Digital currencies are changing the infrastructure that money runs on, and they’re growing in popularity. More than 560 million people owned digital currencies worldwide in 2024, which is about 6.8% of the total global population. Teams pay contractors in stablecoins, marketplaces offer crypto payouts, and central banks are developing prototypes of programmable money. But many businesses still want to know how digital currency works and how it fits into real operations.

Below, we’ll discuss how digital currency works, what types exist, and how businesses are already using it.

What’s in this article?

• How does digital currency work?
  
• What are the main types of digital currencies?
  
• How do digital currencies move between wallets, accounts, or platforms?
  
• How are blockchains or ledgers used in digital currency infrastructure?
  
• How do businesses store, access, and use digital currency?
  
• How is digital currency different from bank transfers or cards?
  
• How Stripe Payments can help
  

How does digital currency work?

Digital currency is money that exists entirely online and generally exists only in digital form. It lives on networks and is created, stored, and exchanged electronically. Many digital currencies can be sent from peer to peer without intermediaries.

There are three main models:

• Decentralized (e.g., Bitcoin)

• Privately issued (e.g., stablecoins, platform tokens, in-game currencies)

• Government-backed (e.g., central bank digital currencies)

Unlike with cash, there’s no central authority that governs digital currency. Decentralized currencies are created and governed by open networks such as blockchain ecosystems. Even privately issued or government-backed versions operate on infrastructure that’s distinct from the traditional monetary system.

Because digital currency exists purely as data, it’s resistant to physical loss or theft. But that also means access depends entirely on your devices and credentials. Since every transaction is recorded, often publicly, it can mean less anonymity and more transparency.

While paying with cash is a direct transaction, paying digitally usually involves banks or card networks. But it can be done at any time, day or night. Digital currencies operate at all hours and can move across countries in seconds.

What are the main types of digital currencies?

There are four main types of digital currencies. Here’s a quick look at what they are and how they behave.

Cryptocurrencies

These are digital assets, like Bitcoin and Ether, that run on decentralized networks. No one owns or issues them. They’re governed by code, which means they’re programmable, and maintained by a distributed network of computers that agree on transaction history, often using blockchains.

Cryptocurrencies are designed to be borderless and resistant to censorship (i.e., they prevent interference). They’re permanent and publicly recorded. They’re also largely unregulated and volatile, since prices move based on supply, demand, and speculation.

Stablecoins

Stablecoins are a type of cryptocurrency pegged to real-world assets, usually fiat currencies such as the US dollar (USD). A single USD Coin (USDC) token, for example, is backed by $1 in reserve. A stablecoin’s value depends on confidence in the issuer’s reserves and governance.

They’re designed for price stability, which makes them more usable for payments. Often used for cross-border payments, settlements, and remittances, they’re becoming a practical link between traditional finance and crypto-native systems.

Central bank digital currencies (CBDCs)

CBDCs are issued directly by a country’s central bank, which means they’re backed by a government and centralized. They can use blockchain or traditional databases.

They’re still in development, but countries such as China and Nigeria are already testing them. CBDCs could enable faster, direct payments between governments, businesses, and citizens. But they raise questions about privacy, surveillance, and the role of banks.

Private and platform currencies

In-game coins, loyalty points, and tokens issued by companies are all examples of private or platform-specific currencies. They live inside private online environments, are centrally controlled, and are usually nontransferable outside their native platforms. While they’re not built for general-purpose use, they still function as digital money within a closed loop.

How do digital currencies move between wallets, accounts, or platforms?

Moving many popular types of digital currencies involves updating a blockchain ledger. This is a sequence of cryptographic steps that prove ownership, validate intent, and confirm transfer, with no intermediary required.

Here’s how a blockchain-based transaction works, step by step.

Create the transaction

A user initiates a payment through a crypto wallet. The wallet generates a request (e.g., “Send 1 Ether from me to this address”). The wallet signs the request with a private key that proves authorization.

Broadcast to the network

The transaction is broadcast to a network of nodes that run the currency’s protocol. These nodes check whether the sender has the funds or whether the currency has already been spent elsewhere. If both are verified, the transaction is considered valid.

Confirm and record

The transaction is added to the chain and time-stamped. This ledger update is global; every node gets the same record. Once the transfer is confirmed, it’s final.

Update balances

The sender’s wallet shows a lower balance, and the recipient’s wallet shows a credit. The transaction ID is publicly viewable on a block explorer instantly.

If you’re moving currency between different networks (e.g., from Bitcoin to Ethereum), you’ll need a bridge, exchange, or conversion layer since the systems don’t naturally interact. Likewise, sending a digital asset from a private platform usually means converting it first.

How are blockchains or ledgers used in digital currency infrastructure?

In crypto systems, the blockchain is the record of ownership. It’s a specific kind of ledger: distributed, append-only, and tamper-resistant. Every transaction gets bundled into a block, and each block is linked to the one before it. Once it’s added, it can’t be edited; it’s locked in by cryptographic rules and consensus across the network. If your payment is onchain, it’s settled. Since everyone sees the same history, transactions can be verified without a central authority. And fraud, such as double-spending, is computationally difficult.

Some digital currencies don’t use blockchains. A CBDC, for example, might run on a permissioned database. But the core function is the same: recordkeeping, validation, and transfer logic live in the software.

In digital currency, the decentralized ledger is the core of the system.

How do businesses store, access, and use digital currency?

Holding digital currency is like managing access credentials. Whether you’re accepting crypto, paying contractors, or managing stablecoin flows, the setup matters. Here’s how it works.

How it’s stored

There are two types of storage, or custodial models, for digital currencies:

• Self-custody: Businesses hold their own keys using software or hardware wallets. This enables maximum control but demands strong security, since losing the keys means losing the funds.

• Third-party custody: Assets are stored by exchanges or crypto custodians, often with insurance and compliance included. This model is easier to manage, but you’re trusting the provider’s risk controls.

Many companies use a combination of hot wallets for operating funds and cold storage for reserves. Hot wallets are connected to the internet and provide a quicker transaction process. Cold wallets are disconnected and more secure but can be more inconvenient for daily use.

How it’s accessed

You can access your digital currency through application programming interfaces (APIs), dashboards, or integrated tools. Teams might move funds, check balances, or trigger payments via exchanges, treasury platforms, or direct blockchain interactions. Enterprise digital wallet software can integrate into existing finance ops.

How it’s used

Businesses are using digital currencies for basic operations and more. Here are some of the common uses:

• Accepting payments: Many businesses let customers pay in crypto and convert it immediately to fiat.

• Sending payments: Stablecoins are being used for global contractor payments, especially where bank infrastructure is weak or slow.

• Managing treasury: Some firms hold digital assets as working capital or long-term investments.

• Expanding reach: Businesses that are targeting new audiences or expanding internationally can use platforms like Stripe to support stablecoin payouts and cross-border payments.

How is digital currency different from bank transfers or cards?

Bank transfers and card payments rely on a network of intermediaries that can slow the process. But digital currency offers better speed, access, and finality than traditional banking.

Crypto settles instantly, is final, and often costs less to send, especially across borders. You don’t need a bank account. All you need is an internet connection and a wallet. Because they run on public or hybrid networks, digital currencies are often visible in real time.

They also come with different risk profiles, compliance requirements, and operational trade-offs. Some businesses want the control and transparency of traditional banking systems, while others want the irreversibility and speed of digital currency. Increasingly, companies are integrating both.

How Stripe Payments can help

Stripe Payments provides a unified, global payment 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 balances.

Stripe Payments can help you:

• Optimize your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment UIs and 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 payment 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.