Is crypto and digital currency the same thing? Well, the confusion is pretty valid since both the terms are often applied interchangeably. Those who classify them in the same category usually point out that crypto is also an electronic cash. In fact, Bitcoin was introduced in the first place as a P2P electronic cash. But, no, these two terms are absolutely not the same thing. Yes, there are similarities, like, both of these deal with money. But, there are some fundamental differences between crypto and digital currency in regard to infrastructure, governance, taxation, and hence official designation. Check this buy bitcoin on multibank group
Now, you might know about the rise of digital wallets which started becoming popular especially since the pandemic times. These wallets can hold crypto and digital currency both. But, again, these two entities are certainly not interchangeable,
The post below aims to outline the key differences that exist between crypto and digital currencies. But, before we delve into the differences, let’s have a clear idea on the two terminologies.
Digital currency
Digital currency, in simple words, refers to fiat currency held in digital format. It’s the same currency that you withdraw from an ATM or carry inside a wallet- but in a digital format. It means, there is a physical form for digital currencies. For example, the digital format of 50 USD is digital currency. You can always exchange the digital format of your 50 USD with a physical counterpart.
Interestingly, the national governments are approaching to launch distinct digital currencies of late. These will be launched by centralized banks, with approval from national governments. Abbreviated as “CBDCs”, these digital currencies are mostly designed to support easy cross-border transactions.
Cryptocurrency
One of the prime revolutionary forces of the 21st Century, cryptocurrencies are a different concept altogether. Neither these currencies belong to a particular country nor do these bear any kind of connection with fiat currency of any country. Cryptocurrencies are a completely separate entity when we are discussing the differences between crypto and digital currency.
As mentioned above, digital currency is the electronically held format of fiat currency- a physical currency that is brought to circulation through the process of minting. Some cryptocurrencies are also brought to circulation through the process of minting but the crypto minting process bears no similarity with that of fiat digital currency.
The differences
Control and governance
When it comes to digital currency, the entity is always under the control and governance of a specific national government. It’s because digital currency is the digital format of fiat that is controlled by a centralized authority. For example, when it comes to the digital currency of USD, it is under the control of the Feds. Bottom line is, digital currency functions in a centralized environment.
But, cryptocurrency functions in a decentralized infrastructure. Cryptocurrencies are developed on blockchain platforms that rest on a decentralized framework of shared public electronic ledger. There is no centralized authority that pulls the strings when it comes to cryptocurrency. As cryptos are decentralized entities, these hold the same value in every country.
For example, if you stay in India and want to visit the USA, you will have to exchange your INR into USD- digital or not. But, if you own Bitcoin, you can take the same Bitcoin to the USA. 1 BTC will hold the same value in every single country of the world.
Mode of transaction
As mentioned above, cryptocurrency operates in a decentralized environment. The crypto culture upholds P2P transactions where there is no place for intermediaries.
But digital currency operates in a centralized environment. Thus, unlike crypto, there is always some sort of middleman in digital currency transactions. As a result, digital currency transactions include middlemen charges that you don’t have to pay with crypto transactions. Also, crypto transactions are always faster as there is no intermediary involved in the process.
Encryption security
Cryptocurrencies are always guarded by encryption security. In fact, encryption guard is one of the fundamental characteristics of cryptocurrencies.
But, digital currencies are not fundamentally encrypted. In fact, this is a key reason why cryptos are considered to be way safer in the cyber world in comparison to digital currency.
Taxation
There is a difference between the two terms when it comes to taxation as well. When it’s a digital currency- cash held in some sort of digital format- it is defined as money or wealth and income by the IRS. But, if it’s cryptocurrency, it is recognized as “property” by the IRS. Thus, cryptocurrency and digital currency come with separate taxation implications. It’s because their official or legal designations are different.
Stability
This is one major point where digital currencies score over cryptocurrencies.
As digital currencies are backed by national governments, these offer a somewhat stable market. These currencies fall under heavy regulation and an organized governing infrastructure. As a result these currencies are comparatively simpler to manage in comparison to cryptocurrencies.
But, the crypto industry is defined by a highly unstable market. These are not governed by an organized centralized entity and lack serious regulation. As a result, the crypto market is extremely volatile and often unpredictable. In other words, this is one factor that makes cryptocurrency riskier in comparison to digital currency.
Transparency
As cryptocurrencies are developed on blockchain platforms, every detail regarding a crypto transaction is always open for public view. You can always check details of a crypto transaction on its public ledger. This absolute level of transparency makes it easier to scrutinize crypto transactions easily, especially in times of dispute.
But, digital currency-based transactions do not assure this high level of transparency for the public. When it’s a digital currency-based transaction, only the bank, receiver, and sender will have the details. If there is a dispute, you will have to navigate through lengthy and tedious bureaucratic hurdles to solve the problem.
Final words
Digital currency, since it’s backed by centralized authority, is always accepted by the legislature of that particular country and also the countries of the world. But, crypto is yet to achieve that legal status all across the world.
