What is cryptocurrency?

Cryptocurrencies are no longer just a vision of the future. They are now a reality in global finance, widely adopted by businesses and individuals for payments and transactions. Unlike traditional paper money or coins, cryptocurrencies exist purely in digital form, offering a more flexible and secure means of handling money. Understanding the difference between digital, virtual, and cryptocurrency is key to grasping how this technology is reshaping finance today.

Digital currency

Most money today already exists in digital form and is segregated in these categories:

• M0: physical cash, valued around 5 trillion US dollars.

• M1: this refers to money from the M0 category that is also in the form of accessible funds like checking accounts, totaling around USD 27 trillion.

• M2: this refers to money from the M1 category that is also in savings accounts, time deposits, and money market accounts, which is valued at approximately USD 80 trillion.

In reality, only about 6% of global money is in physical form, with the vast majority existing as digital records.

Virtual currency

The European Banking Authority defines virtual currency as a "digital representation of value" not issued by a government or central bank, yet accepted as payment. Examples include airline miles, game points, and online credits. While they exist digitally, they are not cryptocurrencies.

Cryptocurrency

Cryptocurrency, a blend of cryptography and currency, is transforming how businesses operate. Many companies now accept cryptocurrencies such as bitcoin, ethereum, and litecoin for payments. What sets cryptocurrency apart is that it’s decentralized and secured by cryptographic algorithms, allowing for secure, fast, and borderless transactions without the need for intermediaries like banks. This adoption signals a shift toward a new financial paradigm, where cryptocurrencies are becoming a mainstream payment option.