Is Cryptocurrency the same as Digital Currency?

People tend to think that digital currencies and cryptocurrencies are the same. Both of them may have the same similarities, yet there’s a difference; especially in the way you use each of them. 

And because most people are falling prey to so many crypto scams these days, it’s important to understand how a digital currency fits into the growing expansion of digital money. 

Cryptocurrency employs blockchain technology and cryptography to create digital assets that can be traded. In plain English, it uses a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system, while generating digital assets. 

This ‘decentralised’ design makes it more transparent and free of central financial systems, with most transactions recorded on a public digital ledger. However, this sort of digital money is unregulated, allowing for meme-inspired coins to attract investors without any safeguards.

That’s where digital currencies come in. Digital currencies, unlike cryptocurrencies, are controlled and regulated by formal financial sectors or government entities. 

A Central Bank Digital Currency (CBDC) is a digital currency backed by a central bank. In addition to giving financial services to those without bank accounts, Global Financial Market News Leader, CNBC, says this form of monetary system has many advantages. With many countries considering adopting a digital currency, the question arises: are CBDCs a better option to cryptocurrency? 

CBDCs are not like cryptocurrency, which has a value that’s often fanciful and very unstable. It doesn’t matter the country, the value of digital currencies is the same as the country’s fiat currency. This not only makes its fiat equivalent stronger, but it also makes it more stable. 

As the value of foreign currencies changes over time, a ‘digital dollar’ will always be worth the same as its physical (or paper) counterpart. 

One disadvantage of cryptocurrency is that, it can lose a lot of value in a short period of time. This might sound like stablecoins, which are digital currencies that have a value that is also linked to their fiat currency equivalent. 

All digital currency supplies and transactions are regulated by official centralised banking systems. The supply and reliability of stablecoins, on the other hand, depend solely on the entities that make them. This includes risky exchange platforms that may not always protect investors from losing money.

With regulation comes financial control, which means the issuing government can monitor spending. While traditional banking relies on human error or possible manipulation, cryptocurrency transactions operate on an automated system that is free of both. Not to mention, the energy usage issues associated with crypto mining. 

Besides, spending cryptocurrency will be limited to businesses who accept it, and will not be required by the government. A centralised or decentralised financial system is preferred by citizens, and digital currency and cryptocurrency both offer advantages.