When talking about the digital financial scope, the topic of virtual currency is frequently heard. Virtual currency is a medium of currency which exists only in electronic and digital space. The concept “virtual currency” is often known as a subset of digital currency which is fully powered over the internet. Virtual currency can be operated and transacted through mobile phones and computer applications which holds a specifically designed software for virtual currency.
In present time, virtual currency is operated within the blockchain networks which is not controlled or governed by a central authority. The origins of virtual currency came into existence in 2012 in the European region. The European central bank (ECB) defined virtual currency as a type of unregulated digital currency and allowed to use and control within the developers and the known virtual community who are more familiar about the topic. Since virtual currency is unregulated, the sentiment of the user is the only force which impacts to virtual currency.
There are two types of virtual currency such as centralized virtual currency and decentralized virtual currency. Centralized virtual currency holds almost similar features as real-world currency and the only difference is, it is in a digital exchanging format. so that it is more important to consider about decentralized virtual currency. The main difference of decentralized virtual currency compared to centralized virtual currency is, the peer to peer network does not have a central administrator and it works along with blockchains and cryptography.
Risks Associated with Virtual Currency
Lack of supervision in terms of rules and regulations
Since there is no enough supervision from a responsible authority, virtual currency can be used in transactions which are related to criminal activities and Drug related activities due to its anonymity.
There are some security concerns in virtual currency because no complex encrypting techniques are used as in cryptocurrency. A misplacement of a single information may loss all the money of the user at a single instant.
No clear understanding
Using a virtual currency without a proper understanding of the concept will be bit difficult. Most of the developers are familiar with the concepts but the common public is still not much familiar, because of that reason most of the time virtual currency is known as high volatile.
Understanding Digital Currency, Virtual Currency & Cryptocurrency
In simple terms Digital currency is referred to a set of assets which are in digital form. Digital currency can be identified either as regulated or unregulated. Regulated digital currency is issued by a bank or a specified company subject to government rules and policies.
Virtual currency belongs to the type of unregulated digital currency where it can be issued by a private issuer. Therefore, it is not subjected to any centralized rule or a policy. Some of these virtual currencies in the decentralized domain consists with cryptocurrency and some do not.
Cryptocurrency is a virtual currency which is secured by the technology of cryptography. Cryptocurrency is an exact decentralized virtual currency and lays on top of blockchain network. Hence, the future is invited to the public; to the concept of digital currency. More on Cryptocurrency on our article Cryptocurrency as next level E-Money?