Digital currency is a type of money that is designed to be used electronically. It is different from physical currency, which is the traditional form of money that we use in our everyday lives.
Understandably, this comparison between physical and digital can be a little confusing.
Physical currency, such as coins and bills, can come in a digital form. The U.S. dollar is a good example—the money you have in your bank account may not be in physical form (like banknotes in your wallet), but it is still a traditional form of currency, known technically as commercial bank money.
An important distinction lies within the digital currency sub-categories. The three main forms of digital currency are: 1. CBDCs (central bank digital currency), 2. Commercial bank digital money (fiat in bank accounts), and 3. virtual currency (including cryptocurrencies). Cryptocurrencies (e.g., Bitcoin) are decentralized and largely unregulated, whereas central bank digital currencies (CBDCs) and commercial bank digital money (the balance in your checking account) are issued, tied to, and heavily regulated by governments and financial institutions. Although, a regulatory framework is currently under review in Washington, DC.
While governments were slow to take digital currency seriously, consumers quickly got on board. And it is consumers that still drive the desire for digital currency today.
What is digital currency?
There are many different types of digital currency, but the most well-known and first on the market is Bitcoin. Other types of digital currency include Ethereum, Litecoin, XRP, and Bitcoin Cash.
These currencies are built on a technology called the blockchain. Blockchain is a digital distributed ledger that records all transactions made with digital currency. It is secure, transparent, and completely decentralized, which means that it is not controlled by any one person or organization.
This decentralization is one of the main reasons why people are interested in digital currency. It gives people more control over their money and makes it more difficult for governments to control.
What makes digital currency different from fiat currency?
First, let’s explain fiat currency. Fiat currency is the traditional, government-backed money that we use in our everyday lives. The U.S. dollar, the euro, and the yen are all examples of fiat currency.
Fiat currency gets its value from the government that issues it. The government essentially says that this piece of paper (or this coin) is worth a certain amount of goods or services.
Cryptocurrencies get their value from the market and are highly volatile. However, stablecoins are designed to maintain a fixed value (e.g., $1 USD), and CBDCs are merely the digital form of the fiat currency, maintaining the exact same value as cash.
Another big difference is that digital currency is not physical. It exists only online and is stored in digital wallets. You can’t take it out and spend it like you would with cash. While this might seem like a disadvantage, it actually makes digital currency much more secure. Fiat currency can be stolen, counterfeited, or lost. But because digital currency is stored online, it is much more difficult to steal.
What are the main types of digital currency?
There are too many digital currencies to list, but they can be broken into a few distinct categories.
Cryptocurrencies
A cryptocurrency is a digital asset that uses cryptography to secure its transactions and to control the creation of new units. They are a subcategory of virtual currency. Popular cryptocurrencies include Bitcoin, Ethereum, Bitcoin Cash, and Litecoin.
As we mentioned above, cryptocurrencies are decentralized, which means they are not subject to government, private sector, or financial institution control. They are also global, which means anyone can buy and sell them regardless of their location.
Cryptocurrencies are often used as investments because their prices can rise and fall a lot over time. While volatility makes many cryptocurrencies speculative assets, the rise of stablecoins has provided a key utility for global, non-volatile electronic payments. But many people today use them as a way to send or receive electronic payments or buy crypto assets, like NFTs.
Virtual currencies
A virtual currency is a type of digital currency that is used within a specific virtual economy.
Virtual currencies are often centralized, which means they are issued and regulated by a single entity. They are also usually limited to a specific game or virtual world. This makes them different from cryptocurrencies, which are not limited to any one virtual world or game. However, cryptocurrency is a sub-category of virtual currency.
Central bank digital currencies (CBDCs)
A central bank digital currency (CBDC) is a type of digital currency that is issued by a central bank, such as the US Federal Reserve in New York.
CBDCs are similar to fiat currencies like the US dollar because they are both regulated by central banks. But CBDCs are digital, which means they can be used to make peer-to-peer payments without going through a financial institution. Think of it like the US dollar adopting the positive aspects of crypto. This could allow instant peer-to-peer (P2P) and consumer-to-business (C2B) payments using an account or wallet held directly with the central bank (or its authorized private intermediary), potentially reducing friction and transaction costs compared to existing banking rails, but the central bank still keeps tabs on the movement of that money.
