What is Virtual Currency?
Virtual currency is a type of digital currency. It can be used to pay for goods and services between an unspecified large number of people and companies over the Internet, and can also be converted to legal tender, such as yen, dollars, and euros at special exchanges.
Virtual currency ensures security by using encryption technology such as public key cryptography and hash functions. Executed transactions are grouped in units called blocks, which are compiled into records known as blockchains. This blockchain technology is used by almost all virtual currencies, and all the transaction data saved on a blockchain is shared publicly.
Definition of Virtual Currency
In Japan, virtual currency is defined as follows under the Payment Services Act:
Payment Services Act Article 2; Section 5; Subsections (i) and (ii)
(i) property value (limited to that which is recorded on an electronic device or any other object by electronic means, and excluding the Japanese currency, foreign currencies, and Currency-Denominated Assets; the same applies in the following item) which can be used in relation to unspecified persons for the purpose of paying consideration for the purchase or leasing of goods or the receipt of provision of services and can also be purchased from and sold to unspecified persons acting as counterparties, and which can be transferred by means of an electronic data processing system; and
(ii) property value which can be mutually exchanged with what is set forth in the preceding item with unspecified persons acting as counterparties, and which can be transferred by means of an electronic data processing system.
How Virtual Currency Differs from Legal Tender and Electronic Money
Difference from legal tender:
Legal tender is officially issued by a government authority and generally takes the form of banknotes or coins. By contrast, virtual currencies are issued by blockchain technology without the intervention of an issuing authority or administrator.
Difference from electronic money:
Electronic money is a type of payment service that allows payments to be made electronically via a third-party infrastructure. Commonly used forms of electronic money exist to enable electronic payments using the relevant country’s legal tender.
While virtual currencies have some similarities with electronic money in that they allow electronic payments without the use of banknotes or coins, they have the distinct feature of being able to transfer value without going through a third-party organization by using blockchain technology.
Types of Virtual Currencies
bitFlyer handles nineteen (as of January 2023).
Bitcoin is a virtual currency that began as a concept described in a paper published on the Internet in 2008 by someone assuming the name Satoshi Nakamoto.
Through the use of a distributed ledger known as a blockchain, Bitcoin can store and transfer values over the Internet without the need for an issuing authority or administrator.
Because Bitcoin has the highest market capitalization of all the numerous virtual currencies, it is not an exaggeration to say it is the most prominent virtual currency. There are many currencies that split off from or are derived from Bitcoin, and it is the cornerstone of virtual currencies.
Ethereum, which launched in July 2015, is the virtual currency with the largest market capitalization after Bitcoin as of July 2022. While Bitcoin specializes in administering transaction records using a blockchain, Ethereum is characterized by its use of smart contracts that can automatically enforce contracts that have been uniquely defined by users without an official issuer or administrator. It is trying to resolve the scalability problem by using a new technology called Plasma, and specific methods for achieving this are being constantly being debated.
Ethereum Classic (ETC)
Ethereum Classic, which began circulation in July 2016, is a virtual currency that split off from Ethereum. As with Ethereum, it also features the advantages of using smart contracts.
Ethereum Classic was launched by those opposing a hard fork made by the Ethereum Foundation, and continues to use the original Ethereum blockchain from before the hard fork.
Litecoin, which began circulation in October 2011, is a virtual currency that is based on Bitcoin’s system with the additional features of quick mining and efficient storage.
The total amount of Litecoin to be issued is about four times that of Bitcoin at 84 million coins. Litcoin is trying to overcome the transaction time problem, a weakness of Bitcoin, with a two and a half minute block generation time.
Bitcoin Cash (BCH)
Bitcoin Cash is a currency that began circulation in August 2017 as a hard fork of Bitcoin. This virtual currency has tried to overcome the scalability problem associated with virtual currencies by increasing its maximum block size limit.
Its block size limit is 32 times larger than that of Bitcoin, which has also contributed to having to lower fees.
Monacoin is a virtual currency that was created from a concept posted on the Japanese Internet bulletin board 2channel (now 5channel) in January 2014. It is named after Mona, an ASCII art character that also originated on 2channel.
This is also the world’s first virtual currency to implement the SegWit transaction processing system to solve the two problems of scalability and transaction malleability often associated virtual currencies.
Lisk is expected to overcome the scalability problem by configuring an application for each sidechain in addition to the blockchain core.