Digital Currencies vs. Cryptocurrencies, Explained
Though cryptocurrency is a type of digital currency, there are some fundamental differences.
Structure. Digital currencies are centralized; there is a group of people and computers that regulates the state of the transactions in the network. Cryptocurrencies are decentralized, and the regulations are made by the majority of the community.
Anonymity. Digital currencies require user identification. You’ll need to upload a photo of yourself and some documents issued by the public authorities. Buying, investing and any other processes with cryptocurrencies do not need require any of that. Nevertheless, cryptocurrencies are not fully anonymous. Though the addresses don’t contain any confidential information such as name, residential address, etc., each transaction is registered, the senders and the receivers are publicly known. Thus, all the transactions are tracked.
Transparency. Digital currencies are not transparent. You cannot choose the address of the wallet and see all the money transfers. This information is confidential. Cryptocurrencies are transparent. Everyone can see any transactions of any user, since all the revenue streams are placed in a public chain.
Transaction manipulation. Digital currencies have a central authority that deals with issues. It can cancel or freeze transactions upon the request of the participant or authorities or on suspicion of fraud or money-laundering. Cryptocurrencies are regulated by the community. It’s very unlikely that the users will approve the changes in the Blockchain, although there were some precedents such as the hack of The DAO. However, the amount of money was significant, and the decision was uncertain.
Legal aspects. Most countries have some legal framework for digital currencies, i.e., Directive 2009/110/EC in the European Union, or Article 4A of the Uniform Commercial Code in the US. We cannot say the same about cryptocurrencies at the moment. In most countries, their official status is not defined. The establishment of the legal framework is only in the process.