Virtual currency is becoming a common speculative target along with stocks and currencies. How does it differ from electronic money? In this article, we will explain virtual currency.
Contents
What is Virtual Currency?
Virtual currency is also referred to as crypto assets and is defined by the “Law on Funds Settlement” as having the following characteristics
- Can be used to make payments to unspecified parties and can be exchanged for legal tender (Japanese yen, U.S. dollars, etc.).
- Electronically recorded and transferable
- Non-legal currency or assets denominated in legal currency (prepaid cards, etc.)
Well-known virtual currencies include Bitcoin, Ethereum, and Ripple, but there are countless other types. To trade virtual currencies, you must use an “exchange” or “bourse,” which is a business registered with the Financial Services Agency and the Finance Bureau.
As for exchanges, you may have heard of names like Coincheck, bitFlyer, and DMM Bitcoin. Not only is it relatively easy to exchange virtual currency for cash via smartphone apps, but some services allow users to exchange virtual currency for T-Points or for virtual currency based on the number of goods purchased, making it possible to obtain virtual currency in a variety of ways.
How Virtual Currency Works
How does virtual currency work and how is it kept safe?
The technology that holds the key to the structure of virtual currencies is called the blockchain. Blockchain is a “distributed ledger technology” that directly connects terminals on the Internet and records transaction history in blocks of data in a distributed manner. Blockchain is essentially managed on a P2P network, where transaction histories recorded on individual terminals are linked together like a chain.
Even if tampering occurs at one terminal, there will be discrepancies with other blocks, so measures are taken to ensure that incorrect data that has been tampered with is not treated as correct data. Simply put, since the transaction history is recorded in a decentralized manner, even if one part of the transaction history is tampered with and saved as a different history, it will be inconsistent when compared with the other decentrally stored transaction history, making it difficult to tamper with. In the traditional centralized system, if the transaction history in the original ledger is tampered with, there is a risk that the correct transaction history will no longer be known, but the decentralized system is more difficult to tamper with because the ledger is distributed to individual terminals.
How it differs from electronic money
The crucial difference between virtual currency and e-money is whether it is based on legal tenders such as yen or dollars. Electronic money is essentially an alternative to legal tender, and its value is guaranteed by legal tender, so for example, if you have 1,000 yen worth of electronic money, it will always be worth 1,000 yen.
On the other hand, the value of virtual currency is not guaranteed. Its value is constantly moving due to fluctuations in demand caused by the buying and selling of virtual currency. Even if you buy 1,000 yen of virtual currency, the value of that virtual currency may later be 100 yen or 10,000 yen. Because virtual currency is not valued by the government under the law, its value is not guaranteed.
Uses of Virtual Currencies
・For speculation
As mentioned at the beginning of this article, virtual currencies have attracted attention as speculative objects. Like foreign currencies, their value fluctuates widely from day to day, depending on demand. For example, the value of bitcoin (BTC) was 1,500-3,000 yen per BTC around 2011, but on November 9, 2021, the value of 1 BTC was 7,770,000 yen. 1 BTC is now worth about 2 million yen in 2023, but its value fluctuates wildly depending on various factors such as world conditions. However, it is important to note that the value of 1 BTC fluctuates wildly depending on various factors such as the world situation.
・NFT
Virtual currencies are also commonly used for NFTs. The most representative of these is Ether (ETH), which is used on the Ethereum platform. Ethereum is characterized by its ability to record applications and store contracts on the blockchain using a feature called “smart contracts”.
Thus, Ethereum has become a popular virtual currency used in NFT transactions through the use of additional features such as recording contract details.
These are the main uses of virtual currency.
The use of virtual currencies in the Internet business is gradually increasing and will become too big to ignore in online business and marketing in the future.
With the use of virtual currencies for data and real estate transactions in the metaverse, virtual currencies are a must-know for online asset transactions in the future.