What is Virtual Currency? Types of Virtual Currency

| Updated: Tuesday, May 18, 2021, 17:46 [IST]

Virtual currencies have recently become one of the most talked-about subjects in the news. The increasing importance of non-cash payments on a global scale is linked to the growing popularity of virtual currencies and cryptocurrencies. A type of unregulated digital currency is a virtual currency. A central bank does not issue or control it. Bitcoin, Litecoin, and XRP are examples of virtual currencies. In digital form, digital currencies are stored in and transacted through software, applications, and networks.

What is a Virtual Currency?

A virtual currency is a digital representation of value that serves as a unit of account, a store of value, and a medium of exchange but is not a representation of real money such as the Dollar, and Rupee.

Currency is linked to a country's identity and sovereignty. A country's currency is its distinguishing feature. Every country has a currency with a unique style that can be touched and felt. Private providers typically issue virtual currencies, which are then used by specific virtual communities. The safety of the software and networks that support virtual currencies is a major concern.

The sentiment of traders determines the value of a virtual currency. A virtual currency can experience significant price fluctuations due to its unregulated nature.

What is a Centralized Virtual Currency?

There is a central administrator or repository for a centralized virtual currency. The issuer of a virtual currency is usually the central administrator of that currency. In a regulated currency system, the role is similar to that of a central bank. A centralized virtual currency like XRP is an example.

The currency is issued by an administrator, who also establishes the rules for its use, keeps track of payments in a central ledger, and has the authority to redeem the currency.

What is a Decentralized Virtual Currency?

There is no central administrator or repository for a decentralized currency. Instead, the transactions of a decentralized virtual currency will be authenticated by a distributed system. Many decentralised currencies, such as Bitcoin, Litecoin, and Ethereum, are built on blockchain networks.

What is Convertible Virtual Currency?

Convertible virtual currency is an unregulated digital currency that, despite not having the status of legal tender, can be used as a substitute for the real and legally recognized currency. Cryptocurrency exchanges make it simple to convert convertible digital currencies into fiat currencies like dollars.

What is Non-Convertible Virtual Currency?

Virtual currency that is non-convertible (or closed) is designed to be unique to a particular virtual world. Domains or worlds cannot be exchanged for fiat currency due to the rules governing their use.

Cryptocurrency Vs Digital Currency Vs Virtual Currency

Cryptocurrency

Cryptocurrency is a decentralized convertible virtual currency protected by cryptography. It uses cryptographic principles to implement a distributed, decentralized, and secure information economy. To transfer value from one person to another, cryptocurrency relies on public and private keys, and each transaction must be cryptographically signed.

Digital Currency

The overall superset that includes virtual currency, which in turn includes cryptocurrencies, is known as digital currency. In comparison to virtual currency, a digital currency refers to a broader category of digital assets that represent monetary assets.

Virtual Currency

A type of unregulated digital currency is a virtual currency. Instead of a central bank, a private issuer issues and controls it. As a result, it is unaffected by monetary policy. It is possible to have a centralized or decentralised virtual currency. Cryptography is used in some virtual currencies, while it is not used in others.

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