Should Merchants accept Digital and Virtual Currencies?

There are two types of currencies that has been introduced into the marketplace, Virtual currency and Digital currency.  These forms of currencies, in addition to the physical currencies are used in online and offline commercial transactions.  The question remain whether or not these currencies are a way to help small businesses grow their customer base.

What is Virtual Currency:

Virtual currencies exist in the virtual world only.  They are not a physical currency that you keep in your wallet/purse.  You cannot use it to buy products in the physical world.  They exists in virtual communities on the Internet such as in gaming environments where gamers can exchange the virtual currency for products within the games they are playing.

Virtual currencies do not have a central issuing entity.  It is controlled by its developers.  It is unregulated currency. 

What is Digital Currency:

Digital currencies are currencies that can be used in the virtual as well as physical worlds.  You can use digital currencies to buy products online and you can walk into a store that accepts them and purchase physical goods. 

Digital currencies has no central point of control over the money supply.  The money supply is decentralized.  Individuals can get digital currencies by utilizing their computers to mine them, buy them on an exchange (like Coinbase) or accept them for products and services. 

Digital currencies allow for instantaneous transactions and borderless transfer-of-ownership.  You can instantaneously pay someone on the other side of the globe for a product or service.  There is a small transaction fees when using digital currencies.  The transaction fee is much smaller than that of traditional financial institutions.

There are two types of digital currencies, encrypted and non-encrypted.  Encrypted digital currencies uses cryptography to make it extremely difficult to counterfeit. 

Some examples of Digital currencies are:  Bitcoin, DevCoin, Feathercoin, Litecoin, Novacoin, Terracoin.  By far the most popular one is Bitcoin.

How Does It Work:

Consumers can get Digital currencies by creating an online account and buying the currency with traditional currencies such as a credit card or a bank account.  Some Digital currencies can also be obtained by mining.  This is using computers to perform specific tasks such as crunching numbers (process digital transactions)  to unlock codes which is used to generate the Digital currency.

Consumers also sign up for an account and purchase the coin which they inturn use to make payments for products.

Merchants/businesses must sign up for a Digital currency account.  Payments made to the business will be deposited into this account. 

Merchants can accept payments manually or sign up for a merchant service account and start accepting payments.  Manually accepting payments means that you have to manually maintain a log to track every transaction.  The merchant service will allow you to automate the tracking of each transaction.

The value of the Digital currencies varies because they are traded on exchanges.  Hence when you convert the Digital currency to real currency the value will vary.  Some of these exchanges include; Coins-e, DCXTX and AlphaPoint.