CBDCs are still in the early stages of development, but many central banks are exploring the possibility of issuing them in the future.
Benefits of digital currencies for SMBs
Digital currencies, in whatever form, present some great benefits to businesses of all sizes:
- Lower transaction costs: For direct crypto transactions, traditional banking intermediaries are removed. However, most businesses leverage a private crypto payment processor (like Coinbase Commerce or BitPay), which still charges a fee to convert the crypto to fiat currency.
- Faster payments: Digital currency payments are often instant or near-instant. This is because there is no need to wait for a bank. Money is moved instantly.
- Increased efficiency: Digital currency can help you streamline your payment process and make it more efficient. This is because there is no need to reconcile different currencies when making international payments.
- Improved customer experience: Digital currency payments can improve the customer experience by making it easier and faster for them to make a purchase.
Disadvantages of digital currencies for SMBs
Despite the benefits, there are also some potential disadvantages of using digital currencies for businesses, including:
- Volatility: The prices of digital currencies can be very volatile, which means they can rise and fall a lot in value over a short period of time. This can make it risky to accept them as payment, as you may not know what their value will be when the customer tries to spend them.
- Lack of regulation: Cryptocurrencies are not currently regulated by any government or financial institution. This means that if funds are sent to the wrong wallet address or transferred under fraudulent pretenses, the irreversibility of blockchain transactions means there is typically no recourse for recovery.
- Cybersecurity: Although cryptocurrencies cannot be hacked as such, hackers adopt many tactics to trick businesses and consumers into transferring their digital currency. Once crypto is lost, there is no means to get it back.
Central bank digital currency: The future of digital cash?
Cryptocurrencies have grown by leaps and bounds since their inception over a decade ago. But in the grand picture, they are still in their infancy. Development and adoption are nowhere near as widespread as traditional currencies, and some people may never adopt crypto. The risk of transferring to the wrong place and having no way to get your money back is a big stressor for many businesses and consumers.
Central bank digital currencies (CBDCs) could be the next step in the evolution of digital cash. It could offer all the perks of cryptocurrency without the immense stress of what would happen if you make a mistake.
CBDCs would be similar to fiat currencies like the US dollar. They would just be digital and issued by a central bank. This would allow anyone to send money instantly and for free.
Although CBDCs are still in the early stages of development, many central banks are exploring the possibility of issuing them in the future. The benefits of CBDCs would be threefold:
- They would help to reduce crime.
- They would increase financial inclusion.
- They would make it easier for central banks to conduct monetary policy. Interest rates could no longer be constrained by the zero-lower bound (ZLB).
The impact of CBDCs on the ecommerce sector
While the US Treasury is still non-committal about whether the Fed digital dollar will be developed, other countries are taking big strides forward.
China’s digital yuan (e-CNY) is already ready for launch and has been run in large-scale live tests through The People’s Bank of China (PBoC) since early 2020. As of the latest data (late 2025), the PBoC has reported significantly higher volumes and wallet creation (e.g., over 2.25 billion wallets created, though many users have multiple wallets, and transaction volumes reaching over $2 trillion USD).
The e-CNY is now subject to the same rules and regulations as the regular yuan.
In the UK, the Bank of England (BoE) is still in the exploratory phase. The BoE has stated the earliest a digital pound (“Britcoin”) would be issued is the second half of this decade (2026-2029), and a decision on whether to proceed is likely in 2026.
And in Europe, it’s a similar story. The European Central Bank may issue a digital euro (DEuro). They have been doing experimental work on this since 2020. The ECB has moved into a “preparation phase,” and the expected readiness for a potential first issuance has been pushed back to 2029.
For the ecommerce sector, the adoption of CBDCs would make it easier for businesses to make cross-border payments and could reduce costs associated with traditional payment methods like wire transfers. It would reduce the need to rely on a bank for international settlements. They would also give ecommerce businesses a new way to reach underbanked consumers who may not have access to traditional financial services.
