Types of Digital Currencies
There are currently three basic types of digital currencies in development or circulation.
Central bank digital currencies: A growing list of money-issuing governments is considering issuing digital versions of their fiat currencies, known as central bank digital currencies (CBDC). For example, China is testing its digital renminbi (e-RMD) to facilitate cross-border payments and circumvent existing digital payment channels. The U.S. is also working on a plan for its own CBDC. Other countries, such as Switzerland, continue to study the impact of CBDCs on the economy but currently have no plan to implement them.
Cryptocurrencies: Cryptocurrencies are developed by private parties independently from a central bank or government institution. Cryptos make use of blockchain technology, a digital ledger system that records crypto transactions. Most cryptocurrencies also use cryptography to make the digital currency tamper-resistant and the network more secure.
The two largest cryptocurrencies are Bitcoin and Ethereum (CRYPTO: ETH). A growing list of companies are either working on blockchain and crypto development or using cryptocurrencies in their operations.
Stablecoins: Stablecoins are a type of cryptocurrency and make use of blockchain technology and cryptography. The key difference between them and traditional cryptocurrencies, though, is that stablecoins are backed by a reserve asset such as the U.S. dollar or gold, and they’re designed not to fluctuate in value like traditional cryptos. They will instead track the value of the asset that backs them.
Tether (CRYPTO:USDT) is currently one of the largest stablecoins. Facebook (NASDAQ:FB) is also developing a stablecoin project called Diem.