Digital Currency vs Cryptocurrency : The major differences to find out
Digital currency and cryptocurrency have been the center of discussion since their introduction. Although cryptocurrency is a part of digital currency, both have their fair share of differences that we can go through today.
The major difference to understand is that the Central Bank digital currency is the one that is introduced by the central bank. CBDC works the same as physical currency, with the only difference being that CBDC is managed and controlled by the Central bank, whereas cryptocurrency is a decentralized currency that does not depend on any bank for its management but on the group of users that utilize it. Cryptocurrency is nothing but chunks of code that undergo a process called mining and depend on a digital ledger called Blockchain, which takes care of the cryptocurrency’s transparency at each stage.
Now let us consider the major differences between CBDC and cryptocurrency.
Encryption and security
The striking difference between digital currency and cryptocurrency comes in their encryption and mode of security. Digital currencies are online cash that doesn’t necessarily need any specific methodologies to encrypt them. When it comes to cryptocurrencies, the coins are preserved and maintained in wallets, which provide a greater form of cyber security. But the only thing to remember while choosing cryptocurrencies is the importance of choosing a better currency that comes with a higher form of security.
Transparency
The important feature that makes cryptocurrency stand out from the crowd is its transparency in every way. As Central Bank digital currency is managed solely by the banking authorities,the rise and fall of digital currencies depends entirely on the Central Bank, and accessibility is only confined to the bank, sender, and receiver involved in the transaction. So whenever a conflict occurs in the assets, only the bank and bureaucratic authorities can make changes, unlike in the case of cryptocurrencies, where the entire asset management will be done on the public platform. All credit goes to the decentralized public platform, blockchain, which makes conflict resolution easier and more flexible as anyone can have access to the records.
Volatility
Digital currency is always stable and does not see much downside due to volatility as it is managed by the banking authority, which is a reliable source and an approved form of currency that has been utilized and accepted by a vast majority of the population, which cannot be the case with the cryptocurrency due to the volatile nature of its pricing. This can be a reason why it might take time for the cryptocurrency to gain trust and traction around the world, although people are getting attracted to it.
Technological differences
Apart from the security and acceptance of both currencies, another aspect to consider is the technological differences between the two. Digital currency makes use of different technologies that vary from database bases and encryption methodologies that come under conventional banking infrastructure. Cryptocurrencies might depend on decentralized blockchain technology or various distributed ledger systems to manage the transactions. Cryptocurrencies also make use of cryptographic algorithms to maintain security, which is not the case with CBDC.
The Legal Recognition
The rapidly growing demand for cryptocurrency among most Indians can ensure the legality of the currency in the coming days, though it is not managed by a governing body like the CBDC right now. The upcoming anticipation of the metaverse can also ensure that cryptocurrencies are in high demand and can be recognized by the legalities, just like digital currencies are governed by the central bank.
Conclusion
Both cryptocurrencies and digital currencies managed by the governing bodies have their fair share of benefits and pitfalls for the time being, and depending on your requirements, you can choose between the two.
