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Everything You Need to Know about Virtual Money

Molly
Senior Editor, TipsHire

Is everyone around you using or talking about virtual money? Would you like to know more about it, the risks, and the benefits of using it, and the types of virtual cash available without stumbling upon technical words you don’t understand? You’ll find the answers to your questions below, so keep reading!

What Is Virtual Money?

Since the concept is rather new, there is no universal definition of virtual money. Think of it as money or value that exists only digitally, not physically. Also referred to as “virtual currency”, “digital currency”, “cyber money”, “e-money”, “electronic cash”, and more, it has little to do with banks or credit institutions, and more to do with the online environment.

Just like with real-life money, there are several virtual currencies. Many of them originate from social media or online gaming communities. Even though their use is not legally regulated, people often use them for payments to other persons or entities accepting them. Here are the most popular and heavily used virtual currencies at this point.

Top 10 Virtual Currencies at the End of 2017

1. Bitcoin

This is a decentralized currency present on the digital market since 2009, currently the most popular of its kind. It has tripled its value in just a couple of months. It rewards mining, and can be used to pay for products and services, or exchanged to real-life money. It relies on a peer-to-peer system with no intermediaries, and a public ledger also known as blockchain that registers all transactions.

2. Litecoin

If Bitcoin is gold, Litecoin (LTC) is definitely silver. The creation of a former Google engineer, it appeared in 2011. It relies on an open source worldwide payment network and uses “scrypt” as work proof. Compared to Bitcoin, its block generation is faster, allowing for faster transactions and confirmations.

3. Ethereum

The decentralized software platform Ethereum supports the development and running of Smart Contracts and ĐApps (Distributed Applications), without downtime, control, fraud or interferences from third parties. It runs apps on its cryptographic token, Eether, which is basically a vehicle that allows users to move around the platform. The ether can help users “codify, decentralize, secure and trade” almost anything. After the DAO attack from 2016, Ethereum was divided into Ethereum Classic (ETC) and Ethereum (ETH). The latter has a market capitalization of approximately $4.5 billion, following immediately after Bitcoin.

4. Zcash

Launched in 2016, it conquered users with its promise for improved security, privacy, and transparency, claiming to exceed even Bitcoin from this point of view. Zcash transactions offer privacy and selective transparency. While a blockchain registers all transactions, it does not disclose details regarding the sender, the recipient, and the transacted amount. Users can opt for “shielded” transactions and have their content encrypted with the help of an advanced cryptographic technique called zk-SNARK.

5. Dash

Originally launched as Darkcoin in 2014 and rebranded in 2015, it is a secretive alternative to Bitcoin. It uses a decentralized mastercode network to make transactions almost untraceable, thus offering more anonymity. It allows mining using a GPU or CPU.

6. Ripple

It is a global settlement network launched in 2012 that works in real time and supports instant, secure, and low-cost international payments. It enables the instant settling of cross-border payments between banks, ensuring end-to-end transparency and lower costs compared to standard transactions. With a market capitalization of approximately $1.3 billion, it uses a consensus ledger as confirmation method. It does not require mining and reduces computing power usage and network latency.

7. Monero

This digital currency emerged on the market in 2014 and stirred interest with its secure, private, and untraceable transactions. Its development relies on donations and community involvement. Its focus is on decentralization and scalability. It ensures complete privacy through “ring signatures”, a technique involving the use of a cryptographic signatures group that includes the signature of the real participants, but makes it impossible to isolate.

8. NEM

It is a peer-to-peer blockchain based cryptocurrency launched in 2015. It aims to provide a wide distribution model and added several new features to the already available blockchain technology (the proof-of-importance algorithm, the multisignature accounts, the encrypted messaging, and the Eigentrust++ reputation system).

9. Decred

Less popular and newer to the market than the preceding currencies, this one promises lightning fast, secure, and cheap transactions. It is open source, autonomous, and community driven. With only 21 million coins to reach the market ever, this currency seems to have solved the problems of blockchain governance with the help of technology. All Decred stakeholders can participate in the decision-making process, and further innovations are to be expected.

10. PIVX

Short for Private Instant Verified Transaction, this currency focuses on privacy and uses a proof-of-stake algorithm. It seems to derive from DASH, and all decisions related to it are community-based. Its strongest points are the low transaction times, the low fees, and the increased security and privacy.

There are many other digital currencies out there, and even more will surely become available with time. What do they all have in common? Their value fluctuates significantly, there are no government or bank guarantees in place, and their use is not entirely risk-free. However, the benefits are not negligible either. Before we move on to assessing the risks and benefits of using virtual money, it may help to take a look at how virtual currencies work.

How Do Virtual Currencies Work?

Although differences exist from one type of coin to another, users have two main questions: buy coins or earn them. They store virtual currencies in wallets, and they can use them to pay for services and goods or turn them into cash.

