? What is digital money
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Digital money is money that we do not physically own and manage in the digital world and exists only on the Internet. The essence of digital money is the same as physical money, except that it is not used in physical form. Digital money has brought important changes to the economies of countries today.
The digital version of currencies popular in countries has been in use for a long time. For example, physical money in America is only a tenth of the country's money, and most of the people's and government's capital is kept in electronic form in various bank deposits.
In the past, digital money was limited to fiat currencies and bank-backed currencies called electronic services, but for some time now, cryptocurrencies have made their way into digital currencies and trading methods.
And although these two forms of money are digital and not presented in physical form, there are significant differences between them. If you want to learn more about digital money and its various forms, don't miss out on reading further.
?What is electronic money
Before we talk about electronic money, we need to know about fiat currency or fiat money. In simple terms, paper money is a currency whose value is determined by the government issuing the currency. (such as the Egyptian pound or the US dollar) Fiat money is the opposite of commodity money, which is money whose value is backed by an asset such as gold or silver.
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The value of electronic money is backed by paper currency. In short, electronic money is a fiat currency that has become electronic and on the Internet. And the value of electronic money is the same as paper currency. Electronic money stores fiat currency digitally until it is converted into a physical form (eg using an automated teller machine).
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Electronic money is also legal and quantifiable in nature, like its backing physical currencies, and almost all businesses and service providers in the country support this type of payment.
Electronic money can be classified into two main categories:
1- difficult
Electronic money transactions are difficult when the funds are used for non-refundable transactions. These transactions are highly secure and are usually done through banks. New digital currencies, the latest 8 new investment projects
2-Lin
Flexible electronic money is used for reversible or flexible transactions. Users in this type of transaction can manage their assets even after the payment has been processed. This management includes canceling the transaction, changing the price and other things. These changes can usually only be made for a short period after the transaction. Some of the services that offer this type of service include PayPal, credit cards, etc.
Compared with physical money, electronic money has various advantages, such as transaction history, which is fast and can be made at any time, solving the problems of counterfeit physical money and high security. But on the other hand, it also has problems. For example, since electronic money is directly linked to the bank, you may encounter delays in some transfers depending on the terms. The problems of hacking, hacking and online fraud are other things that may be problematic for electronic money owners.
But for several years, a new type of digital money, called cryptocurrencies or digital currencies, has entered a subcategory of digital money, which has various advantages over electronic money. But how do cryptocurrencies differ from electronic money?
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What is a digital currency or cryptocurrency?
Cryptocurrencies, like electronic money, do not exist in physical form and operate on a digital platform. So what distinguishes digital currency from electronic money in countries?
The big difference between digital currency and electronic money is that it never takes a physical form. And if you are an electronic money user, you can easily go to an ATM and get your paper bank balance in physical form. But you can never receive your digital currency assets in physical form. Cryptocurrencies remain forever in the digital network and on the Internet and are traded only through cryptocurrency trading platforms.
Cryptocurrencies, like electronic money, allow their users to easily transfer money and make payments using a mobile device and an internet connection. What is cryptocurrency mining? Understand the concept and method of work
One of the important points that can be mentioned about cryptocurrencies is that digital money is not supervised by any government or bank over these currencies. And although this increases the security of transactions compared to electronic money and makes it impossible to cheat on payments made, it means that in addition to the high volatility of the prices of these cryptocurrencies, they are not legal in many countries and stores and companies do not accept these currencies to provide their services.
Digital currencies operate through decentralized networks based on “blockchain” technology. In a simple way, the Blockchain stores and maintains information for users of cryptocurrency and records their transactions directly and by excluding intermediaries.
Although digital currencies cannot be used in physical form, it is possible to convert cryptocurrencies into fiat currencies using many exchanges and companies that provide their services around the world and then use them to purchase products or receive services.
Cryptocurrencies have all the positive features of electronic money and they have also solved most of the problems of electronic money. But as has been said, one of the important issues and disagreements about cryptocurrencies is the lack of government and bank oversight over them. A useful case for investing and profiting from the fluctuations created in cryptocurrencies for the aforementioned reason in cryptocurrencies, on the one hand, made it difficult to use cryptocurrencies in everyday life. That is why governments are trying to launch a special type of cryptocurrency called Central Bank Digital Currency or Central Bank Digital Currency, a currency that may be the future of countries' economies and a viable alternative to electronic money.
?What are Central Bank Digital Currencies or CBDCs
A central bank digital currency is a digital currency that is created and managed by the central bank of a country. And if we want to explain this in a simple way, suppose that the bitcoin was managed by the US Federal Reserve and has the full support of the United States government, here we can say the bitcoin is a central currency, because there is control and supervision over it, but in fact it is a decentralized currency, that is, it is not managed One or the other, such as banks, corporations, or government organizations.
At the moment, no bank has launched its own digital currency, but almost all central banks have conducted research in this regard or started the process of creating it. For example, in America, the Federal Reserve is working on this type of currency in cooperation with the technology team at the Massachusetts Institute of Technology on a project called Hamilton. In addition to outlining how the US digital currency works and the tools needed, the Hamilton Project is supposed to publish research papers and share its code to get help from other activists. However, this project is in its early stages and according to the published information, the US digital currency is currently out of reach.
