Many people use the terms “digital currency” and “cryptocurrency” interchangeably or confuse them, others think that it’s the same thing. In reality, these two terms are different. So, today we will shed some light on cryptocurrency and digital currency differences. Catch up with ChangeNOW, and you will be aware of how cryptocurrency and digital currency are different from each other.
What are digital currencies?
Basically, digital currencies are money used on the Internet and exist only in the digital form. Even though you can not physically touch the notes and coins, the digital currency has all the characteristics of money in traditional form. You can obtain it, transfer, pay for goods in online stores or exchange it. Transactions with digital currency can be sent from any place in the world and have no geographical borders. Sure, digital money can be converted to cash (think about ATMs).
What are cryptocurrencies?
Cryptocurrency is one of the possible forms of digital currency. Yes, digital currency is more of an umbrella term for all the money existing in the digital space. Crypto is a specific type of digital currency that is private, decentralised and secure due to its encryption mechanisms. Examples of cryptocurrencies include Bitcoin, Ethereum, Litecoin and so on – there are hundreds of less known coins and tokens, too. Unlike digital currencies, crypto is generated via a technology called blockchain. The blockchain is later used for crypto exchange, too.
The market of cryptocurrency is rather young and is still quite unpredictable, but it does not stop users from investing and using crypto in their daily life.
How are digital currencies and cryptocurrencies different?
There are some major differences between these two types of currencies. First and, probably, most important of them is centralisation. Digital currencies are regulated by organisations and institutions and all the transactions are monitored. Also, digital currencies, just like real-life money, are issued by the government institutions of a taken country.
Crypto is, as we have already mentioned, decentralised, so there is no authority regulating it. The value of crypto, for instance, is mostly determined by the community.
The other difference is legality. When digital currencies are just equivalents of real-life currencies in the computer world, crypto has no legal backing. So, if a country wants to ban crypto, they have a right to do so (take China and Russia as examples of the crypto ban).
Anonymity and transparency.
As digital currencies are regulated, the use of them requires some form of identification (entering your billing address, phone number or full name). Cryptocurrencies, in most cases, do not require the identification and disclosure of personal information. To make a transaction, only your wallet address is needed. However, transactions in crypto are public because of the way they work. Information about each transfer is added to the blockchain database and is available for anyone in this network.
As you can see, there are many differences between crypto and digital currencies. Is there any actual possibility of these two merging together? The answer is – nobody knows yet. There are cryptocurrencies out there that are looking for regulation and stability but without any visible result. The nature of crypto itself was invented out of the need for decentralisation, so why would they completely change the course?
Sure, maybe this merging will happen sometime in the future, but definitely not now.