Last Updated on February 15, 2022
Virtual currencies are intangible in nature. These currencies possess a value but do not have a physical existence. Virtual currencies are created by using computer programs/software. The currencies are in electronic form and are exchanged through electronic media.
Virtual currencies are part of digital currencies but are not regulated. These currencies are produced by the developer organizations or groups of software developers via coding and embedded programs. The drawback of the virtual currency is that it is not backed by any guarantee from the central authority of the countries.
It has less security, as encryptions can be altered and loss of confidential information might be possible that will lead to loss of authenticity of the owner. The Internal Revenue Service (IRS) of the United States of America had declared the virtual currencies as property and not as a legal currency.
Although virtual currency become a major part of the investment. As more and more populations become aware of digital currencies (be it crypto or other forms of digital currency), the exchange and transactions in these currencies are increasing. Thus, the virtual currency becomes an essential part of investors’ portfolios which helps them in long-term wealth creation.
There are two types of virtual currency i.e. Centralized and Decentralized.
Centralized Virtual Currency – an authority or third-party is responsible for the transactions and issuance of virtual currencies. They acted similar to banks and keep track of each and every activity of the virtual currency space.
Decentralized Virtual Currency – there is no responsible authority for the transactions. The popular system for the exchange of virtual currencies is made through block-chain and the technique used to create a block is called cryptography. The decentralized system is linked to a peer-to-peer network and has no middle man in between.
It is the most popular term used for virtual currencies. Crypto-currency is a form of digital currency that uses block-chain techniques. The block-chain is made of a ledger in which transactions and assets are recorded and stored. The assets recorded can be of any form i.e. tangible or intangible and stored as digital information.
The blocks of the block-chain are created using cryptography. Information is encrypted that only the sender and recipient of the message can access. Algorithms and codes are used to transform information into encrypted data which makes it a complex process to decrypt. A secret key is generated and sent to the recipient for decryption.
Top 10 Examples of Virtual Currency
Symbol: BTC, XBT
Market-capitalization of approx. $1.14 Trillion
One of the most popular and initial virtual currencies. Bitcoin started to use for transaction purposes in the year 2009. It is an open-source currency that operates within a peer-to-peer network. Bitcoin is decentralized and there is no central or governing authority for managing and recording transactions or issue of Bitcoins.
Satoshi Nakamoto is said to be the mind behind Bitcoin. A white paper published explained the process of block-chain which establish the platform for the development of Bitcoin.
Market-capitalization of approx. $518 Billion
Ethereum is a crypto-currency that come into existence in the year 2015. It is a virtual currency that can be used for a transaction purpose. It is a decentralized currency and operates in a peer-to-peer network system. Ethereum is a system based on block-chain technology that provides virtual currency called Ether for exchange as digital money, payments, and in-app transactions. Ethereum can be used to avail financial products and services via the internet through decentralized finance (DeFi) system.
3. Binance Coin
Market-capitalization of approx. $99.9 Billion
It is a crypto-currency created and issued by the Binance crypto-currency exchange. It comes into existence in the year 2017. The block-chain technology used to create BNB (the native token of Binance) is based on Ethereum. It was created as a utility token to exchange for the services on Binance exchange such as transaction fees, credit card payments, etc. The exchange burns/destroys BNB coins on a quarterly basis to decrease the flow of supply.
Market-capitalization of approx. $72 Billion
It is a crypto-currency that is backed by collaterals such as U.S. dollars and euros. Tether is created and issued by Tether limited in the year 2015. The value of a unit of USDT is equivalent to a single unit of its underlying asset i.e. 1 Tether is worth 1 Euro or 1 USD. It is secure and provide stability as USDT is backed by fiat currencies.
Market-capitalization of approx. $73 Billion
Solana is an open-source platform based on a permission-less block-chain system that uses a cluster network for the production of a ledger. It creates tokens which are called SOLs which comes into existence in the year 2018.
Market-capitalization of approx. $65.5 Billion
A digital currency created by a decentralized and open-source platform known as Cardano. It got its recognition as ADA after the mathematician and programmer of the 19th century named ‘Ada Lovelace’.
Cardano comes into existence in the year 2017. It is based on the Cardano block-chain and uses proof-of-stake protocols. It is used for the transaction and exchange of ADA for fiat money or other crypto-currencies.
Market-capitalization of approx. $53.3 Billion
An open-source and one of the decentralized crypto-currency that come into existence in the year 2013. Ripple Labs Inc. established an RTGS, currency transfer network known as Ripple, to exchange currencies to make transactions faster and more affordable.
XRP tokens are created and used by the customers. It is based on a proof-of-work protocol and ledger system in which transactions are validated by the independent validators’.
Market-capitalization of approx. $49.1 Billion
It is a virtual token created by using decentralized network protocols that allow the transfer of information through block-chains. It is developed by the Web3 Foundation. The Polkadot token was created and put to sale in exchange for Ethereum in the year 2017.
The Polkadot network is used to transfer data and other crypto-currencies across various permission-less users as well as private block-chains with authority. The technology creates a combination of heterogeneous block-chains that are known as parachains and parathreads.
9. USD Coin
Market-capitalization of approx. $34 Billion
A stable crypto-currency means each USDC is backed up by the equivalent value of fiat money i.e. US dollars. The virtual token is created by the company named “Circle” along with Coinbase and launched in the year 2018.
In order to create a price-stable and highly integrated network, an independent organization named CENTRE is established. The CENTRE provides technology for the USDC to be backed-up by the collateralized fiat money and effective transaction throughput channels. The USDC is accepted on Ethereum, Solana, Tron, Algorand, and Stellar networks.
Market-capitalization of approx. $33.68 Billion
Dogecoin is a crypto-currency that uses peer-to-peer block-chain technology same as Bitcoin but with a distinction of using a password-based KDF (Key Derivation Function) technique known as Scrypt. It was created and introduced in the year 2013. The design of the crypto-currency features “Doge” a Japanese dog breed ‘Shiba Inu.
Along with the above-mentioned crypto-currencies, there are over more than 6000 virtual currencies that are available currently and are increasing.
Virtual currencies in the form of crypto are new to the world. These currencies are both centralized and decentralized. Although the former is presumed to be safer as there is a responsible issuer party and easy to track transactions while the latter is risky as there is no authority to track down the transactions. With more digitalization and innovation use of virtual currencies is increasing that in turn replacing the traditional physical currencies transacted so far.
What are your thoughts on virtual currencies?
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Is virtual currency real money?
Virtual currencies is a part of digital currencies but is not regulated. These currencies are produced by the developer organizations or group of software developers via coding and embedded programs. The drawback of the virtual currency is not backed by any guarantee by the central authority of the countries.
Is virtual money legal?
Virtual money has less security because the encryptions can be altered and loss of confidential information might possible that leads to loss of authenticity of the owner. The Internal Revenue Service (IRS) of the United States had declared virtual currencies as a property and not a legal currency. Although it may be possible that virtual money will be legalized in the future.
He is graduate in M.B.A Finance, and owner of the financial blog “Saifwealth.com“. He started this blog to share his knowdelge in the field of finance and to help people understand and aware about the financial world.