The Logical Categorization of Digital Currencies

How did digital currencies evolve from gaming tokens to cryptocurrencies and CBDCs? How can be digital currencies efficiently categorized, and what sets virtual currencies apart from CBDCs? What are the key technologies forming the basis of digital currencies? What are the differences and applications of wholesale versus retail CBDCs? What are the main regulatory concerns for virtual currencies? This chapter aims to provide a comprehensive overview of digital currencies, tracing their development from simple gaming tokens to complex forms such as cryptocurrencies and Central Bank Digital Currencies (CBDCs). Digital currencies can be divided into two main categories: virtual currencies and CBDCs, with the distinction rooted in their underlying credit systems. While the hallmark technologies of digital currencies include asymmetric encryption and decentralization, it is crucial to recognize the presence of non-cryptocurrency-type virtual currencies. Wholesale CBDCs are noted for enhancing the efficiency of the financial clearing and settlement processes, whereas retail CBDCs represent a novel form of currency. The convertibility of virtual currencies plays a pivotal role in defining their financial characteristics and acts as a crucial element in activating their financial regulation.