When you come across the terms ‘digital currency’ and ‘cryptocurrency’, you might think that those two mean the same thing. However, there are actually significant differences between the two. The use of digital wallets and blockchain technology when it comes to transactions has improved over the years.
The popularity of digital wallets and crypto reached its peak when the pandemic hit and everyone were doing cashless transactions. If you’re wondering how digital currency is different from cryptocurrency, then this article will teach you everything you need to know about these two forms of currency.
First, we have to start by defining each of them:
What is Digital Currency?
Digital currency means money that exists online and it is transferred and recorded through computers. You can hold digital currency as a form of physical money that you just chose to store online. Basically, digital currency refers to the electronic form of fiat money that governments and countries issue from all over the world.
You can use these digital currencies for contactless transactions and when you want to transfer a certain amount from one bank account to another. The balance of your digital money is stored in a distributed database or an electronic computer database. This includes virtual currencies, central bank digital currencies, E-cash, and cryptocurrency.
What is Cryptocurrency?
Cryptocurrency, or crypto, is a form of digital asset designed to be a medium of exchange where coin ownerships are stored in a digital ledger called a blockchain. These blockchains are computerized databases that use strong cryptography for more secure transactions.
The value of crypto is secured by encryption, and people often refer to them as digital coins.
However, the main difference between digital currency and crypto is that crypto uses a decentralized control system as opposed to digital currency regulated by governments and other third-party financial institutions.
The Difference between Digital Currency and Crypto
Here are some of the most important differences between a digital currency and a cryptocurrency:
Usage
The most obvious difference here is that digital currency does not need to be encrypted. Of course, you can still secure your digital wallet using a strong password to avoid hacking and theft.
On the other hand, crypto is protected by strong encryption, and when people trade in crypto, they always need a bank account with digital currencies to connect it to their crypto wallet.
You can directly use your digital currencies for daily transactions in real life or online. For crypto, you need to go through an exchange to convert your coins into digital currency to pay for mundane things unless the establishment accepts crypto payments directly.
Regulatory Authority
Since digital currency is the electronic form of fiat money that we use every day, it is expected that a centralized authority backs it. Banks and other financial institutions regulate and monitor transactions using digital currency.
Since crypto is based on a decentralized system, it does not need any third party to regulate the transactions. Instead, crypto investors act as validators to validate the transactions made on the chain. The chain cannot be modified by any third party, and there is no single authority that oversees it.
Stability
Digital currency, the fiat money we store online, is usually considered more stable than cryptocurrency. The crypto market is very volatile and not for the weak since it requires a lot of skill and initiative to make good trades.
Furthermore, in online digital currencies, it is hard to predict the price movements in the crypto market.
Transparency
The problem with digital currency is that it is not as transparent as crypto. Transactions using digital currency are only available to the banking authorities, receiver, and sender. In crypto transactions, everything is stored in the public domain or ledger. This means that everyone can look at the recent transactions made by people in the decentralized ledger.
FAQs
Here are some frequently asked questions about digital currency vs. crypto:
Are all digital currencies crypto?
It is the other way around. All cryptocurrencies are digital currencies, but not all digital currencies are crypto. There are advantages and disadvantages to both currencies, so it depends on the user which one is more efficient for them.
Will paper money soon be phased out?
Although physical cash is becoming less and less popular due to online payment, paper money is doubtful to disappear from circulation soon.
Dollars and cents may become harder to use with technology finding new ways to make transactions cashless, but there are still enough users of physical money for it to remain usable to this day.
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