Digitalization is the era of the twenty-first century. Everything is becoming digitized, and we are moving away from paper-based models for the majority of our services. Even if a few rich countries are still focusing their efforts on a centuries-old technology, the globe is advancing at a breakneck speed, and these countries will have to accept the breakthroughs that the globe is making.
Fiat currencies, which we have used for a long time, are one of the earliest human pieces of commerce. Something tangible has been used as a fundamental medium of exchange since the beginning of time. Even purchasing anything is nothing more than a glorified exchange of monetary supply (gold, silver, dollar, euro) for an existent item (basically anything that you can buy from phones to food). However, the development of blockchain technology began to shake the globe a decade and a half ago. Cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), and even the more amusing DogeCoin have boosted digitization efforts to the point that many governments are now actively working on producing the digital counterpart of their existing paper-based fiat money.
The United States Dollar Tether is a wonderful illustration of this (USDT). It was created by Tether Limited, who claimed that each USDT token was backed by US dollars. This has changed after March 2019, when the corporation formally authorized loans to connected entities to be backed. Multiple nations are attempting to integrate their own digital currencies into their national financial systems, resulting in an ongoing conflict between digital and fiat currencies. China’s digital yuan, South Korea’s digital won, and Japan’s digital yen are all good examples.
This money exists in the form of a balance or a record on the blockchain, which is a distributed database on the internet. Because these digital currencies have no physical representations, transactions are instantaneous. Apart from that, they are not regarded as legal money, which means that ownership can be transferred freely across national borders. Such money cannot be utilized anywhere at this time. You probably won’t be able to buy products with USDT at your local Walmart, but there are several services that can currently be used with digital currencies. South Korea, for example, is now seeking to improve its highway toll system by using blockchain technology. This implies that instead of using fiat cash, travelers will be able to make payments using their digital wallets. This will improve the whole financial process and allow the service to become more safe and pleasant.
Digital and Virtual Money
As previously said, a digital currency is a word that refers to electronic currencies that have certain characteristics. Because of the term’s recent use, meanings differ from one institution to the next. Some of them also use the terms “digital” and “virtual” interchangeably. A virtual currency, according to the European Central Bank, is a sort of unregulated money produced by third parties and accepted in virtual communities. It does not have legal currency status in any jurisdiction, according to the US Department of Treasury. A popular milton prime reviewed here follows the concept of a currency that is not issued by any central banks, e-money institutions, or credit institutions but is used as a substitute for money in some instances. Cryptocurrencies, for example, are digital currency subcategories.
Cryptocurrency is a type of virtual currency. Basically, this is the virtual asset that uses a special method, cryptography to connect to the asset transfers through a decentralized and peer-to-peer system. The technology that provides such service availability is called a blockchain. In order to make meaningful changes in the different pieces of data entries that are spread over the server, the blockchain system uses either a digital ledger system or any kind of record-keeping system.
The most well-known example of this operation is bitcoin and people gain it through mining. This means that your computer is helping the payment request to be approved for the other users and because of that, the computer, generally its owner is rewarded by a certain amount of the currency. This is some kind of commission or reward for approving the execution of the currency transaction.
Mainly, the blockchain protocol that we are now trying to follow (or have to) is created by the developers of bitcoin. However, a common misunderstanding among users is that it is linked to one of these currencies in particular. It is, in fact, a completely independent system that can be used to set up any cryptocurrency and is thus unrelated to any of them.
After the transactions are made and the number of coins is sent from one account to another, after that it needs to be stored somewhere. When we talk about fiat currency, they are taken care of by the banks if you have an account with them or generally, use your physical wallet to store them. The decision is up to you, and it depends on where you feel comfortable and safe to store them.
In order to make the digital currencies accumulated in one service, as they are impossible to store in your wallets simply because they do not exist in the physical shape, there are special digital wallets created that provide such service for the owners. This also can be done in several different ways. From the very beginning, people were having the files in their computers that would store all the bitcoins they were owning. But, the usage of this method showed its ineffectiveness and the lack of security issues. When a very famous case happened, such as Mt. Gox getting hacked and as a result, lost hundreds of millions worth of cryptocurrencies only in one night, people started thinking about the other services and came up with the idea of creating digital wallets. This, in a nutshell, is software that uses the same cryptographic methodology in order to execute the service as blockchains. All the wallets have their own public and private keys.
In the public key, we mean the public address of the owner of the digital wallet. This information is used in order to send or receive a certain amount of cryptocurrencies. It is kept on the public ledger and can be seen by everyone, while blockchain is used in order to keep the information confidential. The public key has no information about the owner, it is mainly used as an address, meaning that it helps to find where the wallet is but has no valid information about the identity of the owner.
In the case of the most important part of the digital case, we can name the private key. This information is valuable and is recommended to keep as private as possible. It is frequently cryptographically encrypted and then backed up with a physical hard copy on paper. While this increases security tenfold, the method was flawed, which is why multi-signature wallets were created. These are the wallets that need several private keys to be maintained in various locations and that two of these keys be used to approve a payment.
Summing It Up
Finally, to sum up, the differences between paper-based and digital money are quite vivid. However, we cannot say exactly how much time it will approximately take to fully integrate the digital currencies in society. To consider the bitcoin case, it is not trusted by the people and companies, primarily because it is volatile and the market quite immature. One more additional flaw in this regard, which sometimes is believed to be vice versa, is its unregulated nature from the central government, which usually would guarantee the price not to fall massively overnight or increase. The reality, in this case, is that bitcoin price can be changed by several thousands of dollars just in few hours.