The financial industry is witnessing advances in financial technology and increasing consumer preferences towards online financial services. In this environment, central banks are considering their role as issuers of cash. This article addresses the primary question of what is digital currency.

It does this by introducing a money tree classification that shows digital currencies include all forms of electronic money, and can be grouped depending on what type of technology they rely on and whether they can be traded for cash at par value. The article concludes with three observations on digital currencies.