It is still too early to tell how exactly CBDCs will impact the ecommerce sector. But as more countries move forward with their plans to issue digital currencies, the ecommerce sector needs to accept that digital currencies will play a major role in how they transact tomorrow. Whether it’s CBDCs or cryptocurrencies, it doesn’t really matter.
CBDCs: Potential and challenges
There are many potential benefits of CBDCs. They could help:
- Financial systems safety: In times of crisis, CBDCs could help to stabilize the financial system by providing an alternative to cash. They could also help to reduce the risk of runs on banks.
- Increase financial inclusion: CBDCs could increase financial inclusion by providing access to banking services to those who do not have a bank account.
- Simplification of the payment process: CBDCs could simplify the payment process by making it easier to send and receive payments.
- Public financial stability: CBDCs could help to maintain public financial stability by allowing central banks to conduct monetary policy.
However, there are also some hurdles that come with CBDCs. Consider the following.
- Loss of transactional privacy: While a CBDC is meant to replicate cash’s value, it does not replicate its anonymity. Transactions would be recorded on a central database, creating a trade-off for the state’s interest in combatting financial crime.
- Hard competition: CBDCs will face hard competition from existing cryptocurrencies and stablecoins, which are already well-established.
- Interoperability: CBDCs will need to be able to interoperate with existing payment systems.
- Challenging implementation: The implementation of CBDCs could be challenging, as it would require a lot of coordination between different stakeholders, and there is no single issuance framework for how this could work.
Conclusion
CBDCs are currently in their early days, but they have the potential to offer many benefits. Only time will tell if CBDCs will be successful, but the efforts countries are taking to explore CBDCs do indicate that the digital money trend has had a ripple effect on governments and financial providers. Ecommerce owners or managers should explore these trends.
While Stax does not currently offer payment services to accept cryptocurrencies, we do believe it’s important for businesses to pay close attention to new ways that customers are looking to make payments. Taking note of future payment trends helps to stay ahead of competitors.
At Stax, we’re always keeping a close eye on payment trends to ensure that we’re building solutions that merchants can use. Moreover, we help businesses accept popular forms of payment so that you never have to miss a sale.
Quick FAQs about digital currency
Q: What is digital currency?
Digital currency, also known as digital money or electronic currency, is a form of currency that exists solely in digital form. Unlike physical cash, digital currency is managed and stored electronically and can be used for online transactions without physical exchange.
Q: What are the main types of digital currency?
Digital currencies can be categorized into several types, including cryptocurrencies (like Bitcoin and Ethereum), virtual currencies (used within specific virtual economies), and central bank digital currencies (CBDCs) issued by central banks.
Q: How does digital currency differ from fiat currency?
Unlike fiat currency, which is government-backed and has a physical form like coins and banknotes, digital currency is entirely electronic, and its value is determined by market demand. Digital currency transactions are secure, transparent, and decentralized, offering more control to users.
Q: What are the benefits of digital currencies for small and medium-sized businesses (SMBs)?
Digital currencies can reduce transaction costs, facilitate faster payments, and improve efficiency in payment processes. They also enhance customer experience by allowing quicker and easier transactions.
Q: What are the disadvantages of using digital currencies?
The volatility of digital currency values, lack of regulation, and cybersecurity risks pose significant challenges. Digital currencies can experience drastic value changes, and there is limited recourse in cases of fraud or theft.
Q: What is a central bank digital currency (CBDC)?
A central bank digital currency (CBDC) is a digital form of a country’s fiat currency, issued and regulated by the nation’s central bank. It aims to combine the benefits of digital currencies with the stability of traditional fiat money.
Q: How could CBDCs impact the ecommerce sector?
CBDCs could simplify cross-border payments, reduce transaction costs, and increase access for underbanked consumers in the ecommerce sector. They offer a new way for businesses to engage with customers in digital transactions.
Q: What challenges do CBDCs face?
CBDCs face challenges such as ensuring privacy, competing with established cryptocurrencies, achieving interoperability with existing payment systems, and the complexity of implementation.
