Digital currencies affect traditional payment systems by introducing decentralized methods of transaction that challenge conventional banking practices. Cryptocurrencies like Bitcoin operate without the need for intermediaries, potentially reducing transaction costs and improving transaction efficiency. They also enable cross-border payments that bypass traditional currency exchange barriers. However, the rise of digital currencies raises concerns related to regulation, security, and financial stability. Overall, their impact is reshaping the landscape of financial transactions, prompting traditional institutions to adapt to the emerging digital economy.