Difference between cryptocurrency, virtual currency and digital money

In recent times there has been much talk about bitcoin and cryptocurrencies, which has generated some confusion and that some people tend to confuse some of the terms or have not been entirely clear. The terms cryptocurrency, virtual currency and digital money represent different types of money, which i will try to define and explain their differences.

Digital money

Digital money is the digital or electronic representation of all types of money, this can sometimes be used to make payments for assets and services in real life. An example of this type of money is the one that is stored in bank accounts, with which we can make electronic transfers, payments with debit and credit cards.

In the case of legal currencies and issued by a central bank, we could say that all have a digital version, so that digital money in some cases can be controlled by the organization that regulates and distributes a certain currency.

In few words it can be defined as the payment or exchange of money without a physical currency such as banknotes and coins.

Virtual money

On the other hand, when we talk about virtual money, it is that which exists only in its virtual form, unregulated money which is generally issued and controlled by its developers, and although it is not issued by any central bank or public authority, it is used and accepted by some people as a means of payment. This can also be stored, transferred or exchanged electronically.

A clear example of virtual currencies are those used in video games, which are used to buy objects within a certain game or virtual community, but will not have any value in real life. Another of the most famous virtual currencies is e-Gold, which has existed since 1996.

In theory, virtual currencies are considered digital money, since they do not have physical representation, but not all digital currencies are virtual.

Cryptocurrencies

Finally, although digital money and virtual currencies already have several years between us, the newest and most important trend at present is undoubtedly cryptocurrencies. Cryptocurrencies are a type of virtual currency, but with characteristics that make them unique and different from any other of its previously known type. Cryptocurrencies, as the name implies, are protected by cryptography, that is, they are encrypted and supported by mathematical algorithms, thus providing security in transactions and control in the creation of new units. They also use a public accounting record (called blockchain), to ensure that each transaction is legitimate and avoid fraud.

Another characteristic shared by most cryptocurrencies is that they are decentralized currencies, that is, they are not backed by any government or institution, nor does it depend on trust in a central issuer. Similarly, transactions do not need intermediaries and the protocol is open source.

The world of cryptocurrencies grows more and more, and although the most famous is undoubtedly the bitcoin, which besides being the first is the one that currently has the greatest value, today there is a great variety of them, with different characteristics, finding from litecoin, ethereum, ripple or dogecoin to steem or steem dollar.

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