Differences And Similarities Between Digital Currency And Cryptocurrency
Cryptocurrencies, which became popular with Bitcoin today, is known as a digital currency in the sector. But when we look at the meanings of digital currency and cryptocurrencies, we can see the differences and similarities between them. In this article, we will discuss the features, differences and similarities between digital and cryptocurrencies.
Digital money is the money that exists and is used only in digital media. In reality, there is no physical equivalent. But, it has all features of fiat money. We can obtain, transfer or exchange the flat money we normally use. You can use them to pay for goods and services in mobile and online stores and elsewhere. Digital currencies do not have any geographical or political boundaries; transactions can be sent from anywhere or can be done anywhere in the world. In fact, digital accounts and wallets can be considered deposits of banks.
Cryptocurrencies are in fact, various digital currencies. You can use cryptocurrencies as a trading tool. Unlike digital money, cryptocurrencies are more reliable because they are based on cryptography, that is encrypting. One of the issues cryptography gives importance to is communication and making them reliable. It prepares and analyzes algorithms and protocols so that no information is exchanged or cut during the talks made by third parties. Cryptography is a mixture of many different sciences that form the basis of mathematics. What makes algorithms and protocols serious and reliable is actually the basis of mathematics. Cryptocurrencies use blockchain and a decentralized ledger. This means that there is no supervisory authority that controls all actions on the network. This means all users have a wide space. It is what catches all users attention. For further details, you can look at the article called What are Cryptocurrencies?
What are main differences between these two?
Cryptocurrencies, though it is some kind of digital currency, has some fundamental differences from digital money.
Its Structure Digital currencies have been centralized; there is a group of people and computers that regulate the transactions on the network. In crypto-currencies regulations are decentralized and organized by the majority of the community.
Anonymity. User identity is required for digital currencies. You should upload a photograph of yourself and some documents issued by public authorities. There is no need for these to buy and invest in cryptocurrencies. In addition, cryptocurrencies are not completely anonym. Although accounts do not contain confidential information such as name, residence address, every transaction is recorded, senders and receivers are open to the public. In this way, all transactions are followed.
Transparency. Digital currencies are not transparent. You can not choose your wallet address and not see all your money transfers. Such information is kept confidential. Cryptocurrencies are transparent. Because the whole revenue stream is placed in a public domain, everyone can see all transactions of any user.
Manipulation of transaction. Digital currencies have a central authority to address problems. Suspicious transactions such as fraud or money laundering may be canceled or frozen on demand by the participant or the authorities. Cryptocurrencies are regulated by the community. Although there are some examples, such as the cutting of DAO, it is not possible for users to approve changes in the blockchain. However, the amounts of money are important and decisions are not certain.
Legal issues. Most countries have some legal frameworks for digital currencies. For example, the directive 2009/110/EC in the European Union or Article 4A of the Uniform Commercial Code in the United States. This is not the case for cryptocurrencies. Its legal framework has not been identified yet. For the moment, only processes have been started for most countries.
What are the Strong and Weak Aspects of Digital Currency?
Most aspects of the digital money can be considered both advantage and disadvantage. In a centralized system, there are people responsible for the condition and functioning of all systems. If you have made an error in a transaction, you can request reporting to your company your error and you can trust the results. But you cannot make it in a decentralized system. Besides, there is much confidential information about the users in the central networks. This information may be lost, attacked, or accessed by a court order. Such problems do not occur in decentralized networks. As long as the system can take it, you can change the transaction at the moment you want to. You do not need to wait for a time period like central systems.
Is it possible to combine the advantages of both?
It may be more useful to adopt centralized systems than decentralized networks. But according to a study by Forbes, over two million people now do not have access to the bank or cannot get a bank loan. More than five billion people use mobile phones and prefer mobile banking systems. Cryptocurrencies and blockchain systems are more transparent, more reliable than banks and do not have any center that can be considered control mechanism. You can have many digital wallet and editing base in digital money. One of the examples of combining the two was done by Telcoin. The main idea is to combine mobile companies in the world with the banking system. In banking systems, different fields of service, such as mobile money, prepaid credit and billing platforms, will be represented by digital money and cryptocurrencies.