Virtual currency is a new way of transferring wealth. It doesn’t exist in the form of physical goods, but it can be used to represent goods and services just as money can.
Virtual currency isn’t money—if you think it is, you’re probably thinking like an economist. But it is also not just a side effect of modern technology. We may not know what virtual currency will look like in the future, but we know that there are lots of uses for it today.
Virtual currency has been around for a long time. The first electronic payment systems date back to the 1970s and 1980s, with things like credit cards and bank checks. But they were not virtual at all. They were physical things that could be checked and stamped and passed around. People used them all the time.
In the 1990s, however, people started talking about digital currency, which is different from just having an electronic payment system. It’s a bit like having an email address: it’s useful in its own right, but you can also attach other things to it, such as an email address of your own that lets you send mail out of your account.
Digital cash can be used for all sorts of purposes beyond simple payments, including making purchases on the Internet and buying tickets to events in person. And because it is not tied to a particular place or person through a physical form, it can serve as virtual money in any country you happen to visit.
Virtual currency is an idea that’s been around for decades–you can buy stuff with it, but not directly. In the 1980s, when MasterCard was trying to get into the electronic-payment business, it was way behind Visa. The idea was to have a network where you could pay with something like a credit card, but the transactions would be electronic and completely transparent.
The MasterCard guys had an idea for how to do it: you’d have a virtual currency. You’d give your card number to the merchant, and he’d say “OK, let’s see what we can do here.” He’d take some money out of his bank account, or swipe some magnetic stripe on your card and then write down a number. Visa or MasterCard would check this number against their records and say “Oh hey, you’re spending $20 in virtual dollars at this merchant.” And they’d send an electronic payment to his bank account.
I’m sure I’m not explaining this very well. But it was an interesting idea. And I think we’ve seen some implementations of it since then–for example Paypal has been around for a while now.
Virutal currency is a protected, encrypted form of currency that can be used with the same ease as the regular currency. Like any other form of currency, virtual currency is used for buying and selling goods and services.
Like physical currency, virtual currency is a means of exchange. The difference between virtual and physical currencies is that the former exist only on a server or in an online account, while the latter exist in real life.
Virtual currencies are also bought and sold in electronic form. They are not physical coins and bills but they can still be traded like money. For example: if you have a virtual wallet containing $100 worth of Bitcoin, you can use this to buy goods or services.
Virtual currencies, like Bitcoin and Dogecoin, are taking the world by storm. There are over a thousand virtual currencies in operation today. They have a variety of different features and purposes. But all share some basic characteristics that make them appealing as alternatives to traditional currency.
1- Unlike fiat currency (e.g., Federal Reserve Notes or Treasury notes), they are not controlled by any single government or entity.
2- Unlike real estate, they don’t have to be physically located in a particular country.
3- Unlike gold or silver, they are not generally limited in supply, but can be created at will.
4- Their value is not guaranteed by any physical assets but is instead maintained by the community of users of the currency.
There are lots of virtual currencies in this world. Some of them, like Bitcoin, have real value, which is the whole point. Other virtual currencies exist just to make a statement – to show you don’t need a central bank to manage your money because the Internet can do it for you, so therefore it doesn’t exist.
In its early days, the Internet was a virtual place. There were no rules about what you could do there, and no punishment for breaking them. Today every Web site has a “terms of service” that tells you what sort of behavior is allowed, and most of the time it’s clear how to treat violations. The same is true for social networks like Facebook and Twitter: if they are going to continue serving your community, they need to be able to tell you when you have crossed a line.
But the Internet is still mostly a virtual place.
When you buy or sell something online, it doesn’t really change hands offline. When Amazon sends you an e-mail telling you that it will ship your book in 24 hours, there is really no shipment taking place; it’s just a bit of information passing between computers. The same goes for all the other transactions we make online: when Amazon tells its network that you ordered a book, it’s just sending information around the network to let everyone know that someone ordered the book from them.
In the real world, things happen not because we tell each other about them but because we arrange things into patterns of action that make sense within our society. But on the Internet, this doesn’t work so well. Many