What is digital currency? What is the difference between cryptocurrency and digital currency?

Dec 15,2022
What is digital currency? What is the difference between cryptocurrency and digital currency?

What is digital currency? What is the difference between cryptocurrency and digital currency? Digital currency has the potential to completely change the society's view of money. The rise of Bitcoin (BTC), Ethereum (ETH) and thousands of other cryptocurrencies that only exist in electronic form has prompted the global central bank to study the operation mode of national digital currency.

What is digital currency?

New forms of technology now allow more secure and seamless use of digital currencies. Digital currency can be transferred and exchanged through technologies such as credit cards, smart phones and online cryptocurrency exchanges.

Cryptocurrency refers to a digital currency protected by password, which is almost impossible to counterfeit or double pay. It exists through a decentralized network based on blockchain technology, which is essentially a ledger stored through a computer network. The remarkable feature of cryptocurrencies is that they are not issued by the central bank or the government, which makes them free from government intervention or manipulation.

The history of digital currency can be traced back to the invention of the Internet. In the early days, it was difficult for people to accept the use of digital currency; However, as people become more familiar with technology, the technology itself has become more secure and reliable. Now more and more people are willing to use digital currency. PayPal is considered one of the first companies to successfully introduce the easy-to-use digital financial transaction concept into the public application.

What is the difference between cryptocurrency and digital currency?

Cryptocurrency is a form of decentralized digital currency. The reason it is called a "cryptocurrency" is that it requires cryptography rather than a central authority to manage its ledgers and balances because the currency is decentralized. Nowadays, the most common form of cryptocurrency ledger system is blockchain technology. On the other hand, digital currency is any form of currency that exists only in digital form.

Risk of digital currency

Payment fraud is a significant risk, which can be attributed to the increasing use of digital currencies. Payment fraud can take many forms. However, generally speaking, it includes fraudulent or unauthorized transactions completed by cyber criminals. Some common forms of payment fraud include fraudulent payments, illegal payments, internal manipulation, data theft, embargo violations and sanctions violations.

Because the money is not transferred in kind, it is impossible to know who is the other party to the transaction. It provides cyber criminals with the opportunity to obtain sensitive information or defraud people through digital currency.

Although the payment security has been improving, the complexity of cyber criminals' fraud has become increasingly complex. Payment fraud continues to increase, and there is no sign of a decline.

Modern cyber criminals are more cunning than ever before, constantly taking advantage of new weaknesses and designing different methods to manipulate digital currency. The fraudsters are very persistent in their efforts to attack the payment system. If they face challenges with specific methods, they will only turn their attention to other payment methods.

Benefits of digital currency

1. Faster payment. With digital currency, you can complete the payment faster than the current method, such as ACH or wire transfer. It may take several days for financial institutions to confirm the transaction.

2. Cheaper international transfer. International currency transactions are very expensive. Individuals need to pay high fees to transfer funds from one country to another, especially when currency exchange is involved. Digital assets can disrupt this market by speeding up and reducing costs.

3.24/7 24/7 access. Existing remittances usually require more time beyond weekends and normal business hours because banks are closed and transactions cannot be confirmed. Using digital currency, transactions are conducted 24 hours a day, 7 days a week, at the same speed.

4. Support those who have no or insufficient bank accounts. According to a survey conducted by the FDIC in 2019, more than 7 million American households do not have bank accounts. They eventually have to pay expensive fees to cash their salaries and pay others through bills of exchange or remittances. If CBDC is introduced in the country, individuals without bank accounts can use their money and pay bills without additional charges.

5. More effective government payment. If the government develops CBDC, it can immediately send people money such as tax rebates, child benefits and food stamps, rather than trying to mail checks or figure out about prepaid debit cards.

Disadvantages of digital currency

1. Too many choices. The current popularity of cryptocurrencies is a negative factor. "So many digital currencies have been created on different blockchains, and they all have their own limitations. It takes time to determine which digital currencies may be suitable for certain use cases, including whether some digital currencies are designed for large-scale adoption," Tessler said.

2. Steep learning curve. Digital currency requires users to learn how to perform basic tasks, such as how to open a digital wallet and store digital assets correctly and securely. The system needs to be simpler for digital currency to be widely adopted.

3. Expensive transactions. Cryptocurrencies use blockchains, where computers must solve complex equations to validate and record transactions. This requires a lot of power and becomes more expensive as transactions increase. However, this may not exist for CBDC because the central bank may control it and does not require a complex consensus process.

4. Price fluctuation. The price and value of cryptocurrencies may change suddenly. Cunha believes that this is why enterprises do not want to use it as a medium of exchange. "As an enterprise, do I want to accept something unstable? What if I hold a Bitcoin for a week and it loses 20% of its value?" However, for CBDC, the value should be much more stable. Like paper money, it cannot fluctuate like this.

5. Progress is slow. CBDC in the United States is still hypothetical. If the government decides to create one, its development will incur relevant costs.

In general, digital currency or digital currency is any form of currency or payment that exists only in electronic form. Digital currency has no tangible form such as paper currency, cheque or coin. It uses electronic code to calculate and transmit in the computer. As technology becomes more important, payments become more digital, leading to less use of tangible money.