Digital Currency vs. Cryptocurrency: What’s the Difference?

What is digital currency?

A currency entirely available on a digital medium is termed digital currency. It is mentioned as a blanket term for multiple assets that are traded only through digital formats. They are a part of the nation’s financial system. All the transactions done in digital currencies are entirely virtual, and it does not have any computer network.

Digital currency is becoming more common today due to its wide capacity. As these currencies do not have any physical form, they are instant to transfer and trade. These currencies can be converted to other physical money and used similarly. It is easy to use digital currency for small transactions in a store and donating to a charity; all this can be done through an online virtual tender.

There are majorly three varieties of digital currencies which are:

• Cryptocurrency
• Central Bank Digital Currency(CBDCs),
• Stablecoins.

Multiple countries own their digital currencies in CBDC as well as stablecoins, for example,

• Sand Dollars (Bahamas)
• eNaira (Nigeria),
• Jam-Dex (Jamaica)
• Tether (USDT)
• Binance USD (BUSD)

Features

• Digital currencies are sovereign currencies that a central bank issues in consideration of their monetary policies.
• This form of currency is considered legal tender.
• Governments, citizens, and businesses use digital currencies as a payment medium and store their assets too.
• Being a fungible legal tender, one does not need any form of bank account to store such currencies.

What is cryptocurrency?

Cryptocurrencies are decentralized, but they can have some centralized characteristics. It is one type of virtual money, but some features make it different from digital currency. The very first cryptocurrency, which was launched in 2009, was Bitcoin. All the cryptocurrencies that exist today are on a blockchain. It is a ledger that keeps all the chronological data of crypto transactions.

All the transactions that happen in crypto are stored in their native blockchain. Each blockchain has various blocks on which some finite numbers of transactions get stored. Being a decentralized currency, crypto data is shared with multiple connection nodes. This kind of connection ensures that no particular person has the majority of the network controls.

Multiple cryptocurrencies exist currently; here is a list of the top 5 cryptocurrencies worldwide.

• Bitcoin
• Ethereum
• Tether
• Binance coins (BNB)
• XRP

Features

• In crypto, the person’s identity is kept anonymous as the transactions are characters.
• There is no intermediary body included that avoids unfavorable fees and restrictions.
• It provides security to its holder in the form of private keys; to enhance that, encryption technology can be added to the storage devices.
• Any authority does not control the flow of crypto, and the data is dispersed along the network.

Five major differences: Digital Currency vs. Cryptocurrency

We have seen what digital currency is as well as crypto. Both have varied features, but they are misunderstood to be the same. In various ways, digital currency is different from cryptocurrency. We will see their significant differences further in this blog.

• Centralization

The biggest question is who controls the values of coins that you own. In the case of digital money, it is regulated and centralized, which means central banks of different countries control it along with government, banks, and other financial intermediaries. The government sets the value of digital currencies in power and fears collapse during any change in a country’s political status.

In cryptocurrencies, the procedure is transparent and run by a predefined set of rules; everything runs in a decentralized format, from mining to crypto asset transfer. The values of crypto are free from any geopolitical problems. However, specific cryptocurrencies are centralized and run by their founding organizations.

• Encryption

When it comes to encryption, cryptocurrency overtakes digital currency. While all the data of cryptocurrencies are stored in blockchains, and the coins are kept in wallets, this provides higher security. The latter is an e-cash form that does not need a different encryption method.

Multiple currencies in the market provide their users with a required level of protection. Many cryptocurrencies have their form of community, which keeps them safe and reliable.

• Transparency

The details regarding a digital currency are between the service provider banking authorities, senders, and their receivers. In such cases, if any fraud or money loss occurs, there is very little proof to prove your ownership of that money. Other than that, when there is a conflict in digital currencies, there are legalities and bureaucratic hurdles for the people.

