What Is a Digital Coin?
A digital coin is a type of virtual currency. This new medium of exchange is based on a decentralized, public ledger called a blockchain. It is managed by algorithms and participating users, and records every transaction in a reviewable ledger.
The use of a digital currency is a growing trend. Some coins are created by private companies, and some can be traded on crypto exchanges. These coins are different from traditional currencies, which are often issued by a government or other authority. Most are used for payment, while others may be used to purchase physical goods. Others are purely investment vehicles.
One of the most well-known is the cryptocurrency known as Bitcoin. Originally introduced in 2009, it is a global, unregulated digital currency that is backed by a large pool of other coins and uses an immutable, decentralized public ledger. There are over 16 million bitcoins in circulation.
Earlier this year, China’s People’s Bank of China (PBOC) announced the launch of a new digital currency. While the e-CNY (Shu Zi Ren Min Bi) wallet service was released, it is still not fully functional. It’s only available in 10 cities as part of a pilot project.
The United Kingdom’s spy chief has sounded alarm over the e-CNY, claiming it could be used for Chinese global surveillance. But the technology isn’t yet completely understood. As a result, it isn’t widely adopted.
Some coins are backed by real-world assets, while others are based on smart contracts. The latter allows for more stability, while the former offers speed. Several governments are exploring the creation of their own digital coins. Sweden, Japan, and Ecuador have all issued their own digital currencies, and a number of countries have made them legal tender.
Another currency, known as USD Coin, was recently launched by a consortium of financial institutions. It operates on the Stellar and Algorand blockchains, and is backed by $1 held in reserve.
A third currency, known as Libra, is a cross-border digital currency that is backed by sovereign fiat currencies. According to the announcement, the currency will be governed by an association known as the Libra Association. It will operate on a similar platform to a central bank, but will be controlled by the Libra Association.
A digital currency issued by the United States government has the potential to change how the US regulates the industry, and how it can impact civil liberties and monetary policy. Umar Farooq, head of Digital Treasury Services and Blockchain at J.P. Morgan, spoke with Forbes about the coin, and outlined its potential to change the way the US handles cryptocurrencies.
A fourth, and possibly more important, is the potential for a United States government-backed digital coin to have a direct effect on monetary policy. However, it’s still unclear how such a coin would be regulated. If it is a centralized, government-backed currency, it might have to be regulated in the same way as traditional currencies. In other words, it might not be able to be used to buy products online without registering with the US Department of Treasury, which would require the United States to levy an import tax.