What's the Difference Between Digital Currency and Cryptocurrencies?

What's the Difference Between Digital Currency and Cryptocurrency?

What is the difference between digital currency and cryptocurrencies? At first, the two things may seem to have the same meaning, but they function as false similarities—those words that seem to mean the same thing but don't.

While every cryptocurrency is a digital currency, not every digital currency is a cryptocurrency.

See the Difference Between Digital Currency and Cryptocurrencies

The first difference between digital currency and cryptocurrencies, then, lies in the centralization of their issuance and the control of transactions. Digital currencies are controlled by institutions recognized by a government, such as central banks.

For cryptocurrencies, however, there is no specific authority responsible for issuing or controlling them, and transactions are registered in a chain of blocks (Blockchain).

The value of the two is not the same either. This is because, in the case of digital currencies, their prices will be defined by central bank regulations, while it is the market itself that sets the price of crypto currency, following the law of supply and demand. The greater the demand, the greater the value, and vice versa.

What's the Difference Between Digital Currency and Cryptocurrency?

Another difference is that cryptocurrencies are called cryptocurrencies because they are cryptocurrencies, that is, they use encryption technology to increase your privacy. Encryption has been common on the Internet for some time.

Messaging applications like WeChat and WhatsApp, for example, use end-to-end encryption to keep users' conversations secure.

Cryptocurrencies: The technocratic utopia of apolitical money

In the midst of yet another serious crisis of capitalism, the economic and political convictions forged by neoliberalism are called into question, including Bitcoin: the currency “without a State”, the money “without politics”. Faced with this scenario of uncertainty, the sociologist and political economist Edemilson Paraná seeks to answer the following questions: do cryptocurrencies represent, in fact, an alternative to the hegemonic monetary-financial regime or are they at the forefront of new forms of financial speculation?

What are Digital Currencies?

Digital coins are intangible coins, that is, coins that have no physical form and only exist in digital form (bits). When you make payments with your credit or debit card, or with the PayPal, for example, you are dealing with digital money.

Progressively, the world is moving towards a society without physical money, using digital currencies more and more as a form of payment, since for them there are no geographic or political borders.

What About Cryptocurrencies?

Encrypted currencies (cryptocurrencies), on the other hand, are a specific type of digital currency whose main attractions are privacy, security and decentralization.

They are built on blockchain technology, so transactions are not verified by a central authority, but by the community itself.

No one needs to be trusted, as incentives to discourage any attempt to circumvent the system are built into the code.

As the name implies, they also use encryption to prevent the interception of information and thus make the system more secure. The best known example is Bitcoin, but there are several other crypto coins like Ethereum (ETH), Litecoin (LTC), Ripple (XRP) and many others.

What about Virtual Currencies?

It is common for governments to use the terms virtual currency and crypto currency interchangeably, but the definition of virtual currency also includes other currencies.

The European Central Bank defined virtual currencies in 2012 as:

"A type of unregulated digital currency that is issued and generally controlled by its developers and used and accepted among members of a specific virtual community."

This definition therefore includes currencies used in games, those used in games, for example, like FIFA, World of Warcraft, League of Legends, as they have value only within this virtual economy.

The Main Differences Between Digital Currency and Fiat Digital Currencies

A large part of digital coins is fiat, that is, they are coins issued by institutions recognized by governments.

Both crypto coins and digital coins fiat they only exist in electronic form, but there are many differences between them:

Decentralization VS Centralization of Digital Currencies

Digital fiat coins are centralized, which means they are issued and controlled by recognized government institutions such as central banks.

All transactions are verified by an authority, which checks the transferor's balance, confirms that the person really has this amount, and only then does the transfer to the destination account.

In this way, accounts and transactions can be blocked or frozen on suspicion of irregularities, for example. Information is also stored on a centralized server, making it more vulnerable to attack.

You have to trust the system and these institutions and believe that they will protect your information and your money.

As encrypted currencies (cryptocurrencies), on the other hand, are decentralized to the extent without a central authority. They are issued by a code and can be created all at once or over time. The rules are established by the users themselves, and they are also the ones who verify the transactions.

Once a transaction is made and validated, there is no way to reverse it, so errors are irreparable. The information is stored in a distributed way, with multiple copies spread across the computers of several users, which reinforces the security of the network.

Value of Digital Currency and Cryptocurrencies

  • The value of fiat digital coins is attributed by the trust society has in that particular coin and the institution that issued it, but they are legally financed and supported by governments.

 

  • The value can also be influenced by the issuing institutions themselves, which can decide to increase or restrict the value of the currency in circulation.

 

  • The value of cryptocurrencies is linked to the trust people have, the demand for the currency and also the size of the community, as the more people who use a given cryptocurrency, the more value it has (network effect).

The fact that they are limited also influences valuation. Being relatively new, crypto coins are still highly volatile.

Privacy of Digital Currencies and Cryptocurrencies

Because they are controlled by the authorities, fiat digital currencies allow the wealth of individuals and companies to be constantly monitored. Furthermore, to be part of the banking system it is necessary to provide and prove various information, such as address and identity document.

Encrypted coins provide greater privacy as no information needs to be provided to create a wallet. To make a transaction, you just need the address of the destination wallet. So you may be doing business with Warren Buffett and not even know him.

This information will be publicly available, so it is possible to find out the balance of an address if you add up all the transactions it has already made. Cryptocurrencies are not, therefore, they have anonymity. This issue can be worked around if you generate more than one public address for the same wallet, as the addresses registered in the block strings will be different.

Transparency of Digital Currency and Cryptocurrency Transactions

Information on fiat digital currency transactions is restricted. Only institutions and parties involved have access to it.

Transparency of Digital Currency and Cryptocurrency Transactions

Transparency of Digital Currency and Cryptocurrency Transactions

In contrast, information about cryptocurrency transactions is recorded in the blockchain and is publicly available. Anyone can access the entire history of transactions that have already taken place with the Bitcoins, For example.

Regulation

Digital fiat coins are regulated by local authorities. Directive 2009/110/EC regulates it in the European Union and Article 4A of the Uniform Commercial Code regulates it in the USA.

The Brazilian government calls fiat digital coins electronic coins, and there are legal provisions for them. It is possible to exchange them for physical currency or exchange them for any good or service, as they are accepted anywhere.

Cryptocurrencies, however, are not regulated and are also not accepted by any establishment. They are tolerated and recognized by financial institutions, but there is no legal provision.

Can Cryptocurrencies and Digital Currencies Be Unified?

The union of the two and the existence of a currency system capable of providing the stability of fiat digital currencies with the security and privacy offered by cryptocurrencies is very desirable, but as they take such different approaches, it is unlikely, or at least very difficult, for that to happen.

Concluding About Digital Currency and Cryptocurrencies

The world is becoming more and more digital, and the market is also putting more and more technology into its workings. The stock market works in a fully digital environment and virtual currencies are already used as a means of payment.

So it appears that the market direction in the future is increasing digitization. Because of this, it is interesting to think about buying cryptocurrencies and thus investing in them. As long as the investment is thought out in advance with objectives and, above all, with planning.

Therefore, it is advisable that, before investing capital in cryptocurrencies, you plan your investments, preventing unforeseen events (creating an emergency reserve, for example), knowing your investor profile and also acquiring knowledge about the assets or cryptographic activities , in which you want to invest your money.

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