Understanding the Differences
Many crypto investors use the terms virtual currency and digital currency interchangeably without fully understanding the differences between the two. Before we dive into the distinctions, it’s important to define each currency.
Defining Virtual Currency and Digital Currency
A virtual currency is a digital representation of value available only electronically, while a digital currency is a form of currency that exists only in digital or electronic form. To illustrate these differences, we’ll look at a flow chart.
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Difference #1 - Legal Tender Status
The primary difference is the legal tender status. Virtual currency has no legal tender status, whereas digital currency is regulated by law and can be accepted for payments.
Difference #2 - Convertibility
Another distinction is convertibility. Virtual currency can be either convertible or non-convertible, while digital currency is exclusively convertible. For example, digital gift cards are a form of virtual currency that cannot be readily converted, whereas USD fiat is an example of digital currency that can be converted to other fiat currencies.
Difference #3 - Fungibility
Fungibility, or interchangeability, is another key difference. USD fiat is fungible, whereas NFTs are not. Similarly, virtual currency can be fungible or non-fungible, while digital currency can only be fungible.
Difference #4 - Examples in Crypto Context
Examples of virtual currency in the crypto context include NFTs, Bitcoin, fungible altcoins, and distributed ledger technology coins, while digital currency includes Bitcoin (in El Salvador only) and stablecoins that are pegged to other items of value.
Hot Take
Understanding the differences between virtual currency and digital currency can make you more accurate in describing crypto assets, and even impress some crypto professionals with your knowledge!
