What Is a Digital Coin?
Digital Coin is any currency, money or money-like asset that is primarily managed, stored or exchanged on digital computer systems, especially over the internet. Examples of digital coins include cryptocurrency, virtual currency and central bank digital currency.
Cryptocurrencies are digital currencies that use blockchain technology to secure and verify transactions in a peer-to-peer network. These currencies often have no government backing and are therefore not regulated in most jurisdictions. Because their price fluctuates wildly, most businesses don’t accept payment in cryptocurrencies, but many investors see them as an investment opportunity.
Stablecoins are a type of cryptocurrency that seek to address the volatility issue by being backed by a reserve asset (such as gold) and using blockchain technology to track it. Some of the largest stablecoins are backed by fiat currencies, such as the U.S. dollar, while others are backed by private firms like Meta Platforms’ Diem or Tether’s USDT. Central banks around the world are exploring introducing their own digital currencies, called central bank digital cash (CBDC). Proponents argue that CBDC offers the speed of cryptocurrency and the stability of traditional fiat currencies without the risks associated with speculative cryptocurrencies.
As the demand for these currencies grows, so does the risk of fraud and scams. Sellers often mislead consumers about the features and expected returns of digital coins, and non-compliance with regulations is widespread. Some of these risks are exacerbated by the fact that digital assets are decentralized and unregulated, making them vulnerable to hacking.
Moreover, many of these assets require a significant amount of energy to operate, which emits greenhouse gases, strains electricity grids and harms some local communities with noise pollution, air and water quality. The Department of Commerce will consider further tracking the environmental impacts of digital assets and developing performance standards as appropriate, while working to align the development of these assets with transitioning to a net-zero emissions economy and improving environmental justice.
Finally, because they can be used to make illicit payments, some of these assets are being utilized by cybercriminals and terrorists for illegal purposes, including ransomware attacks, which hijack and shut down networks, and drug cartels, who use them to transfer funds. The United States is leading efforts to close darknet markets, where these currencies are traded.
These risks, along with the growing integration of digital assets into mainstream finance, have prompted some policymakers to call for tighter regulation of this emerging sector. For example, the Financial Stability Oversight Council is examining whether digital assets create channels for systemic risk to have spillover effects and has signaled its intention to regulate stablecoins. To help shape these policies, the National Science Foundation will back research in technical and social science disciplines that can inform design principles for digital asset ecosystems that are usable, inclusive, equitable and accessible by all. Efforts will also work to identify opportunities for partnerships between federal agencies, industry and academics, and to promote innovation that is beneficial to society as a whole.