As we had hinted in the previous articles one may easily confuse “cryptocurrencies” and “Digital
currency.”
The two might seem interchangeable, but they mean two different things, whereas digital
currency refers to any currency that exists online Cryptocurrency refers to currency held as a
record on a blockchain database.
You may be wondering what a blockchain is. Well, this is a system or a shared ledger that
cannot be changed and facilitates the process of recording transactions and tracking assets in a
business network. Unlike traditional currency in digital form, which attracts localized taxes since
it’s viewed as money and income, cryptocurrency, or other purely digital assets on the other hand
are viewed by the international revenue Service (IRS) as property.
Essentially, we are digging deeper to give you more insights for you to make a wise decision
whether to invest in Cryptocurrency or digital currency.
For digital currency this is any currency that is recorded and transferred on computers, for
example dollars in an online account. You can hold traditional currency in physical or digital
form depending on how you store it.
What exactly is Digital Currency?
Digital currency is a currency that is recorded and transferred only on computers. It has no
physical counterpart, meaning that it has no printed or minted form in the real world. This refers
to a pure digital currency and is generally the preferred usage for most Somalis.
The difference is that under the more common definition, dollars, pounds and euros can exist as
digital currencies when they’re held and moved online. The second, narrower, definition of
digital currency refers to currency that has no physical notes or coins.
Some banks and governments have begun to explore creating digital currencies as a form of
intermediary value to use when executing cross-border transactions. In some of the countries
globally however, the pure digital currencies do exist, and governments do not treat them as
money.
Under Internal Revenue Service (IRS) rules, digital (or “virtual”) currencies are considered
property for taxation purposes. This means that you do not value the asset on its own merits.
Instead, you pay taxes based on what it is worth in terms of dollars.
What Is Cryptocurrency?
Cryptocurrency comes as purely virtual currency, basically meaning that it has no official
physical asset. However, key to note is that crypto is recorded and stored on a blockchain
database, and it applies to assets like Bitcoin
At the same time, cryptocurrencies and blockchain are largely inseparable. All crypto projects
use blockchain for their security and data storage. When you own a cryptocurrency, you own an
entry in a database. The ledger will record that specific crypto such as bitcoin belonging to you.
When you spend it, the ledger will update that entry to reflect the bitcoin’s new owner.
Consequently, cryptocurrency is a form of digital currency. But not all digital currencies are
cryptocurrency.
Bottom Line
Cryptocurrency refers to the exclusively digital currency that is based on the blockchain storage
format. Although sometimes the term can be used to refer to any currency secured with
cryptography, this is not the preferred use of that term.
If you have read to this end, we believe you are interested in knowing more about
cryptocurrency and how it works. Well, we have got you covered, below are the links to
some of our articles on Cryptocurrency:
Cryptocurrency for beginners.
What is Bitcoin and how does it work?
What is Blockchain Technology?