The use of digital wallets has flourished as technology evolves over the past decade. Governments around the world encouraged people to switch from traditional wallets to digital wallets as it came in handy in many ways. Its popularity peaked during the pandemic due to its contactless benefits. With the advent of cryptocurrencies, the use of digital wallets increased even more. All of this happened fast enough for most people to keep up with it and caused some confusion about these two types of currencies.
People started using digital wallets to hold both digital currency and cryptocurrency, and we often find them using the terms interchangeably, however they are different.
1) Digital Currency Vs Digital Coins
Digital currency refers to the electronic form of fiat money issued by governments. They are used for contactless transactions between parties, such as when you electronically transfer an amount from your bank account to someone else’s. When you pay from your bank account or digital wallet, which stores the value equivalent to real fiat money through an electronic transfer mechanism for a product or service, you are using a digital currency. When you withdraw money from an ATM, the digital currency becomes liquid cash.
Cryptocurrencies, on the other hand, are a crypto-secured store of value. They are often referred to as digital currencies. There are different digital currencies like Bitcoin, Ether and Dogecoin. All of these cryptocurrencies are privately owned or created and are not yet regulated in most countries and are created using advanced blockchain technology.
2) Usage
The digital currency does not require encryption, but users need to protect their digital wallets (banking applications) with strong passwords to minimize the risk of theft or hacking. Users also need to protect their debit / credit cards with passwords. They can use any of these means to conduct digital currency transactions from their bank accounts.
The cryptocurrency is protected by strong encryption. To trade cryptocurrencies, you must first have a bank account and digital currency. You need to exchange the digital currency through an online exchange in order to receive the cryptocurrency for the appropriate value.
3) Regulatory Authority
Since digital currency is the electronic form of fiat money, it is always backed by a central authority. In India, the Reserve Bank regulates the rupee and all digital currency transactions are monitored by the authorities. The cryptocurrency is based on a decentralized system and is independent of central regulation. However, all transactions are recorded in a decentralized general ledger that can be viewed by everyone.
4) Stability
The digital currency is generally stable and it is relatively easy to manage your transactions due to its greater acceptance in the world market. The cryptocurrency is very volatile and is gaining ground. Not many companies have started accepting cryptocurrency payments.
5) Transparency
The details of the digital currency transactions are only available to the sender, the recipient and the banking authorities; all the details of the cryptocurrency transactions are publicly available in a decentralized ledger.
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