Today i decided to write a little text about the types of virtual currencies there are to enlighten new users of the "crypto space" about it!
One possible classification of virtual currencies is to divide them in three types based on how they interact with currencies in the real economy. The first one can be described as a closed scheme, which is typically used in online games, where players after paying a subscription for the game, earn virtual money as the game progresses and according to how well they perform. This type of virtual currency cannot be traded with real currencies and it’s only used for the purposes of enabling the exchange of virtual goods in a specific virtual community.
The second type is a scheme that uses a unidirectional flow with the real economy. In this scheme the virtual currency can be bought using real money but it cannot be exchanged back to real money afterwards. It is mainly used for the purchase of virtual goods and services as for example Facebook Credits (FB), Facebook’s virtual currency.
The third scheme provides a bidirectional flow. In this case, virtual money is exchanged as any other currency in the real world and can be used to buy both virtual and real goods and services, as is the case of the virtual currency Bitcoin.
The rate at which virtual currencies are exchanged is based on the demand and supply for the specific currency. There is no central control from a financial institution over these currencies and they are not regulated or undergo supervision like electronic money issuers, for example, are. And thats why we like them :)
All these characteristics of virtual currencies have of course raised discussion about their safety and reliability as well as the risks that their use might engage. On the other hand virtual currencies can also be seen as a promoter of innovation and an enabler of an alternative type of payment in the digital world.
Especially in the third type of virtual currencies we can even see competition between these currencies and real currencies. Bitcoin is one of the cases that this applies to, as a virtual currency that is gaining popularity and attempts to bypass the traditional financial system, where central banks regulate the money supply and currencies are regulated.
Hope this helped new users to understand more about virtual currencies and start to be able to identify one when they see one being used.