Are cryptocurrency and digital currency the same thing? Consider the difference between cryptocurrency and digital assets.
Cryptocurrency, electronic, virtual, digital and fiat money are all means of payment that can be used for payments, if it is allowed in the host country. For example, since January 1, 2021, it is not allowed to pay for goods and services in Russia with cryptocurrencies, but nobody is forbidden to mine or store them. What is the difference between digital and cryptocurrency, or are they synonymous? This question was answered by experts.
What kinds of money are found
Modern money can be:
- Fiat money;
- Crypto;
- Digital. All of these currencies can act as a means of payment, savings, and investment, as long as it is not prohibited by the government of the country of residence or location.
Fiat money
Fiat money is a currency that is recognized as legal tender in a certain country or group of countries. Unlike commodity money, fiat money is backed only by the authority of the issuing country, represented by its Central Bank. Such currencies include, for example, the U.S. dollar, the euro, the Russian ruble. Also read https://capital-invest-skiy.com/
The main disadvantages of fiat money:
- Unsteadiness to changes in the economy and politics.
- The problem of inflation. The issuing country can issue an unlimited number of bills, which will lead to their depreciation.
- Taxes must be paid on the proceeds depending on the amount of capital and location.
- Possibility of counterfeiting.
- Low transaction speed. Even if it is a non-cash payment, the settlement time can be tied to the banks’ operating day. Fiat money can be paper, metal or electronic. Digitally, they are legally tied to the payment system of the issuing country.
Cryptocurrencies
Cryptocurrencies exist only in a digital format. Each unit is a digital code – a “Coin”, which is unique and no longer repeated. This type of money is formed on the Internet, not triggered from the outside like all other currencies. During a cryptocurrency settlement, the buyer transmits the hashed code of the financial unit to the seller. Blockchain money is decentralized and does not belong to any state.
All cryptocurrencies of the world are conventionally divided into bitcoins and altcoins. Altcoins are all alternative cryptocurrencies other than bitcoin, such as ethereum, litecoins, dogcoins and many others. Blockchain currencies are stored on electronic media on the Internet or on special “cold” wallets, which resemble flash drives. The main advantages of cryptocurrencies are:
- limited quantity;
- Global access from anywhere in the world, regardless of the availability of banking services;
- Complexity of taxation;
- Speed and ease of transfer between parties without intermediaries;
- Impossibility of forgery;
- absence of bank commission for the transfer.
The distinctive characteristic of any coins – high volatility, that is, their rate is very volatile. The final value of each cryptocurrency is directly dependent on supply and demand for it, so it is difficult to predict in advance whether the price will rise or fall. However, this does not prevent cryptocurrencies from being used as a way to save or invest.
Digital money
Digital money is an umbrella term for any electronic means of payment. It includes all virtual currencies, including electronic and cryptocurrencies.
Digital money can be either regulated or unregulated. Unlike physical money, it cannot be touched, put in a pocket, purse or wallet. The alternative name is cyber cash, which can only be paid electronically.
Payments with digital money are made directly between the parties, so the transfer time is minimal. The distinctive feature of these payments is low or zero commissions.
Why digital currency is needed
In France, the digital euro was launched in May 2020. A national “cryptocurrency” in the EU was created to meet the demand for electronic means of payment. By design, the digital euro will compete with private tokens, such as bitcoin.
EU authorities believe the digital currency will be in demand:
- When large numbers of citizens abandon the cash form of payment;
- When the market is filled with foreign payment systems;
- When other forms of payment are not available for some technical reasons, for example, no Internet;
- in an emergency situation in the country – natural disasters, pandemics and other global cataclysms.
Initiatives to create a digital national currency in the Russian Federation have been put forward since 2019. In essence, digital rubles are regulated virtual money, which will be controlled by the Central Bank.
The main functions of digital currency in the Russian Federation will be:
- operational non-cash payments;
- savings;
- investment.
According to the Central Bank, digital ruble will be the third form of money in Russia, along with paper money in a wallet and non-cash on a card. The main advantages of the emergence of the digital ruble predicted by the Ministry of Finance:
- Reducing the cost of transactions between participating parties;
- Reducing the burden on the banking sector;
- Expansion of cross-border payments;
- Reduction of dependence on the dollar or sanctions.
At the same time, the digital currency has identified three disadvantages that will have to be faced:
- Lack of collateral;
- High volatility;
- The possibility of use in illegal activities.
It is not yet known how much demand for this kind of money will be and whether it will be possible to minimize the risks. Russia will be guided by European and other foreign experience.