Digital currency or digital money has the potential to revolutionize monetary transactions. Cryptocurrency has become the topic of interest nowadays. In order to understand cryptocurrency, it is important to understand what is digital currency. Also, what is the difference between cryptocurrency and digital currency.

What is digital currency?

Digital currency is a currency which exists only in the electronic form and is intangible. Digital currency never takes physical form and always remains on the computer network. Digital currency can be stored, managed, transferred between users and exchanged over the internet with the help of computers/smartphones. It can be used for instantaneous transactions and borderless transfer of ownership. Goods and services can be purchased using digital currency by transferring the digital money over the internet to the company. Digital currency ensures transparent and hassle-free monetary transactions. It allows direct transactions between sender and receiver, removing middlemen.

Virtual currency is a component of digital currency and cryptocurrency is a component of virtual currency. Thus, cryptocurrency is basically a subcomponent of digital currency. Therefore, digital currency is an umbrella term that stands for any money or currency present purely in electronic form. There is a slight difference between electronic currency, the form in which banks store their maximum funds, and digital currency. Electronic currency can be converted into physical form. On the contrary, digital currency can never be converted into physical form.

Types of digital currency

There are two types of digital currency:

  1. • Centralized digital currency: Centralized digital currency is backed and regulated by the central government.
  2. • Decentralized digital currency: Decentralized digital currency is neither backed nor regulated by the central government.

What is the major difference between digital currency and cryptocurrency?

Digital currency vs. Cryptocurrency

Cryptocurrency is basically a digital decentralized currency. Both cryptocurrency and digital currency do not have any physical form and exist only in the digital world.

  1. • Decentralized currency: The major difference between cryptocurrency and digital currency is that cryptocurrency is decentralized. Digital currency has all the properties of a traditional currency as well as is issued and backed by the government. On the other hand, cryptocurrency is also a digital currency but it is not issued or backed by the government.
  2. • Stability: Being issued and backed by the government digital currency is a stable currency. On the other hand, cryptocurrency, not being backed by the central government, is volatile and can lose value overnight.

Advantages and disadvantages of digital currency

Advantages of digital currency:

  1. • Quick and easy payments: Digital currency allows instantaneous transactions even over long distances. Since there are no middlemen involved, major advantage of digital currency is the ease of payments.
  2. • Cheaper transactions: Digital currency allows cheaper transactions, especially an advantage in the case of international transfer. Normally international transactions are expensive since they involve high transaction fees and currency conversion charges.
  3. • Convenient international transactions: Digital currency, mainly cryptocurrency can be transferred internationally without being stopped and taxed.
  4. • Transactions at any time: Fast digital currency transaction possible at any time of the day and any day of the week. Traditional currency transactions are slower outside bank hours and on weekends.

Disadvantages of digital currency:

  1. • Little difficult to use: Some people might find digital currency a little difficult to use. Transacting in digital currency may require time and effort to learn. First step is to learn how to open a digital wallet and store the digital currency securely in the wallet. Thereafter you can start transacting in digital currency.
  2. • Scams and market volatility: This disadvantage is mainly for cryptocurrency since it is not backed by the central government. Cryptocurrency’s market value tends to fluctuate widely and is a risky investment option. Also, certain new cryptocurrencies are complete scams.
  3. • CBDC yet to be developed: Central Bank Digital Currency (CDBC) will be backed by government regulatory bodies and hence will be stable. However, CDBC is still yet to be developed.
  4. • Transaction fees: Certain digital currency platforms charge transaction fees on every transaction being made.

Therefore, digital currency is an umbrella term which includes cryptocurrency. Existing only in electronic form, digital currency can be used for instantaneous borderless transactions. Digital currency will transform our daily monetary transactions in the near future.