Digital currency

This unclassical physical form allows nearly instantaneous transactions over the internet and vastly lowers the cost associated with distributing notes and coins: for example, of the types of money in the UK economy, 3% are notes and coins, and 79% as electronic money (in the form of bank deposits).

[3] This type of currency may be used to buy physical goods and services, but may also be restricted to certain communities such as for use inside an online game.

Precursory ideas for digital currencies were presented in electronic payment methods such as the Sabre (travel reservation system).

[5] In 1983, a research paper titled "Blind Signatures for Untraceable Payments" by David Chaum introduced the idea of digital cash.

In 2009, bitcoin was launched, which marked the start of decentralized blockchain-based digital currencies with no central server, and no tangible assets held in reserve.

Also known as cryptocurrencies, blockchain-based digital currencies proved resistant to attempt by government to regulate them, because there was no central organization or person with the power to turn them off.

Combining different possible properties, there exists an extensive number of implementations creating many and numerous sub-types of digital currency.

"[3] Since 2001, the European Union has implemented the E-Money Directive "on the taking up, pursuit and prudential supervision of the business of electronic money institutions" last amended in 2009.

[42] In March 2018, the Marshall Islands became the first country to issue their own cryptocurrency and certify it as legal tender; the currency is called the "sovereign".

On 20 March 2013, the Financial Crimes Enforcement Network issued a guidance to clarify how the U.S. Bank Secrecy Act applied to persons creating, exchanging, and transmitting virtual currencies.

[53][54] In July 2014, the New York State Department of Financial Services proposed the most comprehensive regulation of virtual currencies to date, commonly called BitLicense.

It has gathered input from bitcoin supporters and the financial industry through public hearings and a comment period until 21 October 2014 to customize the rules.

The proposal per NY DFS press release "sought to strike an appropriate balance that helps protect consumers and root out illegal activity".

[55] It has been criticized by smaller companies to favor established institutions, and Chinese bitcoin exchanges have complained that the rules are "overly broad in its application outside the United States".

[58] In 2016, Fan Yifei, a deputy governor of China's central bank, the People's Bank of China (PBOC), wrote that "the conditions are ripe for digital currencies, which can reduce operating costs, increase efficiency and enable a wide range of new applications".

Contrary to other online payment platforms such as Alipay or WeChat Pay, the digital currency does not have transaction fees.

[64] The Danish government proposed getting rid of the obligation for selected retailers to accept payment in cash, moving the country closer to a "cashless" economy.

"Electronic money will stimulate the economy; it will be possible to attract more Ecuadorian citizens, especially those who do not have checking or savings accounts and credit cards alone.

The electronic currency will be backed by the assets of the Central Bank of Ecuador", the National Assembly said in a statement.

[68] On 9 June 2021, the Legislative Assembly of El Salvador has become the first country in the world to officially classify bitcoin as legal currency.

Starting 90 days after approval, every business must accept bitcoin as legal tender for goods or services, unless it is unable to provide the technology needed to do the transaction.

A receiver can initiate a payment request on the system to send the payer a notification or by presenting a QR code.

Government-controlled Sberbank of Russia owns YooMoney – electronic payment service and digital currency of the same name.

[needs update] However, the new banknotes and coins of the Swedish krona will probably be circulating at about half the 2007 peak of 12,494 kronor per capita.

The Riksbank is planning to begin discussions of an electronic currency issued by the central bank to which "is not to replace cash, but to act as complement to it".

Skingsley also states: "Another important question is whether the Riksbank should issue e-krona directly to the general public or go via the banks, as we do now with banknotes and coins."

[58][76] In 2016 it has embarked on a multi-year research programme to explore the implications of a central bank issued digital currency.

"The first mover among these has been Fidelity Investments, Boston based Fidelity Digital Assets LLC will provide enterprise-grade custody solutions, a cryptocurrency trading execution platform and institutional advising services 24 hours a day, seven days a week designed to align with blockchain's always-on trading cycle".

[78] There are concerns that cryptocurrencies are extremely risky due to their very high volatility[79] and potential for pump and dump schemes.

[83] According to Barry Eichengreen, an economist known for his work on monetary and financial economics, "cryptocurrencies like bitcoin are too volatile to possess the essential attributes of money.