and decentralization. In some
cases a proof-of-work or proof-of-stake scheme is used to create and
manage the currency. Cryptocurrencies can allow electronic money systems
to be decentralized. When implemented with a blockchain, the digital
ledger system or record keeping system uses cryptography to edit
separate shards of database entries that are distributed across many
separate servers. The first and most popular system is bitcoin, a
peer-to-peer electronic monetary system based on cryptography.
Digital versus traditional currency:
Most of the traditional money supply is bank money held on computers.
They are considered digital currency in some cases. One could argue that
our increasingly cashless society means that all currencies are becoming
digital currencies, but they are not presented to us as such
A number of electronic money systems use contactless payment transfer in
order to facilitate easy payment and give the payee more confidence in
not letting go of their electronic wallet during the transaction.
In 1994 Mondex and National Westminster Bank provided an "electronic
purse" to residents of Swindon
In about 2005 Telefónica and BBVA Bank launched a payment system in
Spain called Mobipay which used simple short message service facilities
of feature phones intended for pay-as-you-go services including taxis
and pre-pay phone recharges via a BBVA current bank account debit.
In January 2010, Venmo launched as a mobile payment system through SMS,
which transformed into a social app where friends can pay each other for
minor expenses like a cup of coffee, rent and pay a share of the
restaurant bill when one has forgotten their wallet. It is popular with
college students, but has some security issues. It can be linked to a
bank account, credit/debit card or have a loaded value to limit the
amount of loss in case of a security breach. Credit cards and non-major
debit cards incur a 3% processing fee.
On 19 September 2011, Google Wallet released in the United States to
make it easy to carry all one's credit/debit cards on a phone.
In 2012 Ireland's O2 (owned by Telefónica) launched Easytrip to pay road
tolls which were charged to the mobile phone account or prepay credit.
The UK's O2 invented O2 Wallet at about the same time. The wallet can be
charged with regular bank accounts or cards and discharged by
participating retailers using a technique known as 'money messages'. The
service closed in 2014.
On 9 September 2014, Apple Pay was announced at the iPhone 6 event. In
October 2014 it was released as an update to work on iPhone 6 and Apple
Watch. It is very similar to Google Wallet, but for Apple devices only
Digital Currency has been implemented in some cases as a decentralized
system of any combination of currency issuance, ownership record,
ownership transfer authorization and validation, and currency storage.
Per the Bank for International Settlements (BIS), "These schemes do not
distinguish between users based on location, and therefore allow value
to be transferred between users across borders. Moreover, the speed of a
transaction is not conditional on the location of the payer and payee
As of 2016, over 24 countries are investing in distributed ledger
technologies (DLT) with $1.4bn in investments. In addition, over 90
central banks are engaged in DLT discussions, including implications of
a central bank issued digital currency.
Hong Kong's Octopus card system: Launched in 1997 as an electronic purse
for public transportation, is the most successful and mature
implementation of contactless smart cards used for mass transit
payments. After only 5 years, 25 percent of Octopus card transactions
are unrelated to transit, and accepted by more than 160 merchants.
London Transport’s Oyster card system: Oyster is a plastic smartcard
which can hold pay-as-you-go credit, Travelcards and Bus & Tram season
tickets. An Oyster card can be used to travel on bus, Tube, tram, DLR,
London Overground and most National Rail services in London.
Japan's FeliCa: A contactless RFID smart card, used in a variety of ways
such as in ticketing systems for public transportation, e-money, and
residence door keys.
The Netherlands' Chipknip: As an electronic cash system used in the
Netherlands, all ATM cards issued by the Dutch banks had value that
could be loaded via Chipknip loading stations. For people without a
bank, pre-paid Chipknip cards could be purchased at various locations in
the Netherlands. As of 1 January 2015, payment can no longer be made
Belgium's Proton: An electronic purse application for debit cards in
Belgium. Introduced in February 1995, as a means to replace cash for
small transactions. The system was retired on 31 December 2014.
In March 2018, the Marshall Islands became the first country to issue
their own cryptocurrency and certify it as legal tender; the currency is
called the "sovereign".
The Bank of Canada have explored the possibility of creating a version
of its currency on the blockchain.
