Recently we are hearing a lot about virtual currencies, cryptocurrencies or electronic money, digital money. Information flooded newspapers and social networks.
Cryptocurrencies have just gone through a big wave and are in crisis but some countries such as China are also working on their own digital currency while banning mining, providing services and transactions of cryptocurrencies. So what is the difference between cryptocurrency and digital currency?
The following article will help you better understand the difference between Cryptocurrency and digital currency.
What is Cryptocurrency?
Cryptocurrency is decentralized digital money, based on blockchain technology. You may be familiar with the most popular versions, Bitcoin and Ethereum, but there are more than 5,000 different cryptocurrencies in circulation, according to CoinLore.
You can use crypto to buy regular goods and services, although many people invest in cryptocurrencies as they would in other assets, like stocks or precious metals. While cryptocurrency is a novel and exciting asset class, purchasing it can be risky as you must take on a fair amount of research to fully understand how each system works.
Cryptocurrencies are wholly digital, so there’s no physical coin or bill connected to the crypto you own. Instead, owners hold cryptocurrency in a digital wallet, and buy or sell through an online exchange.
What is Digital currency?
Digital currency is a form of currency that is available only in digital or electronic form, and not in physical form. It is also called digital money, electronic money, electronic currency, or cyber cash.Source: Investopedia
Digital currency can either be centralized, where there is a central point of control over the money supply (for instance, a bank), or decentralized, where the control over the money supply is predetermined or agreed upon democratically.
China has given away millions in its digital yuan trials. This is how it works
To be more specific, China is at the forefront of developing its own digital currency. The digital yuan is issued with the backing of the Chinese state.
The People’s Bank of China (PBOC) has been spearheading work on the digital yuan, a so-called central bank digital currency (CBDC) that aims to replace some of the cash in circulation.
Real world trials are already underway in the world’s second-largest economy. Here’s what we know so far about the digital yuan or its official name — the Digital Currency Electronic Payment (DCEP).Read more: cnbc.com
Digital Dollar Project to launch five U.S. central bank digital currency pilots
And recently, the non-profit US Digital Dollar Project said that it will launch five pilot programs over the next 12 months to test the ability of central banks to use digital currencies. United States in the first attempt of its kind in the United States.
The U.S. nonprofit Digital Dollar Project said on Monday it will launch five pilot programs over the next 12 months to test the potential uses of a U.S. central bank digital currency, the first effort of its kind in the United States.
The private-sector pilots initially will be funded by Accenture Plc (ACN.N) and involve financial firms, retailers and NGOs, among others. The aim is to generate data that could help U.S. policymakers develop a digital dollar.Read more: Reuters
The difference between Cryptocurrency and digital currency
The current rate of digital currency is almost constant and easy to deal with in the global market. There is no need for extensive research before dealing with any kind of transaction. But in the case of cryptocurrency, the market is highly volatile. It consists of potential risk without any extensive research before any investment or heavy transaction between two companies. There is a probability to experience a sudden change in the rate of cryptocurrency while completing a transaction.
There is a little bit of transparency in the information while dealing with digital currency. The receiver or sender of digital currency will only get the information related to the transaction process— amount, bank, time, and date. But transparency is the most important feature of cryptocurrency. Blockchain technology provides the entire stream of conversation between the two parties regarding all transactions— past and current. All the private conversations are maintained with confidentiality only between the dealers and no one else can get access to it.
The digital currency has the centralized authority where the Reserve Banks control the entire banking system of the respective countries. Banks have the authority to closely monitor the transaction flow for everyone whether it is for a digital wallet or a physical wallet. In the case of cryptocurrency, it is a decentralized system where there is no presence of a third party to have authority over the investors.
There is a hefty amount of transaction fee with digital currency every time there is payment through the digital wallet. But there is no system of transaction fee in dealing with cryptocurrencies. Blockchain technology helps to reduce the expense as well as no extra commission for the third party agents. Cryptocurrency is very useful for investors to deal with heavy transactions involving valuable assets.
With the above differences, we can summarize that all cryptocurrencies are digital currencies but not all digital currencies are cryptocurrencies.
Cryptocurrency is decentralized and its price fluctuates according to consumer sentiment and psychological triggers in price movement. But digital currency can be centralized or decentralized, with stable and market-based transaction prices.
We hope aboves hepl you understanding the difference between Cryptocurrency and digital currency.