The Fundamental Variations Between Digital Currencies and Cryptocurrencies

With the rapid development of the financial and business world, and the shift towards cryptocurrency, there are those who confuse digital currencies with cryptocurrencies, despite significant differences between them.

Despite the fact that cryptocurrencies are a type of digital currency, there are some fundamental differences between them, which will be explained in the following points.

Definition

Digital currencies are monetary amounts available in the form of numbers that are used electronically. Unlike traditional currencies, they do not have a physical existence. They can be obtained, transferred, and exchanged for other currencies through electronic platforms. They can be used to pay for purchases or service bills.

Cryptocurrencies are a collection of digital currencies that are encrypted and have their own unique system based on a complex encrypted system established through cryptographic science.

Transaction centralization

Digital currencies are centralized currencies regulated by a group of individuals and computers that manage the transaction state in the network, while cryptocurrency is decentralized, established on distributed systems that oversee transactions.

Digital currencies require identifying the user and the transaction data that is carried out through them, whereas financial transactions made with cryptocurrency do not require the disclosure of the user’s identity or transaction data in cryptocurrency wallets and do not contain private and confidential information such as name and address.

Centralized Transactions

Digital currencies are not transparent, as it is not possible to track the financial transactions of wallets and see the money transfers. This information remains confidential and can only be accessed by providers. However, the situation is somewhat different with cryptocurrencies, where anyone can see the transactions of any user, as all sources of revenue are placed in a public chain.

Transaction Processing

There exists a central authority that handles all issues and transfers related to digital currencies, and it has the power to cancel or freeze transactions upon the request of participants, authorities, or in case of suspicion of fraud or money laundering. On the contrary, cryptocurrencies operate differently, as transactions and transfers are regulated through a distributed system of computers.

Legal aspect

Most countries have some legal framework for digital currencies, such as Directive 2009/110/EC in the European Union and Section 4A of the Uniform Commercial Code in the United States. However, cryptocurrencies do not have a legal framework in most countries.

Mediation or Third Party

Digital currencies are typically centralized and usually subject to a third party intermediary, such as governments or the issuing authority. On the other hand, cryptocurrencies have a system and protocol called the blockchain or decentralized digital ledger.