Virtual Currency

Virtual currency is a term of reference for a digital representation of value that can operate as a unit of account, medium of exchange, and store of value. Financial institutions and regulators consider bitcoin, central bank digital currencies, and other cryptocurrencies to be forms of virtual currency.

— The European Central Bank (ECB) defining virtual currency. Oct 21, 2012

Virtual currency is different from fiat currency in several ways. Some virtual currency is stored on a blockchain, allowing users to reconcile transactions with an immutable ledger that cannot be altered by a government entity. Virtual currency recorded and distributed over a cryptographically secured blockchain is known as cryptocurrency.

Fiat currency is not stored on a blockchain, which means that no individual can audit a complete history of transactions. The total supply of new fiat money is decided and issued by the government. The supply of a virtual currency is determined by the creator or developer of the token that controls the majority of the network.

Virtual currencies and the blockchains which support them vary in structure and legitimacy. Most virtual currencies are created by a company or individual. Bitcoin is different from other virtual currencies because it has a fixed supply, and theoretically, no individual can control the network. Moreover, the Bitcoin blockchain uses Proof-of-Work, the most secure consensus protocol.

➤ Learn more about Bitcoin's Proof-of-Work consensus mechanism.