Cryptocurrency and digital currency are sometimes used interchangeably.
Is cryptocurrency a type of digital currency?
Are all digital currencies cryptocurrencies?
What are the differences between cryptocurrency and digital currency?
Those and many more are what we shall discuss and break down in this post.
Before we get started – lets delve into some introduction for little insights:
What is Cryptocurrency?
Cryptocurrency is a digital currency with the added attribute of being decentralized, meaning that it has no centralized bank or authority.
It does not depend on a single entity to process and validate transactions.
Despite the cryptocurrency’s decentralization, it can still be subject to hacking attacks in which hackers will use malware or phishing schemes to steal cryptocurrency from users’ digital wallets.
Blockchain is the technology that cryptocurrency runs on.
Blockchain technology provides cryptocurrency with its decentralized nature, which means it does not depend on one entity to process and validate transactions.
Blockchain technology provides cryptocurrency with its decentralized nature, which means it does not depend on one entity to process and validate transactions.
They are created using a system of consensus algorithms that will confirm cryptocurrency transactions from one user to another as valid based on the overall network’s agreement.
The first cryptocurrency was Bitcoin, and today there are more than four thousand cryptocurrency coins and tokens.
Besides Bitcoin (BTC)- here are other popular cryptocurrencies in the market:
- Ethereum
- Litecoin
- Ripple
- Cardano
- Binance Coin
- Polkadot
- Stellar
- Bitcoin Cash
- Chainlink
And many more…
As of when writing this, there are over four thousand cryptocurrency coins and tokens in the market. And the number keeps growing.
What are Digital Currencies?
Digital currency is a type of money that only exists in digital form and not physical. It’s also easy to use, such as online shopping or setting up direct deposits for your paycheck.
It’s a form of intangible money that can only be used electronically.
All around the world, people are becoming more aware of digital money.
Digital wallets have become a popular way to store and spend your cash in an easily accessible form that can be shared with others or transferred at any time from one account holder to another by using either smartphones or computers connected online.
In countries where banking services may not exist – mobile phones are often used as the primary device on which their financial transactions take place.
The most common examples of digital currencies worldwide include those issued by banks themselves electronically – held funds such as trading currency traded within institutional accounts:
- investment securities held electronically (stocks)
- virtual goods exchanged between gaming platforms without relying upon credit card purchases
- internet “gift” cards
- digital token (e-token)
Another form of digital currency is cryptocurrency.
We shall go more into details below:
Relationship between Cryptocurrency and Digital Currency
A cryptocurrency is an example of digital currency that has one or more benefits over traditional government-issued money and other forms of intangible assets like gold.
Unlike centrally issued digital money, cryptocurrencies cannot be recovered if lost or stolen.
In cryptocurrency, the transactions are recorded on a public ledger called “blockchain.”
Blockchain is comprised of transaction records that hold information about who owns which cryptocurrency.
The only way you can get cryptocurrency is through mining or trading with someone else who already has it.
Transactions are validated by computers solving complex mathematical problems (i.e., cryptography) within their respective systems, making them difficult to hack without an extraordinary amount of computational power and skill.
Cryptocurrencies have no physical form meaning they’re not bound by country borders or subject to regulation like banking institutions so there’s always going to be some risk involved.
Digital currencies on the other hand are usually not entirely decentralized and can be manipulated by their issuer.
Cryptocurrency is just a type of digital currency.
Digital currencies are not backed by any physical assets but instead rely only on confidence in the robustness of their systems for security.
Cryptocurrency is also much faster than digital currency because cryptocurrency has no physical form it only exists in virtual space or cyberspace.
The cryptocurrency can be transferred between users confidentially without fear that any third-party institution could intercept these funds while they’re being transmitted via Internet networks.
Final Thoughts
The cryptocurrency vs digital currency debate is one that will likely rage on for many more years to come.
However, it’s worth mentioning the distinction between cryptocurrency and digital currency isn’t far-fetched.
First, cryptocurrency: a decentralized virtual currency or medium of exchange; can be transferred electronically without the need for a central authority (i.e., government) issuing them and keeping track of transactions.
Then, digital currencies: fiat money like dollars, euros, tokens, etc.; these are currencies that are not a cryptocurrency and exist in digital form only.
Digital currencies can be transferred electronically without needing a central authority to issue them but cryptocurrency is decentralized and doesn’t require any sort of governmental body to keep track of transactions.
Cryptocurrency is purely for financial transactions while digital fiat currencies have many more purposes including purchasing items online, paying wages, etcetera.
It may seem like this debate will never end but it should give you some insight into what these terms mean when used together.
Let me know your thoughts about this debate below.
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