?How does a central bank digital currency work
Although a central bank digital currency is not currently available, its mechanism has been determined. Suppose the United States, by issuing a digital dollar, unveils the digital currency of its central bank, the Digital Dollar. This currency has no difference in value from the physical dollar. If someone gives you $100 digital, you will have $100 in your account that no one can get back from you.
The difference between this government digital currency and the old method of electronic money is the lack of easy transactions in it. For example, if someone deposits money to you via PayPal, that money will be shown in your account, but the displayed money has not yet moved between banks (e-money facilitated transaction), that's why the transaction may not complete and the payment party may return money before it reaches you. And if this problem does not exist for a central bank digital currency, such as cryptocurrency, and the transactions take place instantly in a secure environment, then there is no possibility of its cancellation and related frauds.
As you have now realized, the most important reason for creating a government cryptocurrency is to convert electronic money into digital currency and to acquire a legal nature besides using their services. This means that all economic operators must accept it as legal tender. People can use the central bank’s digital currency to perform their day-to-day transactions, pay their taxes, settle their debts, or if necessary, the banks get permission to compensate for damages and debts. Withdrawing from the central bank digital currency.
One of the problems with decentralized digital currency payments compared to electronic money is that in addition to taxes and seller profits, users are forced to pay fees depending on the desired digital currency. Central bank digital currency also solves this problem and, like physical money, eliminates these additional fees.
China is among the countries that have made significant progress in the field of digital currency for its central bank. The scheme, which was implemented in several Chinese cities, allowed people to pay a fee to participate in a lottery for their central bank's digital currency, called Digital Yuan. The winners of this lottery can buy different items by going to the stores and presenting the coupon
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Currently, this plan has expanded, and China and the United Arab Emirates are building a network using blockchain and central bank digital currency to conduct global financial transactions.
The impact of cryptocurrencies around the world
Despite the various advantages of the central bank digital currency, in the future, this type of currency may completely replace the physical and electronic money of countries, but there is still a long way to go until the full implementation of this currency. Even as governments struggle to build their own digital currency faster, and people around the world are using and adopting decentralized cryptocurrencies.
Currencies that have become a convenient option for investment and trading as well as maintaining the privacy and security of assets.
The common points of decentralized digital currencies and central bank digital currencies and why they are superior to electronic money
High speed of payment: With digital currency, users can quickly transfer the money they want to anywhere on the planet, a matter that may take a few days using financial institutions. These payments abroad are also fast and are not subject to the restrictions of electronic money abroad.
Make international transfers at a lower cost: It is very expensive to conduct international transactions by physical and electronic methods. It means moving money from one country to another, using different exchanges and paying exorbitant fees for currency conversion. Problem solved cryptocurrency.
24 hour access every day of the week: Bank money transfers on holidays, weekends and outside hours usually take longer because banks are closed and unable to process transactions. This delay also includes electronic money transfers. Cryptocurrency transactions can be made quickly and at any time due to the lack of reliance on banks.
Supporting people without a bank account: In every country there are many people who do not have a bank account. It is an issue that forces them to pay exorbitant fees for various transactions. And if countries create their own central bank digital currency, all people, regardless of their bank accounts, can access their money and pay their bills or other bills without the need for an additional amount.
Easier and more efficient payments to governments and individuals: If a country provides its digital currency to the central bank, it can easily make various payments, including bills, taxes and financial aid to people in need, unlike money. Electronically, there is no need to label people with personal information for tracking and screening.
Also, by using cryptocurrencies, people can easily make their payments without going through the old administrative procedures.
Reasons why decentralized digital currency is not a suitable option for electronic money and central bank digital currency is the last option
There are many cryptocurrencies in the market: The popularity and congestion of the cryptocurrency market is flawless. Several currencies have been created and displayed on the Blockchain platform, each with its own characteristics. This problem makes it difficult for ordinary users to identify the correct and appropriate currencies due to the lack of national support.
Using cryptocurrencies requires study and learning to work with them: cryptocurrencies have their own complexities. From how they are stored in wallets to various fees, as well as how they are transferred or used in transactions, they need to study and learn. In order for digital currencies to be widely used, the system needs to be simplified.
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Blockchain Transactions Can Be Expensive: Cryptocurrencies use blockchain technology to perform complex validation equations and record transactions. We can say that conducting these transactions consumes a lot of electricity and increases the cost of transactions. It is an issue in which the central bank digital currencies may not be involved due to the completion of the operations required by the bank itself, but these currencies are not currently available.
Cryptocurrencies are extremely volatile: the price and value of cryptocurrencies can change suddenly. This is the most important issue that made companies hesitate to use it in their transactions. Because unstable currency creates high risks for business. However, it is worth noting that these innovations have caused many people to invest in cryptocurrencies. Central bank digital currencies will not have these changes due to the valuation based on fiat currency.
the end
Given the significant differences between decentralized digital currencies and central bank digital currencies, it is unlikely that a competitive digital currency will form between these two; Because each has a separate use. Decentralized digital currencies are trying to provide a new solution for payment and investment in a safe and anonymous place, while governments are trying to provide a new solution to replace electronic money by building the digital currency of their central bank on the basis of the country's fiat currency