Electronic money, digital currency or cryptocurrency?
In our current digital era of the so-called cyberculture, there are some common terms in everyday life to refer to money in its various formats and presentations. This generates some confusion, especially if they talk about electronic money, digital currency and cryptocurrency; the latter is also called token, cryptoactive or cryptocurrency. But let's briefly see what each one is about to start differentiating it and never to get confused again.
A little history
The term money is quite old. According to Gómez (2017): “Money is a very old word. It comes from the Latin denarius, a Roman silver coin that began to be minted in the third century B.C., and which replaced the copper standard with the silver standard as a monetary reference in Rome. ” Instead, the paper money we know appeared in Europe about 300 years ago. Again Gomez (2017) tells us the following:
"It is not until the seventeenth century that there is evidence of paper money in Europe, although the so-called "flying money" worked in China since the ninth century. The Swedish moneymaker Johan Palmstruch began to deliver it as a receipt for those who deposited gold in his bank, the Bank of Stockholm. This practice was popularized in Europe for the comfort it offered against metal coin bags".
Of course, for this cash (paper) to have any value, the philosopher David Hume raised in the 18th century the possibility of using the first gold standard model to support the international financial system. However, this gold standard began to be abandoned since the 1970s, so the value of money began to be maintained exclusively in the confidence that its holders give it to this day. That is why money is now called fiat or fiduciary, from the Latin fides that means faith (Gómez, 2017).
Now, at this point, electronic banking appears, the one that is given online or in Internet. In it the money that is managed in the cloud is not physical, it is electronic, and therefore, we cannot see or touch it, it only exists in a computer network based on zeros and ones. We can use it through online transfers or payments, but also through a debit or credit card. The only way to materialize this money is to withdraw it from the ticket office of a bank or by an ATM. In other words, the money from our salary, savings or investments, the one we use to pay for goods and services, exists electronically and physically according to our daily needs.
But since the cryptocurrencies arrived everything has changed, because money no longer exists in its electronic version, it is now exclusively digital in its genesis or issuance, but also its management for the various purposes it serves: pay for goods and services, investment, savings or exchange with other physical or digital currencies (fungibility). In other words, it serves the same thing we do every day with our fiat or electronic money, with two differences: a) it does not exist physically; b) we can issue and manage it as if we were our own bank through a process called mining. In other words, cryptocurrencies tell us about democracy, autonomy and financial freedom, three words that we should not forget.
Cryptocurrencies are digital currencies, but digital currencies are not cryptocurrencies
Something confusing this title, but timely for what I will explain through the definitions that Tar (2017) author of Cointelegraph, who clearly and briefly explains what digital currencies are and what cryptocurrencies.
"Digital currencies are money used on the Internet. Digital money exists only in the digital form. It has no physical equivalent in the real world. However, it has all the characteristics of traditional money. Like classic fiat money, you can get it, transfer it or exchange it for another currency. You can use it to pay for goods and services, such as mobile and Internet communication, online stores and others. Digital currencies have no geographical or political boundaries; transactions can be sent from anywhere and received anywhere in the world..."
"Cryptocurrencies are a variety of digital currencies. Cryptocurrency is an asset used as a medium of exchange. It is considered reliable because it is based on cryptography. One of the main objectives of cryptography is communications and how to make them safe ... Cryptocurrencies use Blockchain and a decentralized ledger system. It means that no supervisory authority controls all actions on the network..."
In other words, what basically differentiates a digital currency from a cryptocurrency is the type of technology that supports it, in this case the cryptography used in a distributed and decentralized database called blockchain. Of course, this fact generates a different philosophy in the conception and use of cryptocurrency with respect to digital currency.
Comparative chart between digital currencies and cryptocurrencies
To better understand how digital currencies differ from cryptocurrencies, let's look at the following comparison chart.
This short walk allows us to differentiate and recognize some of the peculiarities that characterize electronic, digital money and cryptocurrencies.
Gómez, I. (2017). Sobre cómo las criptomonedas reconfiguran la idea de dinero. Criptonoticias: https://www.criptonoticias.com/opinion/sobre-como-criptomonedas-reconfiguran-idea-dinero/
Tar, A. (2017). Monedas digitales vs. criptomonedas, explicado. Cointelegraph: https://es.cointelegraph.com/explained/digital-currencies-vs-cryptocurrencies-explained.
Post originally published on Trybe