Difference Between Cryptocurrency and Digital Currency

The Reserve Bank of India has launched a digital currency. There are 11 countries including Nigeria and some Caribbean countries that have already launched central bank digital currencies (CBDCs). The currency is a legal tender in a digital form. Digital currencies will be exchangeable at par with other fiat currencies. Cryptocurrencies differ from digital currency because bank or a government does not issue it. In the traditional sense, cryptocurrencies are not traditional currencies. They are sometimes classified as commodities and securities. 

Cryptocurrency vs Digital Currency

There are many notable differences between cryptocurrencies and digital currencies. However, there are five major differences in which the two differ considerably. In the near future, it is unlikely that these major differences will blur.

Transparency

Cryptocurrencies are more transparent than digital currencies. This is because cryptocurrency transactions are traceable. Blockchain technology’s traceable feature and decentralized ledger records all the transactions. However, digital currencies are slightly less transparent since only the sender and receiver are aware. Any third party needs prior permission to observe digital currency transactions. Cryptocurrencies are easier to manage because the records are easily accessible. Digital currencies may involve bureaucratic permissions. Decentralization features are driving the adoption of cryptocurrencies faster than digital currencies. 

Centralization

Centralization is perhaps the prominent difference between cryptocurrencies and digital currencies. In the case of digital currencies, central banks are the main governing body. In the case of India, it is the Reserve Bank of India that regulates the flow of digital currencies. They along with the consultation of the government decide the value of the currency. Cryptocurrency follows a transparent process from mining to transferring to ownership. Central bank authorities do not play any role in determining the prices of cryptocurrencies. 

Legality

Digital currencies in India are fully legal, since the central bank Reserve Bank of India. The same is not true for cryptocurrency. Governing bodies and traditional legal frameworks do not support cryptocurrencies. In India, there is no official ban on cryptocurrencies. However, the surge in the number of depositors is forcing many governments to think of a universal legal framework. Fiat digital currencies are still acceptable since they have government backing.

Stability

The stability of currencies depends upon market factors. However, it is an undeniable fact that cryptocurrencies are less stable than digital currency. Digital currencies just like paper fiat currencies are stable, traded, and a majority of the population understand it. Cryptocurrencies are unstable and their price fluctuates considerably.

Summary of Differences between Cryptocurrency and Digital Currency

Cryptocurrencies are either decentralized or unregulated. Digital currencies on the other hand are regulated by a central authority. Digital currency is only a digital version of fiat currency. It can be used in contactless transactions. Cryptocurrency though digital is a store of value. Encryption secures it. As far as stability is concerned, digital currency rates are far more stable than cryptocurrencies. It is also more acceptable, even though cryptos are becoming more acceptable. Cryptocurrencies rates are volatile and some do not accept it as a form of payment. 

Digital currency transactions are visible only to the sender, receiver, and bank. Without prior official authorization, these are not visible to anyone else. Cryptocurrency transactions are traceable and transparent. These are publicly available on a decentralized ledger. Blockchain technology is widely applicable to cryptocurrency. However, it is not used in dealing with digital currencies. 

Also Read- Impact of Blockchain Technology on Mobile Apps

Conclusion 

The similarities between cryptocurrencies and digital currencies are superficial. In reality, the two are very different. Differences like stability and legality are unlikely to get blurred soon. However, the current trends also suggest that many governments want a universal legal framework to regulate crypto transactions. Perhaps this may further increase the credibility of cryptocurrencies and make them a viable alternative to digital currencies. 

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