This Article is From Aug 09, 2021

No, Digital Currency Is Not Same As Cryptocurrency

Digital currency refers to the electronic form of fiat money issued by governments, whereas cryptocurrency is a store of value secured by encryption

No, Digital Currency Is Not Same As Cryptocurrency

With the advent of cryptocurrency, the use of digital wallets has increased even further

The use of digital wallets flourished as technology evolved in the past decade. Governments all over the world encouraged people to switch from traditional wallets to digital wallets as they were convenient in many ways. Their popularity peaked during the pandemic because of their contactless benefits. Then, with the advent of cryptocurrency, the use of digital wallets increased even further. All this happened quite rapidly for most people to keep up with and resulted in some confusion about these two types of currencies.

People began using digital wallets to hold both digital currency as well as cryptocurrency. And often, we find them using the terms interchangeably. However, they differ.

1) Digital Currency Vs Digital Coins

Digital currency refers to the electronic form of fiat money issued by governments. They are used for contactless transactions between parties, like when you electronically transfer an amount from your bank account to someone else's. When you pay from your bank account or digital wallet, which stores value corresponding to the actual fiat money via an electronic transfer mechanism for a product or service, you are using digital currency. When you withdraw money from an ATM, the digital currency is turned into liquid cash.

Cryptocurrencies, on the other hand, is a store of value secured by encryption. They are often referred to as digital coins. There are several digital coins such as Bitcoin, Ether and Dogecoin. All these crypto coins are privately owned or created and are not yet regulated in most countries. These are created using advanced blockchain technology.

2) Usage

Digital currency does not require encryption, but users need to secure their digital wallets (banking apps) with strong passwords to minimise the risk of theft or hacking. Users also need to secure their debit/credit cards with passwords. They can use any of these means to transact digital currency from their bank accounts.

Cryptocurrency is protected by strong encryption. To trade cryptocurrency, you need to first have a bank account and digital currency in it. You will have to exchange the digital currency via an online exchange to get cryptocurrency for the corresponding value.

3) Regulatory Authority

As digital currency is the electronic form of fiat money, it is always backed by a centralised authority. In India, the Reserve Bank regulates the rupee and all digital currency transactions are monitored by authorities. The cryptocurrency is based on a decentralised system and independent of any centralised regulation. But all transactions are recorded in a decentralised ledger that is available to everyone to see.

4) Stability

Digital currency is usually stable and it is relatively easy to manage its transactions because of wider acceptance in the global market. Cryptocurrency is highly volatile and just gaining traction. Not many companies have started accepting payments with cryptocurrencies.

5) Transparency

Details of digital currency transactions are only available to the sender, receiver and banking authorities. All cryptocurrency transaction details are in the public domain by virtue of a decentralised ledger.