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Digital Money And Cryptocurrency: What Makes Them Different?

18:02 29/12/2017
Digital Money And Cryptocurrency

Cryptocurrency is a type of digital money that does not have a physical form and exists exclusively in a digital space. However, it possesses all key features of traditional money. People can get it, keep it or invest. It can be used for payments, loaning, and other financial activities. Moreover, cryptocurrency has no geographical or political borders, which means they can be used all over the globe.

 

Cryptocurrency is considered to be more secure instrument than traditional currencies, because of mathematical methods of cryptography they are based on. Encryption is a common technique in a data transfer process intended to keep messages safe and prevent interception. There is plenty of cryptography protocols and methods used to change information because of security reasons.

 

Blockchain is one of the types of distributed ledgers. It is the core of cryptocurrency. This means that there is no central device or authority that governs the processes within the network. All participants are responsible for all actions.

 

Still, cryptocurrency differs from common digital money and assets in some ways.

 

Decentralization

 

Digital money is controlled by a single node or a set of such nodes. They are subjected to centralization. Meanwhile, cryptocurrency has no centralized authority. All network participants are equal in their rights.

 

Anonymity

 

Each unit of digital money can be traced via user data. In fact, this data is not available until you fill in a registration form. All available operations require identity approval. Cryptocurrency systems do not collect any information about its owners, which means that all operations here are anonymous.

 

Transparency

 

Digital money is not transparent. Users cannot get access to a random user account and see its information about transactions. This data is kept in secret. When it comes to cryptocurrency, you are allowed to track crypto wallet addresses and even see the amount of coins transferred among them, as the whole system is fully transparent.

 

Every transaction that involves digital money is managed by a centralized authority.

Transaction management

 

Every transaction that involves digital money is managed by a centralized authority. It can be frozen or canceled for some reason. Cryptocurrency has no centralized authority, as the crypto community itself approves or rejects each transaction separately and has to take part in serious decision-making processes (for instance, The DAO).

 

Legislation

 

Standards to manage digital money are adopted in many regions. For instance, the Directive 2009/110/EC in the EU, or Article 4A of the Uniform Commercial Code in the USA. When it comes to cryptocurrencies, legal aspects are not defined here yet. Each country has its own set of laws and rules toward crypto, but there is no common standards to follow.

 

As far as we can see, digital money and cryptoassets are different, and all differences between them can be presented both as pros and cons. In centralized systems, someone constantly supports its reliability, functionality, and accessibility. Most often, this role is played by an organization with redundant management components. Transaction can be reversed if they were made by mistake or if a user account was hacked. On the other hand, this is compensated by a huge amount of personal information kept by a company. This is a weak point because data may be lost, stolen or changed in favor of malicious users. Same things can happen with transactions.

 

It is possible to change centralized systems by bringing in some advantages of the decentralized one. Forbes reports that over two billion of people has no access to services provided by banks. At the same time, mobile devices are widely used all over the globe. They have enough computational power to run blockchain applications. This means that the people who have no access to banks, might have a chance to get involved into the system via their phones or tablets. Blockchain-based applications can give them such an opportunity.

 

Such applications already exist. Telcoin is intended to connect mobile firms with the existing banking systems. This new solution unites functionality of fiat money and cryptoassets and gives access to different useful services (for instance, prepaid credits, postpaid billing platforms, mobile money).

 
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