Digital Money – How It Works, Examples and Risk

Digital money, or digital currency, is any form of money or payment that exists only in
electronic form. Digital money has no physical form such as a bill, check, or coins. It
is accounted for and transferred using electronic devices such as computers and
smart phones.

With the improvement in technology payments are becoming more digital, resulting
in less use of traditional currencies. Digital currencies are stored in electronic form
and can be transferred with ease making them the safest and fastest way to trade
currencies since they do not require any intermediary when transacting.

Examples of Digital Money

There various types of digital money they include; virtual currency, central banks
digital currency and cryptocurrency. However our focus on this discuss would be
majorly cryptocurrency as that is what this platform presents, the exchange of
cryptocurrency especially the buying and selling of bitcoin.

List of Cryptocurrency

Crypto currencies are a store of value just like traditional currencies issued by the
central banks but these currency differ in the sense that they have no physical form
of existence despite exhibiting the same properties. Cryptocurrencies are not
government issued currency therefore do not serve as a legal tender.

Also in some countries the government placed a ban on cryptocurrency transactions
as in the case of Nigeria were the CBN placed a ban on cryptocurrency prohibiting
financial institutions from involving in crypto related transactions. However, the
ban on cryptocurrency doesn’t forbid Nigerians from trading cryptocurrency

Bitcoin BTC

Ethereum ETH

Litecoin LTC

Ripple XRP

Bitcoin Cash BCH

Risks of Digital Money

One of the evident risk of digital money is it’s use in fraudulent activities. Because
digital money is not transferred physically, it makes it difficult to know who is at the
other end of the transaction. Fraudulent activities on the net (Cybercrimes) is on a
rise with no signs of declining as access to sensitive information is readily available on the net.

Although payment platforms have beefed up security but the complexity at which
cybercriminals commit fraud is becoming complex as well devising different methods
of manipulating system to carry out cyber attacks. Also cryptocurrency as a form of
digital currency poses several risk as exchange platforms are prone to cyber attack
which can lead to sizeable amount of loss of digital currencies, further more the
volatility in price and risk of loosing one’s private keys are all various forms of risk
associated with cryptocurrency.