Not only crypto – the world of digital currencies

Dominik Olech
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Coins. Tokens. Virtual assets. There are plenty of possible words to describe the concept of cryptocurrency. But every definition ends on digital and nonphysical nature of such money. However, crypto isn’t the only type of online currency. 

Libra is nowadays a hot topic, also outside the cryptocurrency world. It’s hard to say exactly what  Facebook’s currency will be like. That’s why it’s worth taking a closer look at other types of digital currencies. Let’s venture into the world of digital coins of all kinds and see what place Bitcoin takes there.

Different form – same value

In the beginning, it’s worth taking a look at the money itself: its meaning and genesis. By its definition, “money” is an asset which has some specific value (it’s determinant of it) and is accepted as a form of payment. It should also be able to be stored.

Through the ages, the concept of money was changing in many ways, but those fundamental functions usually remained the same. First copper coin, promissory note, banknote – their value is always based on some kind of social contract.

Finally, with the popularization of the Internet, we came to a point where the next form of storage became available. For the first time, money became utterly nonphysical. So, how have people used this new invention? And how are they different from other types of money?

To explain this, we start with something obvious – fiat currencies held digitally. Whenever you pay online with dollars, euros, or other national-issued money, you don’t use it in its tangible form. But the value of such assets still remains the same – the difference is similar like in comparison of a coin and banknote.

There are various types of digital currencies. Here we only provide some examples of them – the small snippet of this huge environment.

Source: https://commons.wikimedia.org/wiki/File:Money_flower.png

The economy of gaming

The concept of virtual currencies is trendy in the gaming industry. Moreover, such an implementation predates the invention of bitcoins. The whole idea of in-game money, which allows on purchase some virtual items and other similar goods starts with the development of online gaming. 

Probably the most prominent example of such kind of coins is the in-game currency from Blizzard’s World of Warcraft, simply called “gold.” And its overall value was worth seven times more than Venezuela’s bolivar one year ago.

How much digital coin differs from cryptocurrency and other virtual assets? The main distinction lies in its storage capability. In most cases, once bought in-game currency stays on our account forever. We cannot withdraw it back. And most importantly, it’s only available to be exchanged on specific goods. That’s why we may call it a “one-way” currency.

Of course, such currencies are strictly centralized. Coins depend on the virtual economy of the related game, so they cannot be used outside its infrastructure. But still, many people managed to do business on it, for example, by selling pre-prepared game accounts. 

Token of gratitude

Another example of one-way currency is all kinds of coupons related to loyalty programs of some companies. With the growing popularity of the Internet, many entrepreneurs become eager to use this new medium to reach their customers.

Such tokens might be various. Some of them allow only discounts in related online shops, while others may work as an actual currency – just for the designated products.What makes them most different from other digital assets the most is the way of acquiring them: we usually can’t buy such loyalty points. They are a form of gratitude and a reward for commitment. Or the method for increasing sales by the endless opportunities of discount – it is not for me to say.

For strict use only

But let’s move one step further. A company may decide to create its own currency, a scrip in other words, available to buy and be used within its financial structures. It has all the functions of money, but its range is limited. One example of it is Disney dollar, which can only be spent in its facilities, like Disney Theme Parks. But probably the most known scrips are casino tokens.

This solution also applies to digital assets – and one of such is infamous Libra. Although it is determined as “cryptocurrency,” it will probably be strictly connected with Facebook’s structure and completely rely on it. We still can’t be sure about its final shape – but even if it uses blockchain, it will still fit better into the definition of company-issued customer scrip.

Cryptocurrency – the best form of digital asset?

These were just some examples of virtual currencies others than crypto. But what’s the place of cryptocurrencies among the digital assets, which are plenty on the modern market? 

Firstly, the measure of its value is technology. Cryptocurrencies use cryptography. It allows securing financial transactions and is the main advantage over other digital assets. Such a solution provides the best possible protection of stored funds, far safer than the most secure server.

The other difference lies in the structure. All the currencies mentioned above are parts of centralized systems. Because crypto relies on the distributed ledger which blockchain technology provides, they are much more independent.

But does this mean cryptocurrencies are better than other digital assets? It’s hard to say right now. Blockchain is still a relatively new technology in the financial sector. The future will show if crypto becomes a revolution that will replace other solutions.

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