We have all seen the craze behind cryptocurrencies and the astronomical gains some of the coins have posted this year. Millions of individuals around the world are buying, investing or trading in cryptos on a daily basis showing that this ‘speculative’ asset class has come to stay.
Recently, we have seen the central bank of some countries big up the idea of creating their own digital currency. For example the Chinese government have actually made plans to launch its own currency and proceeded to even ban bitcoin mining in china to achieve its aim.
In similar fashion the central bank of Nigeria governor, Godwin Emefiele also talked about the need for floating a Nigerian digital currency. The moves by the central banks have raised eyebrows from crypto enthusiasts and questions and concerns have followed on what a digital currency might pose on the future of cryptos. “Are they the same”? “Can they co-exist with one another”?
Although Cryptocurrency is a type of digital currency, this article will attempt to explain the differences between a digital currency and a crypto currency.
- Digital currencies are centralized, which means that transactions within the network is regulated in a centralized location, like a bank. Cryptocurrencies are mostly decentralized, and the regulations inside the network are governed by the majority of the community.
- Digital currencies require user identification. You’ll need to upload a photo of yourself and some documents issued by the authorities before transactions can take place. Buying and investing in cryptocurrencies do not require you to upload documents of yourself. However, note that cryptos are not fully anonymous. Though the addresses do not contain any confidential information such as name, residential address etc, each transaction is registered, the senders and the receivers are publicly known. Thus, all transactions are tracked.
- Digital currencies are not transparent. With a digital currency, you cannot choose the address of the wallet and see all money transfers since inception. This transaction is kept confidential and private. Most Cryptocurrencies are transactions are transparent and anyone/everyone can see any and all transactions made and received by any user as all revenue streams are placed in a public chain called the Blockchain.
- Digital currencies have a central authority that can deal with any problems or issues. This central authority can, for example, freeze or cancel transactions on the request of the participant or authority. Cryptocurrencies are regulated by their respective communities.