Crypto Currency vs Digital Currency
We are living in digital era where we do shopping, banking, investment through our smart phones. Just few clicks and work is done. We are also shifting from traditional wallet to digital wallet. Digital wallet keeps digital currency as well as cryptocurrency with advanced blockchain technology.
Finance Minister Nirmala Sitharaman announced during 2022-2023 Budget that income from digital assets which includes cryptocurrencies will be taxed at 30%. And she also announced that the Reserve Bank of India (RBI) would be rolling out its digital currency called as CBDC, or the Central Bank Digital Currency.
“Introduction of a central bank digital currency will give a big boost to the digital economy. Digital currency will also lead to a more efficient and cheaper currency management system,” Sitharaman said.
Many people got confused that CBDC would also be taxed but CBDC is a digital currency, not cryptocurrency. So, everyone is curious about what is digital currency and how it is different from cryptocurrencies like Bitcoin, Dogecoin, Etherum, etc. We will discuss about what is digital currency, cryptocurrency and cryptocurrency vs digital currency.
Digital currency is a digital form of currency issued by the government but Cryptocurrency works on a decentralized network or a blockchain technology. All cryptocurrencies can be called as digital currencies but all digital currencies cannot be called as cryptocurrencies.
Digital currencies have same properties what fiat currencies have. But digital currencies do not have a physical form like that of banknotes and coins. You can use digital currencies to pay for goods and services. Also, you can receive, transfer and exchange digital currency for another currency. You can convert it to cash anytime.
When we talk about digital currency, it is very important to know issuing authority. Digital currency is issued by government. In India, Reserve Bank of India(RBI) will issue the digital currency like regular fiat currency. It can be exchanged one to one with fiat currency.
Digital currency is backed by government. Printing cost needed to print notes and coins will be saved. The government will earn higher seigniorage(the difference between the face value of physical currencies and their production cost) in a digital currency as the transaction cost is much lower as cost of printing of notes and coins will be zero for digital currency.
Digital currencies do not require encryption like crypto currencies but users need to use safe platform and strong passwords for transaction to protect against hacking and theft. Digital currencies are accepted worldwide as they are stable as compared to cryptocurrencies.
Cryptocurrency works on a decentralized network or a blockchain technology. It is spread across many computers which manages and records transactions in decentralized ledger which is available to all. As these currencies are not issued by the central authority, they attract least government intervention and manipulation. Crypto is very volatile as its rates rise and fall regularly.
Cryptocurrencies are protected by strong encryption. Users can buy cryptocurrencies in exchange of money or they can also gain cryptocurrencies by solving cryptographic equations through the use of computers, known as crypto mining. Crypto mining process involves validating data blocks and adding transaction records to a public record/ledger known as a blockchain.
Digital currency vs Cryptocurrency
| Basis | Cryptocurrency | Digital Currency |
| Definition | Cryptocurrency is a store of value which is secured by encryption. | Digital currency is electronic form of fiat currency which can be used as money. Its a form of e-cash. |
| Decentralization | This is completely decentralized, which means that no state can control it. Rules are set up by the community of cryptocurrency. | Like the traditional banking system, all of it is regulated by central bank or other government agencies. All the transactions are controlled and the exchange rate is set up by regulatory authorities. |
| Transparency | The transactions are publicly available. An account holder cannot be found out but the transaction and amount of money in the system can be tracked. | The access to the information related to the transaction is only allowed to the governmental authority. |
| Security | The transaction once done is added to the blockchain automatically and cannot be reversed. Blocking of Crypto Wallet is not possible and transfer is only possible with the help of Private Key. | Authorities regulating digital currencies monitor all the transactions can mark any particular account or transaction suspicious and block it. |
| Anonymity | Personal information is not required to open a wallet for trading cryptocurrency trading. | Account holders information cannot be hidden. To open account in an app like GPay or PhonePe personal information like name and address is required, moreover it is mostly linked to your bank account. |
| Stability | Since cryptocurrencies are not managed by central bank like RBI, its price varies rapidly. Cryptocurrencies are highly volatile and they are not accepted worldwide. | Digital currency is managed by central bank or RBI, it tends to be stable. Digital currency are stable and they are accepted globally. |
| Transaction Charges | There is no system of transaction fee in dealing with cryptocurrencies. Blockchain technology helps to reduce the expense, there is no extra commission for the third party agents. | There is a transaction fee with digital currency every time user makes payment through the digital wallet. |
Cryptocurrency is very volatile in nature. In 2010, one bitcoin was costing about $0.08 and now price of bitcoin is $59,172.10. There is no stability in the price of cryptocurrencies so Stablecoins were founded. Fiat currencies are backed by central banks and government. Cryptocurrencies are not backed by any government. Stablecoins attempt to bridge this gap between fiat currencies and cryptocurrencies. stablecoin tracks the underlying asset to which its pegged to, making its value stable over time.
Takeaway:
We read what are crypto currencies, digital currencies and the difference between two. Digital currency is a digital form of fiat currency so we can use it as real currency for buying. But, intension behind finding cryptocurrency was to use it as a decentralized currency only but as it is not accepted worldwide, people are investing and trading in it. There are near about 10,000 crypto currencies worldwide. Nobody knows the future of crypto. It is highly volatile. Investor should invest small amount and play safe while investing in crypto.
