Money has evolved from its simplest form where salt and shells were considered to be money. Then came precious metals such as silver and gold, followed by coins and paper money. In this era of the internet, we have electronic money and cryptocurrency.
Electronic money and cryptocurrency are both systems used to make digital payments. This is where their similarities end. Electronic money (e-money) is a digital component of the fiat currency system. The fiat system includes units such as Euros, Pesos, Dollars, or Yen.
Cryptocurrency is an electronic currency that derives its value from demand and supply. It uses complex maths to verify its transactions. Although some countries have rules and regulations to try to manage it, cryptocurrency remains unregulated in most countries.
The following are ways that you can use to distinguish electronic money from cryptocurrency.
1. Electronic Money Is Not Transparent
With electronic money, you cannot choose the address of the wallet. You also can not see all the transactions from the beginning of time. They are only available for a certain period. They keep information about the address of the wallet confidential.
Cryptocurrencies are transparent. Anyone can see all the transactions that an individual has made. They also have access to everything you have received. This is because they put all revenue streams on a public chain(blockchain). However, this does not apply to privacy coins. As the name implies, only the owner can know how many coins are withdrawn or received. Most people who use cryptocurrency go for this option.
2. There Is a Legal Framework for Electronic Money
In most countries, digital currencies are highly stable and controlled by the government. Their stability allows their governments and regulators to steer the economy away from inflation and recession. Because of the stability, electronic money is:
- A means to facilitate an exchange
- A way of storing value
- A way to provide a numerical account
The central bank manages economic variables such as interest rates and liquidity to ensure a stable economy. In the UK, electronic money regulations are put in place by https://psplab.com/services/pi-emi-authorisation/e-money-license-in-the-uk/ to supervise electronic money institutions. Any central authority does not regulate cryptocurrencies. They are entries in a database that no one can change or manipulate until they meet certain conditions. Because of their virtual nature, they apply cryptography technology to verify, secure, and process transactions.
3. Supply and Storage
Another way you can distinguish electronic money from cryptocurrency is in the way they stored them. Cryptocurrencies are virtual, meaning they can only exist in digital wallets. These digital wallets are also cryptocurrency wallets. Although most digital wallets claim to have secure storage, there are cases where hacking has occurred, making many people lose a lot of money. There is also a cap on the supply of cryptocurrencies. For example, the number of Bitcoins that will ever be in supply is 21 million.
There is no limit to the amount of electronic money that can exist, as central authorities have no limit to the amount of money they can produce. This makes it hard to tell the amount of money that is in circulation. We can store electronic money in various forms. For example, payment providers such as PayPal allow users to store money in digital form.
4. Banks Back Electronic Money
Central banks back electronic money, which is not the case with cryptocurrency. For example, since the Euro is centralized, the ECB can only issue it. This is not the case with cryptocurrency, a user creates cryptocurrency after they have created blocks, and they get verification. After verification, they enter circulation. They set the price according to the demand and supply in the market. You should note that in case of a problem, there is no legal entity to back cryptocurrencies.
For electronic currencies, they are less volatile than cryptocurrencies. This is because banks make sure that they are stable through certain policies. Cryptocurrency is volatile as it acts on an immature market that has no backing and regulations. They also have many people with high expectations, making it more volatile.
Most people do not understand what cryptocurrencies are and how they work. With the use of electronic money on the rise, they are getting more confused. They do not know which is which. The tips above will help you see the difference between the two. Both stand out in their own right with their advantages and disadvantages. In this day and age, it is essential to make sure you get information about the new trends in the market and how they are likely to affect your life.