Nowadays there is a lot of talk about cryptocurrencies, digital currencies and others. But not many know that they are not the same and perhaps it is convenient to really know the differences. Although the operation of some of these digital assets may seem similar, they are very different and have quite different uses.
Getting to the point, the digital currency is a term for money that exists only in digital form. There are no physical papers, but you can transfer and exchange them for other forms of currency.
For example, you can use the digital currency to shop online and pay bills in the same way you would use the money of the bank application. However, unlike the money in this app, the digital currency does not have physical papers or coins.
Many traditional currencies exist as digital currencies, such as the British pound, the US dollar, the Japanese yen, the Indian rupee, and the Canadian dollar. Of course, these currencies are not exclusively digital, but today, a large part of the economy exists online.
Cryptocurrencies, as its name suggests, is aa form of digital currency backed by cryptography. It only exists on the Internet and is not controlled or issued by any central entity, such as a bank.
There are several cryptocurrencies well known as Bitcoin, Ether and Dogecoin. All of these cryptocurrencies are privately owned or created and are still unregulated in most countries. They are created using the advanced blockchain technology.
Issuance, distribution, and other monetary policies are encrypted on a decentralized computer network that can be easily verified by all participants. Transactions are almost impossible to reverse and are stored in the database forever.
Main differences between digital currencies and cryptocurrencies
Although both digital currencies and cryptocurrencies only exist digitally, there are differences you should know.
1. Digital currency is usually issued by a centralized entity, like a bank. Let’s remember that digital euro proposal by the European Central Bank. Cryptocurrencies, on the other hand, They do not have a centralized issuer and depend on community participation to survive.
2. Digital currencies live in a centralized Internet database, while cryptocurrencies are developed on a chain of blocks (blockchain).
3. Anyone can verify the circulating supply and full transaction history of a particular cryptocurrency, but the same cannot be said for digital currencies, which are often kept secret.
4. The price of cryptocurrencies is very volatile, which makes this sector a form of speculative investment, so to speak. However, digital currencies mainly serve as a means of payment.
5. Digital currencies are often restricted to users by a specific jurisdiction, such as a country or the ECB. Cryptocurrencies are available all over the world.
6. Users have to provide personal information to use digital currencies. However, they can transact cryptocurrency anonymously or under other names. In other words, your transaction records are visible to other people, but your real-life information is not.
7. While digital currency users can request refunds or cancellation of a paycryptocurrency transactions are mostly irreversible.
8. Although digital and virtual currencies have been around since the early days of the internet, it wasn’t until 2008 that the first Bitcoin cryptocurrency appeared on the scene.
9. Most governments establish very clear regulations for the use of digital currencies, but it should be noted that regulators are still in the process of creating laws that govern the use and control of cryptocurrencies (MiCA Law).
When talking about currencies on the Internet, it is quite logical that it is difficult to distinguish between digital currency and cryptocurrency, virtual money, online currency, etc.
With all this, Although digital currencies and cryptocurrencies are based on the same principle, they are used in very different contexts. And it is that, if we want to make some type of investment, it is vital to know these differences and know how each sector is changing, which really does almost daily.