Defining The Cryptocurrency Vs Virtual Currency Vs Digital Asset Differences
What’s The Difference Between Digital Currency, Virtual Currency, And Cryptocurrency?
Cryptocurrency and blockchain terminologies can often be confusing for newbie investors or budding industry enthusiasts. This is even more so as institutional investors like JP Morgan get into the space. Last week, the Fortune 100 company launched its own coin.
When asked what type of coin it was, the company stated that it was neither a cryptocurrency nor a virtual currency. This further worsened an already “delicate” situation, causing people to speculate what it really was.
The good news is the company has come out to say it’s actually a “Bank Coin”, which is quite similar to a functional stock that can be utilized for certain processes in the bank.
This article is meant to help newbies better understand how the market works, what these various terminologies mean and help clear up the confusion. This way, you can quickly get started on the way to successfully investing in the crypto and blockchain space.
What Is A Digital Currency?
This is essentially the parent name for all non-physical monies. While you cannot touch it physically, you can actually use the “money” to pay for services, buy goods and carry out transactions. This is basically the parent term for all forms of electronic monies.
For instance, the money transferred from one account to another online is termed as digital currency. The same goes for monies converted into virtual currencies and cryptocurrencies (see below for definitions).
These may or may not need intermediaries to execute transactions. For instance, all funds in your Paypal and Stripe accounts are considered digital currencies. Transfers between users only require the use of an email address and wallets.
This makes it easy for one person to transfer funds from one Paypal address to another, with the transactions often reflecting within minutes. Basically, digital currencies are real money that are intangible, but still very usable to the larger community.
The channels and forms make it very easy to move money around and in large quantities. You can transfer a million dollars instantly if your cash is in the digital currency format. It’s convenient, fast, and seamless.
If you try to do this using hard, physical cash, the process would be tedious and highly inconvenient –not to mention unsafe as you’d have to lug the funds from one location to another.
What Is A Virtual Currency?
These are subsets of digital currencies, often restricted to certain platforms, enclaves, and communities online. They may or may not be converted into actual money –depending on the availability of facilities and policies.
These are often created by individuals or entities with platforms where it can be traded and accepted. So, unlike digital currencies that are universally accepted, these are only accepted in individual online communities.
So, while virtual currencies are digital (intangible), not all digital currencies are virtual. A good example of virtual currency is the rewards you get from playing certain video games. While you can actually acquire billions in value, that “money” is only good for buying and selling within the gaming community.
It’s NOT a legal tender in the outside world. So, outside of that platform, it’s essentially useless. These are never issued by traditional financial institutions as they have no need for it. This also means zero regulation.
Please note that digital currencies that pass as legal tender can often be converted into virtual cash –like buying tokens used in paying for a car upgrade in a racing game- but never vice versa.
What Is A Cryptocurrency?
This is an algorithm powered currency used as tokens in select online communities and backed by certain technologies, assets or projects. They can be used for mostly peer to peer payments, and a few for direct, real-life transactions.
Their value is often determined by demand, supply, and algorithmic parameters. These have their own self-regulating networks and ecosystems, are decentralized, and aren’t reliant on third parties like banks to function and execute transactions.
So, you buy, hold until it appreciates in value, and sell. Depending on your goals, you can do this short, medium or long term. There are professionals who trade the currencies every day, and retail investors who buy and hold for the future.
Bitcoin is currently the most popular cryptocurrency in the market, followed by ethereum and a bunch of others. Other less popular cryptocurrencies are also referred to as altcoins –short for alternative coins- and can be just as profitable if you buy the good ones.
Currently, there are about 1900 cryptocurrencies, many of which are scams. This makes it difficult to identify the best and most promising tokens from the legit ones. Cryptos are popular for their anonymity, trustlessness, transparency, zero reliance on third parties and privacy –although some aren’t as private as others.
Now that you’re familiar with all three terms, it should be easy for you to tell the difference and use them accordingly. Understanding this difference will help you make better investment decisions at the end of the day. Good luck in your investments, and always remember to do your due diligence before investing in cryptocurrency projects.