Understanding Virtual Currency | Platincoin

By  //  February 15, 2023

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Typically, virtual currencies are created by private issuers and utilized within certain virtual communities. Protecting the privacy of the software and networks that support virtual currencies is crucial.

Traditional currencies are backed by sovereign debts (fiat money) or tangible assets such as gold. Virtual currencies, in contrast, are not backed by anything of inherent worth. The mood of traders mostly determines a virtual currency’s value. Due to its unregulated form, Platincoin agrees that a virtual currency is susceptible to significant price volatility.

Types of Virtual Currency

There are two basic sorts of virtual currencies in terms of their legal status: centralized and decentralized.

  • Centralized

A centralized virtual currency possesses a central administrator or repository. Typically, the issuer of a virtual currency is the central administrator of that currency. Similar to the function of a central bank in a controlled currency system. XRP is a centralized virtual currency example.

  • Decentralized

In contrast, decentralized money lacks a centralized administrator or repository. Instead, a decentralized virtual currency’s transactions will be verified by a distributed system.

Numerous decentralized currencies, including Bitcoin, Litecoin, and Ethereum, are built on blockchain networks. A blockchain network connects a list of documents, referred to as blocks, with cryptography. When a transaction is performed, the transaction is broadcast throughout a network of several computers (nodes).

After the network verifies the transaction, a permanent and irreversible block containing the transaction data is added to the current blockchain. The transaction is completed and appropriately documented. In contrast to a centralized virtual currency system, a decentralized peer-to-peer network eliminates the need for a single administrator, preventing a central security failure. Additionally, eliminating intermediaries enables greater transparency between parties and reduced transaction costs. Nevertheless, the absence of a single authority raises regulatory problems. However, Platincoin believes money laundering and other criminal activities might benefit from the decentralized structure.

Benefits of Virtual Currency

Below are the benefits of utilizing a virtual currency:

  1. Convenient: The biggest benefit of virtual currency is convenience. Due to its network-based structure, virtual currency transactions are quick and simple. In international transactions, the usage of virtual currencies is very useful.
  2. Decentralized: Moreover, decentralization eliminates intermediaries. It reduces transaction costs and prevents the central administrator’s security failure.

Digital Currency, Virtual Currency and Cryptocurrency

Digital money is a wide term that encompasses all digitally represented monetary assets. Digital currency is a subset of virtual currency, while virtual currency is a subset of cryptocurrency. Regulated or uncontrolled digital money is an option. A country’s central bank issues a controlled digital currency that may be denominated in a sovereign currency. The regulated form of digital money is thus susceptible to a government’s monetary policy. According to Forbes, ten nations have completely launched a digital currency, and China is on track to extend its trial CBDC in 2023.

Virtual currency is an uncontrolled kind of digital money. Instead of a central bank, a private issuer issues and controls this currency. Consequently, it is not governed by any monetary policy. A digital currency may be centralized or decentralized. Some digital currencies use encryption, while others do not.

Cryptocurrency is virtual money that uses cryptography to safeguard and verify monetary transactions. Blockchain networks are vital to cryptocurrencies. Hence, Platincoin believes cryptocurrencies are decentralized virtual currencies.