Digital Money-What is it?

Jahnavi Laungani discusses in this blog-post something new and very exciting – Digital money.This is a very important topic because in a few decades or years from now digital money may just replace the way we use money world over. 

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So what is electronic or digital currency and how is it used?

Digital currency is also known as virtual or electronic money. Virtual, means not real. This means that digital money does not have any physical form like a dollar bill or coins do. But it can be used as a ​medium of  exchange​.Therefore, it would not be wrong to say that digital money has all the features of good old fashioned real money (except it is not real).

Different forms of digital currencies may be used to:

  1. Buy and sell tangible things in the real world; or
  2. Buy and sell in the virtual world of online games or social networks.

The most common form of digital currency is  ​bit-coin.​We will learn a little more about Bit-coin later in the article.

What is the history of digital money and when was it first discovered?

Fun Fact:​Did you know digital currencies were discovered back in the 1990s, during the “ ​Dot-com bubble”, i.e. when the internet burst into existence.

The first ever form of digital money invented was  ​E-gold,​founded in 1996.

The second, big discovery in the world of digital currency was the  ​Liberty  Reserve, founded in 2006. Through the Liberty Reserve people were able to convert dollars or euros to Liberty Reserve Dollars or Euros, and exchange them freely with one another at a small fee of 10%. This made it easier and cheaper to transfer money from country to country. But, due to certain regulatory reasons E gold and the Liberty Reserve were eventually shut down by the US government.

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Thereafter, interest in digital money and currencies was revived only recently in 2009, with the introduction of more developed forms of digital money.

Now that we know how digital money came about, let us fast forward to the present and look at the different forms available and how they are used.

Virtual currency

Meaning: A Virtual currency as defined by the  ​European Central Bank​,is a type of digital currency which is made and controlled by its developers, to be used only among the members of a specific  ​virtual world.

Use: An example of virtual money is Amazon coins. Amazon Coins are developed by Amazon Inc. and all rules governing their use are made by Amazon Inc. Amazon coins can only be used to buy and sell on Amazon sites.


Meaning: Bit- Coin is a type of crypto-currency. Bit-Coin relies on  ​cryptography​for chaining together digital signatures of token transfers,  ​peer-to-peer​networking and  ​decentralization​.In simple terms crypt-currencies have certain codes, like a secret language, that helps trace and monitor their use.

Use: Bit-coin is often mistaken for a virtual currency, but it is not the same. The reason is simple- bit-coin can be used in the “real-world” and virtual currency can only be used in the “virtual worlds”.

Electronic currency

Meaning: Traditional  ​money supply ​is mostly  ​bank money​ or cash (notes and coins/credit cards). With the use of credit cards and e-commerce, the world is slowly becoming cashless. This means that real money is slowly becoming digital or  electronic money​.

Use: Swiping your credit card is the commonest form of using electronic money.

You already know all these types of digital currencies have one thing in common– none of them have a physical form.

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Since digital currencies are still in a developing stage there are some difficulties with their use.

Most banks don’t accept or offer services on them. Risk of crime and scams are high, as anyone can issue them. Governments in many countries have warnes against their use.

As of July 2014 the New York State Department of Financial Services offered the most comprehensive regulation of virtual currencies till date. With time and rules in place digital currency can soon be a part of our lives !

Do you have any comment to add? We would love to hear from you, YOUR views on the future of Digital Money. Comment below or mail us at

Jahnjahnavi l. (1)avi moved to Hong Kong two years ago with her family. Lawyer by qualification, writer by passion, she spends her days pursuing her creative ambitions in-between yoga sessions and time with her daughter. Check out more of her musings at

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