Earlier, we examined the differences between the main technologies of cryptocurrencies – a distributed registry and blockchain, but now it’s time to clarify the terminology of digital, virtual and cryptocurrencies.
Why confusion will exist for a long time
Digital money is actively developing and is only on the verge of mass use. The general public has been familiar with the concept of cryptocurrency for about 10 years, and government agencies began to regulate this area only three years ago, and this was due to the rise of bitcoin. The ambiguity in the perception of digital money is clearly visible on the example of Libra since financial regulators of different countries still have not formed a unified opinion about what Libra is all the same.
The definition of cryptocurrency still varies between jurisdictions or even within them. How many regulators, so many opinions. For example, even in one US country, government agencies give cryptocurrencies different definitions depending on their competence:
- The Securities and Exchange Commission says cryptocurrencies are securities.
- The U.S. Internal Revenue Service defines cryptocurrencies and virtual currencies as property.
- The Financial Crimes Network calls cryptocurrencies money.
In Russia, officials even called Bitcoin a “currency surrogate,” but we came up with a single tree of terms, which clearly shows the differences and similarities with examples.
Why are Libra and JPM Coin cryptocurrencies?
JPMorgan Chase introduced its JPM Coin as a digital coin, and Facebook executives called Libra cryptocurrency. Obviously, JPM Coin and Libra differ in functionality, but in both cases, crypto enthusiasts spoke about the fact that Facebook and JPM Coin are virtual money and not cryptocurrencies due to the lack of decentralization. But they turned out to be wrong, because the concept of “cryptocurrency” may well include the absence of decentralization since not all cryptocurrencies work on a public blockchain.
Cryptocurrency is a digital currency that is based on cryptography to ensure data authenticity and transaction security.
Bottom line: JPM Coin and Libra can be called cryptocurrencies since the protection of the immutability of data in them are based on cryptography.
Varieties of cryptocurrencies bring even more confusion – coins and tokens, but we have already sorted the differences between them, so we will immediately turn to virtual and digital currencies.
Differences between virtual and digital currencies
Initially, it seems that these terms are used as equivalent synonyms, but in fact, virtual currency is a kind of digital.
Digital currency is an abstract general term that applies to all forms of electronic money without exception. The first to use this term was David Chaum in 1983 in his research work, which was subsequently used as a base for Digicash.
The main feature of digital currencies is immateriality. You can buy, sell or exchange such currency only through electronic wallets or designated connected networks. Digital currencies and digital money are synonymous expressions.
Virtual currencies, as already noted, are a form of digital money. For the first time, the European Central Bank defined this term in 2012.
Virtual currency is “digital money in an unregulated environment, issued and controlled by their developers and used as a payment method among members of a particular virtual community.” An example is the FIFA Points from EA Sports’s football simulator, which are used to buy soccer cards or open packs. There is no cryptographic protection, blockchain or DLT in virtual currencies.
It turns out that the distinctive feature of virtual currency is the lack of cryptography and the fact that their emission cannot be performed by regulatory authorities or the central bank, while banks in different countries already use cryptocurrencies. There are many examples, from JP Morgan bank with their JPM Coin to the decree of the Venezuelan government, which obliges national banks to accept El Petro cryptocurrency.