Digital Currencies Vs Cryptocurrency; Which is Better?
I’ve heard it so many times, cryptocurrency enthusiasts and tech-savvy individuals alike using the word “digital currency” and ”cryptocurrency” interchangeably. While this may appear unimportant in the general sense, you have to still wonder if these two concepts are the same.
So, I got curious, decided to do a little research and discovered the most interesting thing about digital currencies and cryptocurrencies. Guess what? I’m about to share it with you. Let’s begin with the most obvious question here;
What are Digital Currencies?
Digital currencies refer to any currency that exists in digital form. Although it need not have a physical equivalent in the real world, digital currencies still possess all the traits of traditional money.
So, like fiat, not only can you obtain and transfer it, you can also exchange it for another currency, Furthermore, It can also be used to pay for goods and services (especially online ones). Some of these include mobile and internet communication and online stores.
Finally, digital currencies are neither limited by geographic or political borders. Transactions can easily be made from any part of the world.
Now, I know what you’re thinking, everything we talked about above sounds a lot like cryptocurrencies, right? Not quite.
What are Cryptocurrencies?
Cryptocurrency is an asset that is used as a means of exchange. One of the major reasons cryptocurrencies are considered reliable is because it is based on cryptography. And in case you’re wondering, yes, it’s a form of digital currency.
The primary objective of the cryptography behind these currencies is simple, communications and how to make them secure. Consequently, it not only creates but also analyzes the algorithm and conversation.
This ensures that no information is interrupted or changed during a conversation with third parties. The summary of everything you need to know about the cryptography used is that; it’s complex math which attaches the reliability of algorithms and protocol.
Finally, for the part you have been waiting for, what are the core differences between cryptocurrencies and digital currencies?
Differences Between Cryptocurrencies and Digital Currencies
We have established earlier that cryptocurrency is a type of digital currency. However, there are some fundamental differences between the two. Some of them are outlined below;
Digital currencies have a centralized structure. The state of the transactions in the digital currency network is regulated by a group of people and computers. Cryptocurrencies, on the other hand, are decentralized.
This implies that a majority of the community is responsible for regulating it.
Digital currencies generally require the user providing some type of identification. Individuals that intend to use these currencies may need to upload a picture of themselves, including documents issued by the government.
You don’t need any of that if you are buying, investing, or performing any other operation using cryptocurrencies.
However, you should know that cryptocurrencies do not guarantee complete anonymity. Even though your confidential information such as name and address are not on display, each transaction is registered an can be tracked.
Digital currencies are not known to be transparent. It is impossible for the user to pick a wallet address and see the money transfers. That information is confidential.
However, cryptocurrencies are all about transparency. Since the Blockchain is a public ledger, everyone can see the transaction of anyone.
Digital currencies are prone to manipulations. Because they are regulated by a central authority, transactions can be canceled or frozen on suspicion of fraud or money laundering. Basically, the government still has control of your account.
Cryptocurrencies are regulated by a community that is unlikely to approve some changes in Blockchain just because some government or any other authority says so.
Different countries have a legal framework for digital currencies. An example is the European Union’s Directive 2009/110/EC and the United States’ Article 4A of the Uniform Commercial Code.
The establishment of the legal framework is only just in process. There is nothing concrete yet.
The Strength and Weaknesses of Digital Currency
Now that you know the differences between digital currencies and cryptocurrencies, you have to be wondering if digital currencies offer any advantage over cryptocurrencies.
The advantage offered by digital currencies has to do with the fact that it has a centralized structure. However, this has its disadvantage as well.
With a centralized system, you have a group of people that are responsible for the smooth running of things. That means mistakes made during a transaction can easily be rectified with a phone call or an email. This cannot happen in a decentralized system.
The downside is that these centralized networks keep your personal data, which may be hacked, get lost, or submitted to law enforcement agencies. The government can freeze your fund if deemed necessary.
Cryptocurrency protects you from all that. Unfortunately, it also encourages fraudulent activities.
Cryptocurrencies Vs. Digital Currencies; Can the Benefits Be Combined
Just to be clear, combining the benefit of cryptocurrencies and digital currencies means adopting a centralized system for a decentralized network. This means that users will be able to enjoy all the advantages offered by Blockchain technology which include; transparency, decentralization, and security.
This will be combined with a controlling body. It’ll also include a number of digital wallets and a controlling base.
This idea is not novel. Telcoin has already managed to achieve it. The cryptocurrencies were created to combine companies from different countries with the banking system.
Telecoin is able to provide services such as prepaid credit, mobile money, postpaid billing and this is all thanks to the symbiotic relationship that was created between digital currencies and cryptocurrencies.