People often get confused about digital currencies and cryptocurrencies. So, what is the difference between the two?
Transactions
Cryptocurrencies are digital currencies that use cryptography to secure their transactions and control new units’ creation. Bitcoin, Litecoin, and Ethereum are all examples of cryptocurrencies.
Digital currencies, on the other hand, are not secured by cryptography. They rely on third-party trust systems to protect their transactions. PayPal and Venmo are both examples of digital currencies.
Control Over Currencies
The most significant difference between digital and cryptocurrencies is that cryptocurrency is decentralized. It means that there is no one central authority that controls them. Digital currencies, on the other hand, are centralized – meaning a single entity oversees them.
The lack of a central authority makes cryptocurrencies challenging to shut down or hack. Digital currencies, on the other hand, are much more vulnerable to hacking and shutdowns. While digital currencies will not necessarily always be controlled by a single entity – they often are – cryptocurrencies will always be decentralized.
Transaction Per Second
Another difference is that cryptocurrencies can theoretically process any number of transactions per second (TPS). The TPS for most digital currencies is very low compared to some popular cryptocurrencies like Bitcoin or Litecoin. This means that it would take days for one transaction to go through on these other digital currencies.
It is achieved through blockchain technology, a public ledger of all transactions that have ever taken place in a cryptocurrency. This technology is what allows cryptocurrencies to be decentralized. Digital currencies do not have this technology and, as a result, are much more centralized.
Digital currency transactions cannot occur instantly since there needs to be time for third parties to discover the network to verify their transactions. On the other hand, cryptocurrencies have a much shorter verification time since all the transactions are processed in one go.
Assets Being Traded
Digital currencies are often backed by real-world assets, such as gold or silver. As with physical currency, digital currencies can lose their value if entirely devalued. On the other hand, cryptocurrencies are not backed by anything physical, and their value is determined solely by supply and demand. This independence makes cryptocurrencies less susceptible to devaluation.
Production of Assets
Cryptocurrencies are also not infinite like fiat currency. A maximum amount can be issued, and there will eventually be a cryptocurrency that cannot be mined anymore. Some people argue that this will devalue the currency, but others say that having a finite supply is good since it prevents inflation. Digital currencies, on the other hand, never stop issuing more currency.
Transaction Costs
Transaction costs for digital currencies are relatively high, as with most traditional payment methods. However, they can be reduced by intermediaries such as banks and credit card companies. On the other hand, Cryptocurrencies do not have these high transaction costs because they don’t rely on intermediaries.
Regulations Around Trading
Regulations for digital currencies vary from country to country. Cryptocurrencies, on the other hand, are unregulated in most countries. This is because the lack of a central authority figure makes them difficult to regulate. However, this also means cryptocurrencies are legal in many countries that don’t allow digital currencies.
Anonymity
Digital currencies often only give partial users anonymity. It makes it easier for governments and financial institutions to track transactions, preventing money laundering and other illegal activities. On the other hand, Cryptocurrencies provide users with complete anonymity and are very difficult to follow.
Security
The main difference between cryptocurrencies and digital currencies is security. Cryptocurrencies are much more secure than digital currencies because they use cryptography to secure their transactions. This makes them less vulnerable to fraud and theft. As a result, traders should use cryptocurrencies for trading purposes whenever possible. However, digital currencies can still be used in some cases, such as when traders purchase goods and services online.
The Bottom Line
These are some of the primary differences between digital and cryptocurrencies. As you can see, there are many advantages to using cryptocurrencies over digital currencies, especially when it comes to security and decentralization. You can also trade options with your currencies, making sure you’ll never get bored with the product..
