The world is slowly shifting from traditional modes of transaction to digital wallets that hold both fiat currency and cryptocurrency. With many options to choose from, it is important to know the difference between the different forms of currency. Digital currency is nothing but the electronic form of fiat money issued by governments. Cryptocurrency, meanwhile, is a non-physical currency issued by a private system. It is decentralized, not regulated by any government agency and runs on blockchain technology. NFTs or non-replaceable tokens are digital assets that denote real-world items such as music, art, memes, fashion, etc. From collectible sports cards to memes, NFTs can represent any entity or be used to monetize any skill.
Simply put, digital currency is the electronic form of real money. A person can buy products, transact using digital currency in any part of the world even though digital currency has no physical presence in the real world. While digital currencies do not require encryption, users must use unique and secure passwords to protect their digital wallets from theft or hacking.
Cryptocurrency runs on blockchain technology that records and stores data on all transactions in a public ledger that is accessible to everyone. It is a decentralized system, independent of any centralized regulation. All transactions are recorded in a decentralized ledger that is visible to all, negating the need for a central authority. Unlike digital currency, it is protected by strong encryption.
NFTs are unique digital assets that represent real world items. NFTs are not interchangeable and are different from cryptocurrencies which are fungible tokens. This means that NFTs cannot be traded like cryptocurrencies. NFTs are managed by a digital ledger and all transactions are done online.
How do they differ from each other?
The main difference between the three is that unlike cryptocurrency and digital currencies, NFTs cannot be traded for each other as they are unique representations of real-world assets. Cryptocurrencies and digital currencies can be traded for each other as their value is not lost.
Digital currencies are centralized and regulated by authorities such as banks and governments that keep track of the transactions that take place. Cryptocurrency and NFTs are decentralized and regulated by the communities that run them.
Unlike Cryptocurrency and NFTs which are accessed through a digital ledger which makes all transactions transparent, digital currencies are private and information is transaction based and all money transfers are confidential.