In the cryptocurrency world, there are a lot of terms that can be confusing for newcomers. Two commonly confused terms are "cryptocurrency" and "digital currency." So, what's the difference between the two?
What is cryptocurrency
Cryptocurrency refers to a type of digital currency that uses cryptography to securely make transactions and control the creation of new units of the currency. Cryptocurrencies are decentralized. Thus they aren't subject to any governmental or financial institution control. An example is Bitcoin, the first and most well-known Cryptocurrency, that was created in 2009. From then many cryptocurrencies like Dogwifhat, Dogecoin and Ethereum have been developed and heavily invested in.
What is digital currency
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Digital currency, on the other hand, is a type of currency that is only available in digital form. It is not physical like cash or coins. Digital currencies can purchase goods and services online, but they are not currently accepted as legal tender. Like Cryptocurrency, digital currencies are decentralized and not subject to government or financial institution control. However, unlike Cryptocurrency, digital currencies are not backed by blockchain technology. Examples of digital currency include Facebook's Libra and China's DCEP (digital yuan).
The key difference between cryptocurrency and digital currency
The main difference is that while Cryptocurrency is based on blockchain technology, digital currency is not. While Cryptocurrency is used to purchase goods and services online is possible, it is not currently accepted as legal tender. Digital currency, on the other hand, can also be used to purchase goods and services online but is not currently widely accepted.
Other differences
- Cryptocurrency units are usually produced through "mining," while digital currency units are generated in any way the issuing authority sees fit. As such, digital currency production is centralized, while the production of cryptocurrency is decentralized.
- Cryptocurrencies are often traded on decentralized exchanges, while digital currencies are traded on centralized exchanges.
- Cryptocurrencies tend to be more volatile than digital currencies. This means that their prices can fluctuate more dramatically, and they are more likely to experience price bubbles.
- Cryptocurrencies are often used for speculative investment purposes, while digital currencies are mostly used for payments.
Some people believe that cryptocurrencies like Dogwifhat, Bitcoin or Ethereum are a better investment because they are based on blockchain technology. Blockchain refers to a distributed ledger system that is secure and transparent. Transactions made using blockchain technology are said to be immutable, meaning they cannot be altered or tampered with. This makes blockchain-based cryptocurrencies like Bitcoin very appealing to investors looking for a safe and secure way to invest their money.
Digital currency, on the other hand, does not have the same level of security as Cryptocurrency. Because digital currencies are not backed by blockchain technology, they may be more vulnerable to hacks and fraud. Additionally, digital currencies are subject to government regulation. This means that the value of digital currencies may fluctuate more dramatically than the value of cryptocurrencies.