Q What is a virtual currency?

A A virtual currency typically functions as a medium of exchange, a unit of account or a store of value. It may be used as a means to pay for goods or services.

Virtual currencies first emerged about 10 years ago and do not necessarily have a physical form, unlike coins or notes. Examples of virtual currencies are bitcoin and ethereum’s ether.

They are not issued by any government, and are not legal tender. This means that you may only use them to pay for goods or services if you are dealing with someone who is willing to accept them as a mode of payment. Typically, payments with virtual currencies are made online.

Mr Sachin Mittal of DBS Group Research said that if you wish to invest in digital currency, open a digital currency wallet either through a wallet service or a cryptocurrency exchange. In Singapore, exchanges are required by the Monetary Authority of Singapore to verify the identity of the investors. Some of the prominent wallet and exchange services here include CoinHako, Coinbase, Luno and ItBit.

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Q What is a blockchain?

A Users of a virtual currency transact directly with each other, and each transaction is typically recorded in a blockchain for that virtual currency. Users of a virtual currency usually maintain anonymity with respect to their transactions entered into the blockchain which may be publicly available.

Q What is a digital token?

A A digital token is an electronic representation of a token-holder’s rights to receive a benefit or perform specified functions. One particular type of digital token is a virtual currency.

However, the function of digital tokens has evolved beyond a virtual currency. For example, they may represent ownership or a security interest over the token-seller’s assets or property, or a debt owed by the seller. Such digital tokens have been marketed as investment opportunities.

Q How do ICOs and investment schemes involving digital tokens work?

A Digital tokens may be offered through an initial coin offering (ICO) or other investment schemes. Those offered through an ICO are usually specific to the seller, and such tokens are typically sold to consumers in exchange for a widely used virtual currency or cash. These sellers often set out their business proposal in a so-called “white paper” published online.

ICOs and other investment schemes may be structured in many ways with different business propositions. For example, they may seek to develop a new digital platform, offer an opportunity to invest in a property, business and assets, or promise certain benefits or monetary returns.

Lorna Tan

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