Since virtual currencies have no physical form, all transactions using them have to take place online. However, throughout the last couple of years, many physical stores have implemented payment systems that allow them to accept virtual currencies. Those who wish to pay with virtual money usually do so with their mobile devices.

The networks using and accepting virtual currencies usually have low transaction fees, or no fees at all. For those who wish to buy or sell virtual currencies for real money, dedicated platforms exist. They charge a small fee for each transaction, and the transactions rely on the most recent trade value of the virtual currency. The most popular virtual currency, Bitcoin, is now easy to buy and sell around the world through bitcoin ATMs.

Why would people want to invest in and use virtual money? The reasons are numerous, and we’ll review them in the following lines. The risks involved could be a reason as well, for those looking to boost their adrenaline levels without jeopardizing their lives. Keep reading to find out more.

The Benefits of Using Virtual Money

Indeed, we all do things for a reason. When so many people use digital currencies, it can only be because they have something to offer. The benefits vary and weigh differently from one user to another.

1. Discretion

Thus, some users, like those behind the Ransomware attacks and those involved in illegal activities or who want to keep their fortune a secret, treasure the anonymity virtual currencies provide. Although all transactions are registered in public ledgers and accessible to anyone on the network, all they give away about the user is an address.

This makes users almost unidentifiable if they are careful not to reveal their identity during transactions or under other circumstances. They simply push the money to the receiver’s wallet, without needing to send any other information. Bank clients, on the other hand, give away important data about themselves. In case of online payments, the store tracks them based on the information they provide and pulls the money out of their account.

2. Low Fees

Since we were talking about banks, they always charge clients for their transactions. Those small percentages can amount to incredible figures in the long run. This is not the case with virtual currencies, traded on platforms with no or incredibly low fees.

3. Impossible to Counterfeit

There is no way to counterfeit digital currencies. Without a physical form to copy (no bills or coins, no credit or debit cards), and with transactions registered in the same database, the money you transact is genuine. Sure, someone could break into your account and steal from your wallet, but you can prevent that by increasing your security measures, and it’s a risk you take with regular money and banks as well.

4. Irreversible Transactions

Credit card chargebacks can be reversed, and so can some online payments using systems like PayPal. That is definitely not the case with digital currencies. Since the sender is the one “pushing” the payment, they cannot change their mind or claim they never approved a transaction.

5. No Exchange Rates, Interest Rates, Politics or Government Influence to Worry about, Plus the Chance to Get Rich

Unlike regular money, digital currencies are not subject to exchange rates, or interest. Sure, they have an associated value and can be exchanged for real money, but their value does not depend on politics or government decisions.

Moreover, digital currencies have seen an incredible increase in popularity value throughout the last few years. A couple of months ago, when I wrote about Bitcoin, its market value revolved around $2,500. These days, it surged to almost $8,500. Had I bought one Bitcoin back then, the difference in value would have paid my next year vacation. Crazy, isn’t it?

Unfortunately, not everything about virtual currencies is so encouraging.

The Risks of Using Virtual Money

Despite the earnings they make possible, and the privacy and security they ensure, virtual currencies pose certain risks as well.

  • They may depreciate and cause users to lose money.
  • They have no backup, so no one will reimburse users if they somehow lose their investment.
  • Using them (downloading a wallet, mining, buying, sending, and receiving, etc.) requires some technical skills and device resources.
  • Their usage is still limited, the number or retailers and organizations accepting them being quite low.
  • Wallets and accounts are vulnerable, especially when downloaded on multiple devices.

The Bottom Line about Using Virtual Money

Let’s face it: just the thought that you could have made $6,000 from owning a single Bitcoin for a couple of months drives you crazy and makes you want to invest now. You could make a lot of money. However, you could also lose, so I suggest you take a step back and look at the big picture.

This is no race towards profit. It is an opportunity to make money and keep up with trends, but one that involves risks as well. Before you invest, you should do your homework. Find out as much as possible about the above currencies and others like them, about how they work, how you can obtain them, and how you can use them.

If you decide you are ready for the challenge, don’t rush it. Start with small amounts of money you can afford to lose. Don’t invest your mortgage installment, money you would otherwise use to pay the bills or cover some necessary expenses. This way, if you do lose, you can continue with your life and find other investment opportunities, rather than despair over what you’ve already lost.

Also, don’t brag about your investments, make sure only you have access to your wallet or platform accounts and don’t rush transactions. They take place almost instantly, so taking a few seconds or minutes to make sure all details are in order won’t kill you. After all, it is better to be safe than sorry, and you have no way to reverse digital currency transactions.

One thing is for sure: digital currencies are here to stay. Some may disappear, new ones may emerge, but you’ll always have something to invest it. Therefore, take your time, do your homework, and make your move when you ready, when you have money to spare, and when you are ready to assume all risks.

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