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Guide: Main Differences Between Cryptocurrency & Digital Currency

Cryptocurrency & Digital Currency

Types of money

The difference in functions led to the division of means of payment into several types. The first trading relationships needed a system to determine the price. Until the middle of the last century, gold was used, then countries switched to national paper money without collateral. Their course is determined by the level of trust in the state that issued them. With the development of computer systems, the physical format of money began to give way to the virtual one. Banking transactions began to be carried out electronically. It has become easier to control the turnover of transactions in the fiat money market. Financial companies have begun to provide information about user accounts to central government agencies. Cryptocurrency has made transactions fast and anonymous while maintaining data security. The reason for the popularity of digital coins is their ease of use and low fees

Fiat

Traditional money is centralized and dependent on the monetary policy of the national authority responsible for issuing it. They are legal tender. Their advantages:

  • Low volatility. Currency fluctuations such as the US dollar do not exceed 10% per year.
  • Popularity. Fiat payments are available in any store.
  • Transaction reversibility. If fraud is detected, the bank may cancel the operation and return the funds to the account.

Digital

This is a complete analogue of fiat currency, translated into electronic form. In order for money to appear on the account, they must be physically deposited there through the bank’s cash desk or payment terminal. Within the framework of the modern financial system, funds can be sent anywhere in the world. However, there are some disadvantages:

  • Identification – low anonymity. To create an account, any financial institution requires an identity verification procedure.
  • The purpose of the payment – the user must explain why he sends money.
  • Transaction speed – banking transactions require a lot of time (up to several days).

Cryptocurrencies

The launch of weth price is the beginning of assets based on blockchain technology. Then altcoins appeared, which remained true to the original principles:

  • Decentralized issue and circulation of coins. Regulated by the emission algorithm without intermediaries.
  • Anonymity. To register a wallet, the user’s personal data is not needed.
  • Information security. It is provided with special cryptography.
  • openness. All transactions, with the exception of a few anonymous projects like Monero, contain public information.

Types of cryptocurrencies

Blockchain is the basis for launching many coins and projects with various functions. There are several types of coins depending on:

  • Generations.
  • encryption algorithm.
  • Extraction method.
  • Own blockchain.

The main differences between cryptocurrency and digital currency

Being electronic money, these two types of assets have a big difference. It depends on emission and exchange rate regulation. Cryptocurrency issued by an algorithm where the emission mechanism is transparent to all participants, and the cost is determined by the balance of supply and demand. Digital money is fiat, only converted into electronic form, while retaining all the characteristics of traditional ones.

Decentralization

Blockchain technology ensures the exchange of information on the network and the operation of the chain without a single server or node. Database copies are stored on a large number of computers, which provides a high degree of protection against changes.

Anonymity

Unlike a bank account, a cryptocurrency wallet does not require identity verification. Users do not pay for account maintenance and can own an unlimited number of addresses. Although each transfer is traceable, the information itself does not contain confidential data.

Transparency

lbtc price is based on blockchain technology – a distributed public ledger. All transactions make up a chain, and information is available to any participant. At the same time, transfers of such a currency are protected by banking secrecy and cannot be accessed.

Transaction management

In a traditional financial system, monetary transactions are reversible. State supervisory bodies called upon to regulate such processes. The centralization of the financial system allows you to change the payment at any stage of its implementation.

Regulation

Most countries of the world have already developed legal regulations regarding the circulation of cryptocurrency. In Russia, since January 2021, a law on digital assets has been in force, which regulates the rules for buying and selling coins.

In Belarus, transactions with such assets are regulated by Decree No. 8. Electronic currencies in the global financial system operate within the legal framework thanks to EU Directive 110 of 2009 and Article 4A of the US Commercial Code.

Mining

Another difference between cryptocurrency and digital currency is that it can be mined. Methods for confirming work in the blockchain are divided into:

  • Proof-of-Work (PoW) . This is a solution of cryptographic algorithms for confirming transactions and entering them into a single chain. The success of the work depends on the computing power of the equipment in the network. The more users involved in mining, the more complex the calculations become. This requires huge investments and energy costs. Projects working on this method are Bitcoin and Ethereum.
  • Proof-of-Stake (PoS) . Transactions confirmed with the help of validators. Such participants must freeze the cryptocurrency in the account in order to be able to write new data to the block. This method does not require large computing power, and many projects are already working on such an algorithm or are preparing to switch to it soon.

Advantages and disadvantages

Like any means of payment, electronic currencies and coins based on cryptographic algorithms have their own peculiarities. They manifested in the usability and methods of protecting the confidential information of participants.

digital money

Being legal tender, they have certain pros and cons.

 

ADVANTAGES DISADVANTAGES
Steady course. Not subject to sharp fluctuations in quotations, the price is created by the national issuer. Centralization. Regulation and change in the rules of currency circulation.
Popularity. You can pay on all online platforms. Lack of privacy. A bank account requires an identity verification procedure.
Regulation. Legal tender. Inflation. An increase in the money supply reduces purchasing power.

Cryptocurrencies

Projects based on distributed database technology – with characteristics that distinguish them from digital currencies, as well as strengths and weaknesses.

ADVANTAGES DISADVANTAGES
Anonymity. To transfer coins between addresses, the personal data of the owners not needed. Volatility. Sharp price jumps caused by insufficient market liquidity.
Decentralization. There is no risk of a complete ban on the use of cryptocurrency. legal status. Operations with digital assets are in an unregulated area.
Security. Data security is provided by cryptographic algorithms. Mining process. For the protocol to work on the PoW method, large computing power is required.

Summary

The development of blockchain technology affects the financial system by attracting new users. The main difference between cryptocurrency and digital money is that it has gone beyond the means of payment. Today it is a full-fledged network of popular projects with products to solve many modern problems.

Digital currencies have received all the disadvantages of fiat money, which made it impossible to change the banking system. Cryptocurrency provides transfers to any place, while offering low fees, security, and speed of transactions. This advantage over fiat money caused a high demand for financial services and an increase in the price of coins. Despite the fact that some states (for example, China) are struggling with digital assets, their turnover and capitalization is growing.

Users see the advantage of a decentralized blockchain, namely the lack of government regulation. Cryptocurrency projects receive funding to implement products that will affect the whole world.

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