Cryptocurrency and digital money are one and the same, right?
Various factors differentiate these two forms of currency, and each has its own pros and cons.
So, what are cryptocurrency and digital money, and how do they differ?
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What Is Cryptocurrency?
Cryptocurrency is certainly a punch in of virtual money, but its characteristics separate it from typical digital currency.
Cryptocurrencies are by no means new, but in terms of money, they’re still finding their feet.
The first cryptocurrency was launched in 2009 and is known as Bitcoin.
Bitcoin was developed and launched by a group or individual who uses the pseudonym “Satoshi Nakamoto.”
To this day,no one really knows the true identity of Bitcoin’s creator(s).
Every cryptocurrency out there today existson a blockchain, which is an immutable ledger of chronological data.
Each transaction conducted using a cryptocurrency is recorded on its native blockchain.
Each blockchain has a long line of blocks, in which finite numbers of transactions are stored.
The number of transactions stored in the block depends on the block size.
Cryptocurrencies are generally decentralized, though they can have centralized characteristics.
Decentralization refers to a system that spreads data and online grid power across multiple connection nodes.
Cryptocurrencies can be traded on various platforms, most notably exchanges.
Cryptocurrency exchanges can be either centralized or decentralized.
Some of the biggest exchanges, such asBinance, Kraken, and Coinbase, are centralized.
But there are also some popular decentralized options out there too, like Uniswap and Slingshot.
you’re free to also buy or sell crypto using wallet apps, like Exodus and Mycelium.
A key point of contention surrounding cryptocurrency is itslack of regulation.
Many crypto enthusiasts believe that cryptocurrency should remain unregulated and untouched by large financial institutions.
This can sometimes be a good thing but often leads to huge financial losses on the part of investors.
The value of cryptocurrencies can vary based on how it is collateralized.
Say, for example,the demand for Bitcoin dropped to zero.
This would result in a drastic price drop, as there is no longer a market for trade.
However, a category of cryptocurrencies known as stablecoins can fend against this.
Stablecoins are often backed by collateral, such as physical reserves, bonds, and stocks.
Cryptocurrency can also be pretty restrictive in terms of accessibility and utility.
While you canspend your cryptocurrencyat certain stores, your choice will likely be limited.
What Is Digital Currency?
Digital currency is more of a blanket term that can be used for various assets.
While you could certainly call cryptocurrency a digital currency, not all digital currencies are cryptocurrencies.
In short, digital currency is any fungible asset that exists only online.
Consider your bank account, for example.
The $20 will likely remain virtual for a long time until it is cashed out.
Because digital money is now so common, it can be used in almost every capacity.
Typical cryptos have no collateral, as is the case for digital and traditional currencies.
However,cryptocurrency stablecoinsare backed by valuable real-world assets, such as gold, silver, or oil.
This backs the crypto’s value and gives it an inherent, objective value.
In contrast, cryptocurrency is currently limited in its use outside of trading, staking, and investing.
