• Sun. Aug 14th, 2022

Ever since Finance Minister Nirmala Sitharaman in her 2022 budget speech announced that the Reserve Bank of India (RBI) would be rolling out its digital currency, there has been a lot of talk about what exactly a digital currency is. and how it will differ from cryptocurrencies such as Bitcoin, Dogecoin, and other popular tokens.

If you are wondering how digital currency differs from cryptocurrency, this guide will help you learn all about these two forms of currencies. Let’s start by defining them first.

Digital Currency – is the digital format of fiat currency that you carry in your wallet or withdraw from an ATM. It is the same currency that is backed by an authority, the Reserve Bank of India in the case of Indian currency, and can be exchanged for real currency if and when it is scheduled to launch in 2023.

Cryptocurrency – is not backed by a central figure but derives its buying power from its community of users. Technically, these are pieces of code created by “mining” that are managed through a digital ledger called blockchain to ensure transparency at every stage of its journey. Although coins like Bitcoin and Ethereum have many uses when it comes to NFTs and the upcoming metaverse, they cannot be used outside of the blockchain as they are digital assets that can be traded but not used as currency. legal in India.

Now that we know them, here are five major differences between digital currency and cryptocurrency.

1 – Centralization

The biggest difference between digital currency and cryptocurrency is who controls the monetary value of your coins. In the case of a digital currency, this would be the Reserve Bank in India or the Fed in the United States along with the government, banks and other intermediaries, who would all have to come together to set the value of the currency in question. . This is why you will read about the depreciation of the Turkish lira by more than 40% in 2021 or the collapse of the financial systems in Myanmar and Afghanistan once the central authority is impotent.

Cryptocurrency, on the other hand, follows a transparent process from mining to ownership and transfer of crypto assets. Its value is also independent of central banking authorities and regional geopolitical issues.

2 – Encryption

Once again, cryptocurrency trumps digital currency when it comes to encryption. Digital currencies are basically electronic money that doesn’t need any special native methods to encrypt them. Cryptocurrencies, on the other hand, are stored on a blockchain and the coins themselves are stored in “wallets” which provide a much higher degree of cybersecurity.

Moreover, choosing the right cryptocurrency exchange that offers the best in security features and a wide range of currencies to transact with is the main requirement for transacting using cryptos. WazirX is one such crypto exchange that does the job reliably and that we highly recommend to start your crypto journey. Be sure to open your account here.

3 – Transparency

The biggest cryptocurrency advocates will cite the transparency offered by the platform. Every detail regarding cryptocurrency transactions is in the public domain thanks to the presence of a decentralized ledger that records all blockchain details. With digital currency, only the bank authorities as well as the sender and receiver are involved in the relevant transaction. In the event of a dispute over an asset, cryptocurrencies are easier to manage because the records are there for all involved to see, while digital currencies could involve bureaucratic hurdles and other issues in the event of a dispute. conflict. This decentralization of data is, in fact, one of the drivers leading to the adoption of cryptocurrencies across the world.

4 – Stability

Digital currency is generally stable and relatively easy to manage, thanks to its wider acceptance in the global market. Digital currency, being the fiat version of approved currency, is traded and understood by a large majority of the population. This, in turn, makes it more stable against new technology such as cryptocurrency which has started to gain popularity but is not mainstream yet. On top of that, cryptocurrency price volatility is another aspect that hinders its stability, although new technologies and features mean that it is slowly but steadily gaining traction.

5 – Legality

Most countries, including India, are now reviewing the legality and acceptance of cryptocurrencies. As these are not backed by any governing body, most traditional frameworks do not attribute any value to them. However, the rapid increase in the number of depositors and various use cases for blockchain today and the coming metaverse, where the only mode of payment remains cryptocurrencies, means that some kind of discussion about the legality of cryptocurrencies is inevitable. For now, countries around the world strongly support their own fiat currencies.

Now that you know which aspects of crypto and digital currencies work for and against them, you can make an informed choice between the two. While India’s digital currency is still at least a year away, according to the government’s own estimate, in the meantime you can start your crypto journey in minutes with WazirX, one of the most popular cryptocurrency exchanges. largest and most trusted in India. Start here.

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