IT Chapter 12th IT in Society Fahim Siddiq +923336581412 Digital Currency: Digital currency is a form of currency that is available only in digital or electronic form. It is also called digital money, electronic money, electronic currency, or cyber-cash. Using digital currency means the currency is exchanged digitally using the computers rather than exchanging physical bank notes and coins. The most popular are payments using credit cards, mobile phones and smart watches. Types of digital currencies include cryptocurrency, virtual currency and central bank digital currency. Digital money can either be centralized, where there is a central point of control over the money supply (for instance, a bank), or decentralized, where the control over the money supply is predetermined or agreed upon democratically. Characteristics of Digital Currencies • Digital currencies only exist in digital form. They do not have a physical equivalent. • Digital currencies can be centralized or decentralized. Fiat currency, which exists in physical form, is a centralized system of production and distribution by a central bank and government agencies. Prominent cryptocurrencies, such as Bitcoin and Ethereum, are examples of decentralized digital currency systems. Digital currencies can transfer value. For example, a gaming network token can extend the life of a player or provide them with extra superpowers. This is not a purchase or sale transaction but, instead, represents a transfer of value. • Advantages A person does not need to carry physical money around, which could be easily lost. If a card or mobile device is lost, the user can contact their bank to stop any monetary transactions from the card or device. Disadvantages There is often a monetary limit on contactless payments. As data is sent electronically, there is always the risk that the transactions could be hacked. All transactions are completed using encrypted methods, so data is sent securely. The use of contactless payments can speed up payment for products and services. Some people believe that if the pass through a payment machine the money could be deduced from the account. Some may think that people can lose track of their spending as they are not handing over physical money for the transaction. If a user is in a different country then he or she can use a digital method and the banks involved will electronically change the transaction from one currency to the other. The user does not necessarily need to remember their PIN number each time if they are using contactless payments methods. Types of Digital Currencies 1. Virtual Currency A virtual currency is a digital representation of value only available in electronic form. It is stored and transacted through designated software, mobile, or computer applications. Transactions involving virtual currencies occur through secure, dedicated networks or over the Internet. They are issued by private parties or groups of developers and are mostly unregulated. Virtual currencies increase transaction speeds by removing intermediaries from the process, but they are also susceptible to hacks and online scams. An example of a virtual current would be tokens that can be collected or bought, for example, within a computer fame, that allow players to buy different items within a game such as new clothing or amour. Advantages of Virtual Currencies 1. Virtual currencies do not have expensive manufacturing and physical storage costs. 2. virtual currencies increase transaction speeds and eliminate geographical boundaries. 3. It eliminates intermediaries during monetary transactions and establish a direct connection between two transacting parties. 4. Virtual currencies can be programmed to complete automated transactions. 5. It can personalize a game or application by making it fun to collect and spend the specific virtual currency. Disadvantages of Virtual Currencies • • • • • Virtual currencies are attractive targets for hackers. There have been several cases of hacking blockchain networks for cryptocurrencies, a form of virtual currency. Though they do not have manufacturing or physical storage costs, virtual currencies have other associated expenses. For example, cryptocurrency users are required to store them in digital wallets. At trading exchanges, cryptocurrencies also have custody costs. Virtual currencies can be subject to scams. Unregulated virtual currencies do not offer legal recourses to investors because they are issued by private entities and, for the most part, not regulated are by financial authorities. Virtual currencies traded on exchanges, such as cryptocurrencies, can be subject to highly volatile price swings. Central Bank Digital Currency (CBDC) The term central bank digital currency (CBDC) refers to the virtual form of a fiat currency. A CBDC is an electronic record or digital token of a country's official currency. As such, it is issued and regulated by the nation's monetary authority or central bank. CBDCs are meant to represent fiat currency. The goal is to provide users with convenience and security of digital as well as the regulated, reserve-backed circulation of the traditional banking system. Advantages of CBDC • Simplifies the implementation of monetary policy and government functions. • Eliminates third-party risk. • Calibrates privacy features. • Allows the inclusion of the unbanked. • Prevents illicit activities such as money laundering and tax evasion. Disadvantages of CBDC • Doesn't solve the problem of centralization. • Users may have to give up some degree of privacy. • Legal and regulatory issues are black hole. Cryptocurrency A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation. Types of Cryptocurrency The first blockchain-based cryptocurrency was Bitcoin, which still remains the most popular and most valuable. Today, there are thousands of alternate cryptocurrencies with various functions and specifications. Some of these are clones or forks of Bitcoin, while others are new currencies that were built from scratch. Advantages of Cryptocurrency • • Cryptocurrencies hold the promise of making it easier to transfer funds directly between two parties, without the need for a trusted third party like a bank or credit card company. In modern cryptocurrency systems, a user's "wallet," or account address, has a public key, while the private key is known only to the owner and is used to sign transactions. • • • • Fund transfers are completed with minimal processing fees, allowing users to avoid the steep fees charged by banks and financial institutions for wire transfers. Immediate settlement and international Transactions. Potential for high returns. It is difficult to counterfeit. Disadvantages of Cryptocurrency • • • The semi-anonymous nature of cryptocurrency transactions makes them wellsuited for a host of illegal activities, such as money laundering and tax evasion. High volatility and potential for large losses. Unregulated and unbacked, Cyber hacking. Difference between Digital, Virtual and Cryptocurrency To summarize, digital currency is the blanket term used to refer to money that exists solely in the digital space. Virtual currencies and cryptocurrencies are digital currencies because they exist online. Virtual currencies are a form of digital currency available in the virtual world (think of exclusive online communities created by developers). Cryptocurrencies are digital currencies because they exist online, but they are also virtual currencies created with cryptographic algorithms. Data Mining Data mining is a form of data analysis. It is a form of artificial analysis. Data mining is the act of sorting through large sets of data to identify patterns and establish relationships. The goal of mining data is to extract information from sets of data that can be used to inform and instruct future decisions, by identifying past and present trends. Data mining involves finding trends and then applying a theory to new data sets in order to try and validate the changes that are occurring. The overall goal is to be able to predict changes before they actually occur. This means that a business can be in the right place at the right time.
