The distinction between digital currency and cryptocurrency lies in several key features, which can be summarized as follows:

1. Definition & Scope

• Digital Currency: A broad term encompassing any form of currency that exists purely in digital or electronic form. This includes centralized systems like bank deposits, e-wallets (e.g., PayPal), and central bank digital currencies (CBDCs).
• Cryptocurrency: A subset of digital currency that uses cryptography and decentralized blockchain technology. Examples include Bitcoin, Ethereum, and Litecoin.

2. Centralization vs. Decentralization

• Digital Currency: Typically centralized, governed by institutions like banks, governments, or payment providers (e.g., CBDCs, digital fiat).
• Cryptocurrency: Decentralized, operating on peer-to-peer networks without a central authority. Governance often relies on consensus mechanisms (e.g., proof of work/stake).

3. Technology

• Digital Currency: Relies on traditional centralized databases or ledgers managed by financial institutions.
• Cryptocurrency: Built on blockchain or distributed ledger technology (DLT), ensuring transparency and immutability.

4. Security & Anonymity

• Digital Currency: Requires KYC/AML checks, linking transactions to real identities. Security depends on institutional protocols.
• Cryptocurrency: Offers pseudonymity (transactions tied to wallet addresses, not identities). Security is enforced via cryptography and consensus algorithms.

5. Regulation

• Digital Currency: Heavily regulated, adhering to existing financial laws and oversight.
• Cryptocurrency: Varies by jurisdiction; often operates in evolving regulatory frameworks, with some regions embracing it and others imposing restrictions.

6. Volatility

• Digital Currency: Stable, as it mirrors traditional fiat currencies (e.g., digital USD = physical USD).
• Cryptocurrency: Often highly volatile, though stablecoins (a crypto subset) peg value to assets like fiat to reduce fluctuation.

7. Use Cases

• Digital Currency: Used for everyday transactions, mirroring traditional money (e.g., online shopping, bank transfers).
• Cryptocurrency: Beyond payments, enables programmable functions (e.g., smart contracts, decentralized finance/DeFi).

8. Transaction Speed & Cost

• Digital Currency: Fast and low-cost within the same system (e.g., domestic bank transfers).
• Cryptocurrency: Speed and fees vary by network (e.g., Bitcoin can be slow/expensive; Ethereum L2 solutions aim to improve efficiency).

Examples

• Digital Currency: Bank account balances, CBDCs (e.g., China’s digital yuan), PayPal credits.
• Cryptocurrency: Bitcoin (decentralized payment system), Ethereum (smart contract platform), USDC (regulated stablecoin).