Digital currency facilitates direct payments between payees and payors and removes intermediaries, infrastructure costs, and processing costs.
A digital currency is a payment method which exists only in the electronic form. Digital money has many benefits associated with it, such as easy and timely payments and lesser transaction costs.
It can also help companies in the financial industry to eliminate the risk of exposure since they are highly secure. But the acceptance of this currency by the financial industry is limited due to risk factors such as volatility of currency, identification of payment beneficiary, regulatory compliance, and transaction risks.
It has two categories, namely cryptocurrencies and virtual currencies. It also facilitates the easy and transparent flow of funds. But before moving ahead, let’s understand what is digital currency in simple terms.
Currently, there is a very limited base of users who prefer digital currency. The framework for its regulation and the tax structure to regulate digital currency is still evolving.
Here are the top 4 types of digital currencies and how they impact the financial industry.
Bitcoin was launched in the year 2010 and since then it has gained huge popularity as a cryptocurrency. Although bitcoin is becoming popular since the time it has been launched, it also has suffered a few drawbacks in the past few years like its shooting transaction costs.
2. Ethereum (ETH)
Launched in 2015, Ethereum has got its strength from its development team. It works on the blockchain technology and has pooled a crowd of renowned institutions, investors, and also some of the well-known corporations like Toyota, BP, Intel, and Microsoft.
Monero, launched in the year 2014, was initially called as BitMonero. It is mainly aimed at privacy, security, and untraceability. The cryptonote protocol provides anonymity to the users at each transaction and this feature makes it different from Bitcoin.
4. Dash (DASH)
Created in the year 2012, Dash also focuses on anonymity with the aid of Darksend, which is an innovation by its development team. It basically functions on Masternodes that can execute multiple transactions in one go and helps in maintaining the privacy of the sender.
Impact of digital currency on the financial industry
The use of digital currency will increase the efficiency of the financial industry by making payments easier, faster, and most importantly more secure. The businesses in the financial industry will obviously witness many benefits from the use of this technology.
Although digital currency has not been adopted widely, its use in countries such as Venezuela where Bitcoin seemed to be more stable than its national currency at the time of high inflation, shows that it can be an effective alternative for hard cash in the future.
Distributed ledger technology helps the digital currency to settle transactions in real time; thus, saving the time of transactions. If it is adopted officially by banks, it can be a good competitor for other payment modes, which will ultimately benefit the end user.
Digital currency has not been widely accepted yet, but it has definitely made cross-border transactions easier. Added to that, it is expected to reduce the foreign exchange cost substantially in the future.