Digital Currencies vs Cryptocurrencies – The Subtle Difference

The two terms of digital currencies and cryptocurrencies are also sometimes used interchangeably. But how are these terms different? Here is the distinction that I am able to make personally based on my experience in this space over the past few months.

Digital currencies are often referred to the currencies that are the digital versions of the physical currencies in circulation, or fiat. These currencies are usually the digital form of the state-issued currencies. For example, services are often offered by banks to its users to control bank accounts, transactions, payment etc. through digital cash. Since no actual physical exchange is taking place, we will refer to the cash represented in the digital form as a digital currency. This digital cash can be converted into physical form by contacting the bank. The bank is the party that is overseeing this entire workflow and is keeping the records clean. Usually, the usage of digital currencies of a country is limited within that country.

Cryptocurrencies, on the other hand, do not have a physical representation. They are digitally created assets and have no backing as in gold, silver, copper etc. In addition, the biggest feature that they bring is decentralization. They are not controlled or governed by any third-party. These currencies are not state issued and there is no bank involved in the framework that is holding the record of the transactions taking place on the network. They also form global networks transcending the boundaries of countries. As there is no third-party handling and overseeing the transactions taking place, the record of transactions is usually visible to all the participants of the network. A certain level of anonymity is also maintained in a decentralized framework.

Now, here is why cryptocurrencies are often called digital currencies. As they are represented in digital form, some people tend to use the term digital currencies for them. So, we can say that digital currencies encompass both digital versions of fiat and somehow cryptos as well, but the major difference should be always kept in mind.

Another term that is not used that often is virtual currency. What is this virtual currency? Virtual currencies are currencies that are usually used for fun, as in games. Developers of a gaming ecosystem can develop their virtual currency ecosystem where buying and purchasing can be made using these. They are usually given out by that particular ecosystem on their own, or can be bought using actual currencies in that ecosystem.

This was a brief understanding that I personally have been able to establish. So overall, digital currencies encompass the digital representation of fiat (currency whose value is maintained by the government), cryptocurrencies (the decentralized global currencies) and virtual currencies (currencies defined to be of value by a community in the digital space such as games etc.).

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Ahsan Khalid

Blockchain Developer. An Electrical Engineer with majors in software development. I present forward my insight regarding the latest happenings of the blockchain world. All views on my articles are my own. Email: ahsan@blockpublisher.com or editor.news@blockpublisher.com

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