Digital Currency

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.

As such, an important distinction with digital currency is that it is not (currently) tied to or regulated by any governments or 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’s consumers that still drive the desire for digital currency today.

As Stax Chief Payment Officer, Menda Sims told Payments Next:

“The only way to grow any business is to start thinking about building your business model for younger generations and improved digital payments are key to survival in this industry, so I anticipate even more rapid growth here next year.”

What you’ll learn:

  • What is Digital Currency?
  • What Makes Digital Currency Different From Fiat Currency?
  • What Are the Main Types of Digital Currency?
  • Benefits of Digital Currencies for SMBs
  • Disadvantages of Digital Currencies for SMBs
  • Central Bank Digital Currency: The Future Of Digital Cash?
  • The Impact of CBDCs on The eCommerce Sector
  • CBDCs: Potential And Challenges

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.

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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.

Digital currency, on the other hand, gets its value from the market. The market, in this case, would be all the people who are using digital currency to buy and sell goods and services.

The value of a digital currency fluctuates just like any other currency. It goes up when more people want it and goes down when fewer people are buying it.

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?

As of 2022, there are too many digital currencies to list, but they can be broken into a few distinct categories.


A cryptocurrency is a digital asset that uses cryptography to secure its transactions and to control the creation of new units. 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. 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. Good examples of this are Second Life’s Linden Dollar or Fortnite’s V-Bucks.

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.

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 would allow anyone to send money across the country instantly and for free. No bank deposit. No financial institution needs to be in the middle to take a fee, 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: When you use digital currency to make a payment, the transaction fees are often much lower than if you had used fiat currency. This is because there are no financial institutions involved in the process.
  • 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.

“Crypto and NFTs are only going to grow, so businesses that get in there first with the right kinds of fintech firms and banks will be the ones that thrive long term.”

– Menda Sims, Chief Payment Officer, Stax.

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 you experience any payment fraud or theft, you may have no recourse.
  • 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:

  1. They would help to reduce crime
  2. They would increase financial inclusion
  3. 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-commital 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. By the end of 2021, 10% of China’s population had created wallets for the e-CNY, and more than 1.5 million merchants were accepting the currency.

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, stating that it’s undecided if it will go ahead with a digital currency, dubbed the “Britcoin”. If they do, they do not anticipate a launch before 2025.

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, but they do not expect the DEuro to be ready to launch before 2026.

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 privacy: CBDCs could result in a loss of privacy as transactions would be recorded on a central database.
  • 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.


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.

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