In cryptocurrencies, all the information regarding the transactions is in the public domain due to its decentralized ledger, while the records are all in the blockchains. There is a high risk in crypto during transactions, but the records are safe within the blocks. In the public domain, everyone can access the information and see the transaction details.

• Stability

Currency stability is the consistency in its monetary value as per the market. Digital currencies are considered stable and easy to manage during transactions as it is accepted worldwide. The centralized control of digital currencies makes them reliable among people; hence there are minimum fluctuations in their value.

On the other hand, the volatility of prices in cryptocurrencies makes them less stable in the market. With the addition of new technology and features, it has been gaining popularity despite being volatile.

• Legality

As the government backs up the digital currency, it has gained people’s trust as regulations control them, and investors consider them safe. There is a traditional framework that backs the legality of digital currencies in a country, and it gains people’s trust.  Currently, countries are substantial at backing their fiat currencies and are less reliable to the features of crypto.

Despite all of this, there has been a rise in the number of investors in crypto. It may not be the first choice for most countries, but as it is gaining popularity, some governments are considering legalizing trade in cryptocurrency.

Here is a table to understand some basic differences between digital currency vs. cryptocurrencies.

Parameters	Digital Currency	Crypto Currency
Overview	It is an electronic form of fiat currency and is used for contactless payment.	It is a value store whose information is kept in the blockchain.
Rules and Regulations	Digital currency is under the regulation of the central banks of the country.	Crypto is a totally decentralized system, and it is not regulated by any financial institutions.
Volatility	These currencies are stable and thus accepted worldwide.	These currencies are highly volatile and non-reliable, used for trade in some countries.
Transaction Data	The data is only available with banks, the sender, and the receiver.	All the transactions on this platform are publicly available.
Encryption	Passwords and biometric authentication are needed to store digital currencies.	A high level of encryption is provided as it gets stored in the blockchain.

 

Advantages and Disadvantages: Digital Currency vs. Cryptocurrency

There are various features in both of these currencies, and multiple differences are also there when it comes to digital and crypto, but both of these possess several benefits and disadvantages at the same time. Let’s start with the advantages and disadvantages of a digital currency vs. cryptocurrency.

Digital Currency:

Advantages	Disadvantages
Digital currency provides faster modes of payment with less transaction time.	Limited options make people rethink before using the currency.
Its global transfer charges are cost-effective.	It is a steep learning curve that consumes much time to understand rules.
Digital currency can be used at any time without waiting for bank confirmation.	There are some issues when it comes to cyber security.
As this currency is not in physical form, there is no need for any manufacturing.
Government payments can be done in a well-organized manner.

Cryptocurrency:

Advantages	Disadvantages
Crypto provides protection against inflation as the value of the currency does not depend on it.	Despite being anonymous, crypto leaves a digital trail that can be decoded by federal investigators.
Transactions done for cryptocurrencies take a few minutes to settle.	There is a constant risk of 51% attack by a miner or a group.
It eliminates the involvement of third parties and hence reduces the transfer charges.	Excessive power consumption due to participation of hash and block in a powerful network.
It is a new decentralization model for trade and businesses.	Very few key policies related to crypto transactions.
Accessing your funds is not possible without your private key; apart from that, every transaction is secured by the blockchain system.	No refund or cancellation in case the transaction goes wrong.

 

Conclusion

Being a virtual medium of trade, crypto is a part of digital currencies, but as we see in this blog, there are multiple digital currencies. These currencies solve many problems like cross-border transactions and global exchange trade. Every currency has its drawbacks and benefits, and with digital and cryptocurrencies, managing cash and its operations become easy.

Digital currencies are controlled and centralized, while crypto is a decentralized ledger; they both play essential roles in virtual market trade. With their unique features and services, investors are getting more involved in digital business through these currencies. With the use of cryptocurrencies, investors can perform all their transactions in a more safe and more secure manner. Crypto keeps the data information along with fast transactions. It possesses some unique features over other digital currencies that differ both from each other.