Digital currency is now part of how money moves on the internet, from creators getting paid across borders to businesses settling with the millions of global customers who don’t use traditional banks. But the technology can be confusing: some digital currencies behave like investments, some behave like cash, and some are still being tested.

Below, you’ll find an introduction to digital currency: how it actually works, where it’s already being used, and what it might mean for how money moves in the near future.

What’s in this article?

• What is digital currency?
  
• How do different digital currency types compare?
  
• What technologies support digital currency systems?
  
• How is digital currency used in payments?
  
• What risks affect digital currency adoption?
  
• How can businesses and users begin using digital currency?
  
• How Stripe Payments can help
  

What is digital currency?

Digital currency is money that is created, stored, and transferred entirely online. You don’t need a checking account to send or receive it. You just need access to the internet and the right kind of digital wallet.

Digital currencies allow faster global and cross-border payments, financial access without banks, and entirely new types of services.

They fall into three main categories:

• Cryptocurrencies (such as Bitcoin or Ether): These run on public blockchains and aren’t issued by any government.

• Stablecoins (such as USDC): These are a specific type of cryptocurrency designed to hold a steady value, with the most common ones pegged one-to-one to the US dollar. They can be issued by private companies or are entirely decentralized.

• Central bank digital currencies (CBDCs): These are a government-backed digital version of physical cash that’s still in development in many countries.

How do different digital currency types compare?

Digital currency covers a whole spectrum of offerings, from decentralized crypto networks to government-backed digital dollars. Here’s how the main types stack up.

Cryptocurrencies

Many people treat crypto more like an asset class than everyday money. There’s no central issuer: it runs on blockchain ecosystems maintained by users, not institutions. Prices fluctuate based on supply, demand, and speculation. These assets are especially useful in countries with unstable currencies or limited banking access.

Stablecoins

Stablecoins are a type of cryptocurrency that aim to maintain a stable value. They can be pegged to assets such as the US dollar, which gives them more price stability than other forms of crypto. Stablecoins are becoming an important international currency: there are now over $305 billion of them in circulation.

CBDCs

CBDCs are government-backed digital currencies that function like a digital version of cash. They’re still developing in most countries, but they could create instant-settlement cash that’s accessible to anyone with a smartphone. Countries such as the Bahamas and Nigeria have already launched CBDCs, with major tests underway in China, India, and other countries. In the US, Congress is actively debating privacy and policy concerns related to CBDCs.

What technologies support digital currency systems?

A few core technologies make digital currency work. Below are the main players.

Blockchains and distributed ledgers

Blockchains are shared databases that record transactions across a network. Every transaction is time-stamped, linked to the one before it, and visible to the whole system. There’s no central ledger to hack or edit. Once data is written onchain, it stays. This structure is what allows cryptocurrencies such as Bitcoin and Ether to operate without a bank or payment processor.

Cryptography

At the center of any digital currency system is cryptography. You hold a private key, which acts like a password and allows you to sign transactions and prove ownership of assets stored at a blockchain address. Each transaction is also encrypted, hashed, and linked in a way that keeps the entire chain secure and verifiable. That’s how faith is built into decentralized systems, even when users don’t know each other personally.

Consensus mechanisms

Since there’s no central party validating transactions, networks use consensus algorithms to agree on which transactions are valid. Bitcoin uses proof-of-work, which is energy-intensive, and Ethereum now uses proof-of-stake, which is faster and more efficient.

Smart contracts

Smart contracts are bits of code that automatically execute when predetermined conditions are met. They power everything from automated payouts to onchain subscriptions. For example, Stripe built a custom smart contract for USD Coin (USDC) that allows businesses to pull recurring payments from customer wallets without manual approvals each time.

Wallets

Wallets store your keys and interface with a blockchain system. Some are custodial (managed by a third party), while others are self-custodial (you hold the keys). You need a wallet to transact in cryptocurrency.

How is digital currency used in payments?

Digital currency is becoming part of how people and businesses move money, especially where the existing options are slow, expensive, or broken.

Here are the main use cases right now.

Online payments

Businesses accept digital currency, but they typically use payment providers instead of touching crypto directly. When a customer pays in digital currency, the provider handles the onchain logic, converts it, and settles to the business in fiat. It’s no different than getting paid by card, except now global customers who prefer to pay with crypto can do so, with no special setup required. For example, Stripe has seen businesses shift up to 20% of their payments volume to stablecoins.

Cross-border payouts

Stablecoins avoid the delays, intermediaries, and foreign exchange (FX) fees that typically come with cross-border payments. Payments settle in minutes, not days, and at a fraction of the cost of traditional networks.

In regions with unstable local currencies, people use stablecoins for economic survival. For example, over half of consumers in Latin America have made a purchase using digital currency, often preferring it over their local tender.

Real-world spending

For now, spending crypto at the point of sale is niche but growing. Some do it directly through merchant wallets. Others use crypto-linked debit cards that convert holdings to fiat at the time of purchase. In some countries, such as El Salvador, Bitcoin can be used like cash. In the US, a small share of consumers use crypto and other digital currencies for real-world spending.

What risks affect digital currency adoption?

Digital currency still comes with technical, regulatory, and human challenges.

Here’s what to look out for:

• Volatility: Crypto markets move fast, which is great for trading but hard for budgeting. Stablecoins help, but their utility still depends on trust in the issuer and access to reliable on- and offramps.

• Regulation: Some countries are advancing clear frameworks, while others are tightening restrictions or delaying decisions. In the US, for example, the GENIUS Act outlines a legal framework for stablecoins, but it doesn’t apply to algorithmic stablecoins or other types of crypto. Meanwhile, Congress is debating if and how a US digital dollar should even exist.

• Security: Blockchains are secure by design, but phishing, crime, and user error still account for billions lost each year. Because crypto transactions are final, there’s no dispute resolution option.

• Perception: Some people see crypto as speculative or fringe. These impressions can still influence policy, investment, and user behavior.

How can businesses and users begin using digital currency?

Start by deciding what you’re using digital currency for.

Once you’ve got a use case, consider the following:

• Choose your currency: Bitcoin, Ether, or a stablecoin such as USDC are all solid starting points.

• Pick a wallet or platform: Exchanges’ custodial wallets offer convenience, while self-custody gives you control. Know for certain who holds the keys.

• Secure everything: Enable two-factor authentication, store recovery phrases offline, and double-check addresses before transacting.

• Test with small transactions: Move a few dollars to learn how “gas” transaction fees, confirmations, and network congestion work in real life.

How Stripe Payments can help

Stripe Payments provides a unified, global payments solution that helps any business—from scaling startups to global enterprises—accept payments online, in person, and around the world. Businesses can accept stablecoin payments from almost anywhere in the world that settle as fiat in their Stripe balance.

Stripe Payments can help you:

• Optimize your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment UIs, access to 125+ payment methods, including stablecoins and crypto.

• Expand to new markets faster: Reach customers worldwide and reduce the complexity and cost of multicurrency management with cross-border payment options, available in 195 countries across 135+ currencies.

• Unify payments in person and online: Build a unified commerce experience across online and in-person channels to personalize interactions, reward loyalty, and grow revenue.

• Improve payments performance: Increase revenue with a range of customizable, easy-to-configure payment tools, including no-code fraud protection and advanced capabilities to improve authorization rates.

• Move faster with a flexible, reliable platform for growth: Build on a platform designed to scale with you, with 99.999% historical uptime and industry-leading reliability.

Learn more about how Stripe Payments can power your online and in-person payments, or get started today.