What is the difference between cryptocurrency, virtual currency and digital money.
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The Bitcoin fever is creating some confusion in the terminology used to refer to these currencies. Sometimes this type of currency is called cryptocurrencies, other times virtual currency and sometimes digital money. However the three terms are not interchangeable.
This can generate quite serious confusion, such as when a media outlet claimed that the Bank of England was preparing a cryptocurrency, when in reality it is a virtual currency. On other occasions we are not mistaken, since Venezuela effectively prepares its cryptocurrency. Let’s see the differences.
Digital is (practically) everything
Digital money is, in general, any means of monetary exchange that is made by an electronic medium. When you transfer money from one bank account to another, you are using digital money. When you pay with a card at a store, too.
That is, when a payment or money transfer is made without physically exchanging coins or bills, digital money is being used. Virtually all the money in the world is digital, since cash only represents about 8% of money in circulation.
Therefore, when someone refers to digital money, they should simply be talking about money. Every day money is digital. The vast majority of the world’s wage earners collect and pay in digital money. Digital money is money.
Virtual, there are some
Now, sometimes people talk about virtual currency. Virtual money is that which does not exist except in its digital format. For example, in many video games there is an internal currency with which you can buy objects. This money that is used within the game is virtual.
It can also exist virtual money that is not the protagonist of a video gameFor example, some currency created by companies or amateurs that intended to replace the current physical money with a new currency far from the control of central banks. An example could be E-gold, which I ended up closing due to legal problems.
By definition, virtual currencies are all digital. As they do not exist physically, there is no paper money of them, they have to be 100% digital. Therefore all virtual currencies are digital, but not all digital are virtual (An example is a bank account in euros, it is digital but not virtual).
Cryptocurrencies, a subset of the above
Digital and virtual money have been around for decades, but cryptocurrencies are more recent. Cryptocurrencies, such as Bitcoin, are a type of virtual currency that does not have a specific issuer, which are protected by cryptography and that in principle its consistency can be protected by a massive and distributed verification of its users.
Therefore, cryptocurrencies are virtual and digital money. But unlike other virtual currencies, they do not have centralized controlRather, it is distributed and based on cryptography to avoid manipulation by any of its members.
It can be concluded that all cryptocurrencies are virtual currency and digital money, but not vice versa. When you talk about digital money you can be talking about any currency in the world (the euro and the dollar too), and when you talk about virtual currency it may not be a cryptocurrency, but a currency with a specific issuer. We hope that the terms will be used correctly in the future and that there will be no misunderstanding.
