It is easy to create your own digital currency today. Despite the potential benefits and risks, there is still confusion around the terminology of money. Angelo Babb is a specialist in cryptocurrencies and clarifies the differences between virtual money, digital money and cryptocurrency.
Although digital money, virtual currency and cryptocurrency are often used interchangeably, these terms are not interchangeable. It is important that you understand that a cryptocurrency is not always a crypto currency, and vice versa, that virtual currencies and cryptocurrencies are always digital currencies.
Digital currency is created and controlled by its developers. It can be used and accepted by members of any community that recognizes it as valid. You can use digital currencies to purchase gift vouchers, airline rewards points and cashback for your credit card purchases.
Babb clarifies that “these digital monies share the same trait in that they operate as a medium for exchange that functions as a currency within their own context. However, they don’t have the attributes that a real currency unless they are issued by a central banking institution such as the Ecuadorian dollar digital currency.”
It is interesting to note that cash only represents 8% of all money in circulation. Therefore, everything else is almost identical to digital money. Virtual currency, on the other hand, is the term for virtual currencies that are used in online games like Clash Royale and League of Legends. These coins have no value outside of the game. They are an incentive to play more so you can make in-app purchases or exchange them with other players.
These currencies can be used to exchange money in a virtual world. Babb explains that they can also be associated with Internet platforms in certain instances and are limited to members of a particular virtual community. Exito Points and RappiCreditos are two examples. These virtual currencies are worth something, but they are linked to a virtual economy platform. They do not exist in physical form.
A cryptocurrency is built on cryptography principles to offer a secure medium for exchange. This cryptocurrency is generally not supported by any central bank, government or commodity. However, because it is based on Blockchain technology, it can be used to store and exchange value as well as a currency.
These are often established on a peer-to-peer network of people and are best illustrated by Bitcoin (BTC). Although cryptocurrencies can be considered a type of digital currency, they differ from traditional currencies in that they do not have an official currency. They are also not subject to central control as virtual currencies.
While virtual and digital money have been around for many decades, cryptocurrencies are relatively new. BTC is a cryptocurrency, which does not have an issuer and can be cryptographically protected. In principle, their consistency can also be protected through a large and distributed verification of users.
Cryptocurrencies are digital and virtual money. They are distributed and not controlled by a central authority like other virtual currencies. Instead, they are decentralized and based upon cryptography to protect against manipulation by their members.
All cryptocurrencies can be referred to as virtual and digital money. However, this is not true for vice versa. Digital money can refer to any currency around the globe (including the euro and dollar), but virtual currency may be referring to a currency that has a specific issuer. It is important that terms are understood and used correctly in the future.