How Is Cryptocurrency Different From Digital Currency?
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Unlike fiat currency (legal means of payment, which includes most paper money), digital currency does not have physical equivalence stored in the form of cash or gold. It consists of arbitrary numbers stored in a user account.
Like regular cash, digital currencies are accepted as a means of payment and can be used to purchase goods and services. They can be transferred between accounts, and they can also be exchanged for cash.
Cryptocurrencies are a type of digital currency. They have arisen to address the problems of centralization, confidentiality and security problems associated with conventional digital currencies.
The principle of decentralization is used in cryptocurrencies. This means that transactions made by cryptocurrency owners are not controlled and not regulated by financial authorities. Because cryptocurrencies use cryptography, they offer a robust security system that is hard to crack.
Below is a list of the main distinguishing features of cryptocurrencies from digital currencies and fiat money:
- Decentralization. As in the traditional banking system, most digital currencies are regulated by regulatory agencies, such as the Central Bank and other government agencies. This means that all currency exchange transactions are controlled, and their exchange rate is determined by these regulatory bodies.
On the other hand, cryptocurrencies are completely decentralized. This means that no state can control them. The rules are established by the cryptocurrency community.
- Anonymity. With digital currencies, it’s almost impossible to hide account holder information. To use electronic wallets like PayPal, you need to provide personal information such as your name and address.
On the other hand, you do not have to disclose any personal information when you open a wallet for trading cryptocurrency. Coins such as Dash are used to ensure complete anonymity.
- Transparency. The digital currency structure allows only government organizations to access information about transactions.
On the other hand, cryptocurrency transactions are publicly available. You cannot find out who is behind a specific account, but you can track transactions and monitor the amount of money in the system.
- Transactions. Because transactions are monitored by central authorities when using digital currency, they can easily mark transactions as suspicious, or even block an account.
On the other hand, once the cryptocurrency transaction is completed, it is automatically added to the blockchain and becomes irreversible forever. No one can block your wallet and transfer your funds to another account. Since the exchange of cryptocurrencies is carried out without intermediaries, the transactions have high speed and low commissions.
- Security. When you open the cryptograph, you get a private key, which is impossible to crack if you keep it in a safe place. But do not lose it, because without it you will not be able to enter your wallet, and you will not be able to restore it.
See also what Bitcoin trading brokers exist.
What is Bitcoin?
Bitcoin is the first cryptocurrency that appeared in 2009. Bitcoin is often compared to gold in the sense that its offer is limited. However, unlike gold, Bitcoin is digital, making it much easier to divide, transfer and store.
Bitcoin is the most popular cryptocurrency, but there are hundreds of others. Some cryptocurrencies, such as Litecoin and Bitcoin Cash, share the basic characteristics of Bitcoin, but explore new ways to process transactions, others offer a wider range of functions. For example, Ethereum can be used to launch applications and create smart contracts.