Digital vs. Virtual Currencies 

There’s a lot of misunderstanding around the terms “virtual” and “digital,” and people often mistakenly use them interchangeably. The reality is that virtual currencies are a type of digital currency, meaning that all virtual currencies are digital, but the converse is incorrect.

Digital currencies are exactly what they sound like: currencies stored and transferred electronically. Any money based in 1′s and 0′s meets this definition; dollars stored in a bank account are supposed to be a representation of dollars actually held somewhere, whereas physical bitcoins are a representation of their digital counterparts.

“Virtual” can be defined as “not based in physical reality,” and virtual currencies are those which are not intended for use in “real life,” or expenditure on real assets. They are, in another word, toys. Pretty much all virtual currencies are centralized, with control of the money supply resting in the hands of the virtual world’s developers.

Digital currencies, meanwhile, are redeemed for physical goods and services all the time. You can order products via PayPal, for example. Bitcoin used to be thought of as “Internet money,” but you can now spend it in person at physical businesses. This makes them similar to traditional money in that respect, and makes them more “real.” Cryptocurrencies are designed to be capable of replacing cash, and there’s nothing virtual about that.

The other obvious factor differentiating cryptocurrencies like Bitcoin from other digital currencies is that they’re generally decentralized. No central power has arbitrary control over the money supply.

Unlike such centralized currencies, bitcoins are mined at a mathematically-controlled rate, and their supply subject only to free market demand. This distinguishes them from traditional currencies like the dollar, as well, which follow the decision-making of central banks.

The lines are getting blurry in the world of currency. As banks go online and plastic becomes ubiquitous, physical cash is becoming antiquated. Electronic money has already taken over, but digital currency is taking things a step further: for the first time in history, people are thinking in terms of numbers, not coins and bills.

 

Source: bitcoinmagazine

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