The Bank of Canada teamed up with the nation’s five largest banks – and
the blockchain consulting firm R3 – for what was known as Project
Jasper. In a simulation run in 2016, the central bank issued CAD-Coins
onto a blockchain similar Ethereum. The banks used the CAD-Coins to
exchange money the way they do at the end of each day to settle their
A deputy governor at the central bank of China, Fan Yifei, wrote that
"the conditions are ripe for digital currencies, which can reduce
operating costs, increase efficiency and enable a wide range of new
applications".According to Fan Yifei, the best way to take advantage of
the situation is for central banks to take the lead, both in supervising
private digital currencies and in developing digital legal tender of
In December 2020, the People's Bank of China distributed 20 million
digital yuan to the residents of Suzhou through a lottery in a program
to further develop a government-backed digital currency. Recipients of
the digital yuan could spend the currency on both offline and online
purchases, expanding on a previous trial by including online store
purchasing and a method of payment without requiring an internet
connection. Around 20,000 were reported by e-commerce company JD.com in
the first 24 hours of the trial. Opposed to other online payment
platforms such as Alipay or WeChat Pay, the digital yuan does not have
The Danish government proposed getting rid of the obligation for
selected retailers to accept payment in cash, moving the country closer
to a "cashless" economy. The Danish Chamber of Commerce is backing the
move. Nearly a third of the Danish population uses MobilePay, a
smartphone application for transferring money.
A law passed by the National Assembly of Ecuador gives the government
permission to make payments in electronic currency and proposes the
creation of a national digital currency. "Electronic money will
stimulate the economy; it will be possible to attract more Ecuadorian
citizens, especially those who do not have checking or savings accounts
and credit cards alone. The electronic currency will be backed by the
assets of the Central Bank of Ecuador", the National Assembly said in a
statement. In December 2015, Sistema de Dinero Electrónico ("electronic
money system") was launched, making Ecuador the first country with a
state-run electronic payment system.
The Dutch central bank is experimenting with a blockchain-based virtual
currency called "DNBCoin".
Unified Payments Interface (UPI) is an instant real-time payment system
developed by National Payments Corporation of India facilitating
inter-bank transactions. The interface is regulated by the Reserve Bank
of India and works by instantly transferring funds between two bank
accounts on a mobile platform. UPI is built over Immediate Payment
Service for transferring funds. Being a digital payment system it is
available 24*7 and across public holidays. Unlike traditional mobile
wallets, which takes a specified amount of money from user and stores it
in its own accounts, UPI withdraws and deposits funds directly from the
bank account whenever a transaction is requested. It uses Virtual
Payment Address (a unique ID provided by the bank), Account Number with
IFS Code, Mobile Number with MMID (Mobile Money Identifier), Aadhaar
Number, or a one-time use Virtual ID. An UPI-PIN (UPI Personal
Identification number that one creates on the UPI app of the bank) is
required to confirm each payment.
Government-controlled Sberbank of Russia owns Yandex.Money – electronic
payment service and digital currency of the same name.
Sweden is in the process of replacing all of its physical banknotes, and
most of its coins by mid-2017. However, the new banknotes and coins of
the Swedish krona will probably be circulating at about half the 2007
peak of 12,494 kronor per capita. The Riksbank is planning to begin
discussions of an electronic currency issued by the central bank to
which "is not to replace cash, but to act as complement to it". Deputy
Governor Cecilia Skingsley states that cash will continue to spiral out
of use in Sweden, and while it is currently fairly easy to get cash in
Sweden, it is often very difficult to deposit it into bank accounts,
especially in rural areas. No decision has been currently made about the
decision to create "e-krona". In her speech, Skingsley states: "The
first question is whether e-krona should be booked in accounts or
whether the ekrona should be some form of a digitally transferable unit
that does not need an underlying account structure, roughly like cash."
Skingsley also states: "Another important question is whether the
Riksbank should issue e-krona directly to the general public or go via
the banks, as we do now with banknotes and coins." Other questions will
be addressed like interest rates, should they be positive, negative, or
In 2016, a city government first accepted digital currency in payment of
city fees. Zug, Switzerland, added bitcoin as a means of paying small
amounts, up to CHF 200, in a test and an attempt to advance Zug as a
region that is advancing future technologies. In order to reduce risk,
Zug immediately converts any bitcoin received into the Swiss currency.
Swiss Federal Railways, government-owned railway company of Switzerland,
sells bitcoins at its ticket machines.
The Chief Scientific Adviser to the UK government advised his Prime
Minister and Parliament to consider using a blockchain-based digital
The chief economist of Bank of England, the central bank of the United
Kingdom, proposed abolition of paper currency. The Bank has also taken
an interest in blockchain. In 2016 it has embarked on a multi-year
research programme to explore the implications of a central bank issued
digital currency. The Bank of England has produced several research
papers on the topic. One suggests that the economic benefits of issuing
a digital currency on a distributed ledger could add as much as 3
percent to a country's economic output. The Bank said that it wanted the
next version of the bank’s basic software infrastructure to be
compatible with distributed ledgers