What are the differences between electronic money, digital currency, and cryptocurrency?
Digitalization of the financial market creates new tools for investing money and generating income.electronic money,digital currency, as well as the termcryptocurrencyThey regularly appear in the media. People often mistakenly consider them interchangeable.
Many people think that if cryptocurrency is stored electronically, it can be called electronic money. This is not true, at least because the latter has a regulatory framework, while cryptocurrency does not.
In this article we will try to understand the terminology and explain whyelectronic money(e-money),digital currency And cryptocurrency- these are not the same thing.
Photo from Freepik
Follow us onFacebook,Telegram,Twitter orInstagramso you don't miss useful information!
Electronic money
Electronic money is the equivalent of real money stored in an electronic wallet. An electronic wallet is a device or software that allows you to store and use electronic money: pay for goods and services, transfer it to other users, and exchange it for cash and non-cash funds.
The term “electronic wallet” has been approved in Ukraine.Payment Services Lawand is defined as "an account for recording, storing, and conducting transactions with electronic money." The most popular e-wallets in Ukraine are on Visa and MasterCard cards.
Synonyms for electronic money: e-money, electronic cash, electronic exchange. The term digital (from the English "digital") alternative to cash is also used.
Almost all popular payment systems, including PayPal and others, fall under the concept of electronic money.
The European Central Bank (ECB) defines electronic money as monetary value that is stored electronically and, thanks to information technology, is used on devices to make payments.
According to Ukrainian law, electronic money is a unit of value issued by an e-money issuer for payment transactions and stored on an electronic device. It is accepted as a means of payment by parties other than the issuer and is a monetary obligation of that party, executed in cash or non-cash form.
What can you do with electronic money?
As we can see, e-money, issued by the issuer of electronic money for the execution of payment transactions, is an instrument for non-cash payments in the national payment currency.
Using special software, e-money owners can purchase goods, transfer these funds to other e-wallet owners, exchange them for other e-money, and give them as gifts. They can also receive e-money from others. Essentially, it's fully-fledged money that can circulate indefinitely.
If the owner of electronic money wants to convert it into cash or non-cash funds, he contacts the bank. The bank carries out the conversion.
Depending on the technology used to store this monetary value, electronic money can be hardware-based or software-based. Examples of the latter include payment cards, virtual cards, or payment accounts.
E-money issuers
Electronic money can only be issued by authorized institutions: banks and electronic money institutions (EMIs). All of them are licensed to issue e-money.
Until October 1, 2022, only resident banks could issue electronic money in Ukraine. According to NBU Resolution No. 210 of September 29, 2022, the right to issue electronic money has been granted to non-bank payment service providers.
It has been established that, in order to strengthen the protection of financial services consumers, the issuer must enter into an agreement with the user. The e-wallet number must be generated according to the international IBAN standard.
From February 24, 2022, the NBU temporarily suspended operations on the issuance and distribution of electronic money, replenishment of electronic wallets with electronic money (Resolution of the NBU Board No. 18 of February 24, 2022).
Digital currency
Digital currency is a general term used to describe unregulatedAnd adjustabledigital money.
Such money is available exclusively in digital form and is not linked to cash. Therefore, digital currency and electronic money are not the same thing.
Digital currencies are intangible and can be managed using a computer or an electronic wallet that is linked to specific networks.
It is important to understand that:
- All cryptocurrencies are digital currencies;
- But not all digital currencies are cryptocurrencies (examples of other types of digital currencies include e-gold and game money).
Virtual currency
Virtual currency isunregulated digital currencyIt exists only in digital format. It's important to understand that virtual currencies are not issued by a central bank or other banking authority.
They are typically issued and controlled by their developers, and used and accepted electronically by members of a particular virtual community.
Any individual or legal entity may trade, transfer, and store virtual currencies. However, virtual currencies are not used as a store of value, a unit of account, or a value used for exchange calculations.
Cryptocurrency
Cryptocurrency isunregulated virtual currency, which is created and protected from counterfeiting and hacking through cryptographic encryption. Its price depends solely on supply and demand in the market.
Cryptocurrency is a type of digital currency, but it is not a type of electronic money because it is not regulated or issued by any bank or electronic money institution (EMI).
Philosophical debate
It's important to acknowledge that many users and creators of cryptocurrency services still consider cryptocurrencies a form of electronic money. However, legislation in most countries, as well as authoritative experts, still view cryptocurrency as a pseudo-monetary virtual currency for private exchange.
And the confrontation between these two views is practically a philosophical debate. Its essence is this:
- whether cryptocurrency units should be considered “chips,” a purchasable virtual commodity;
- or units of the payment system with monetary obligations.
For now, regulators are leaning towards the first interpretation option.
Ukrainian legislation also does not consider cryptocurrencies to be electronic money, and their circulation is regulated by the Law of Ukraine "On Virtual Assets." As of December 2022, the document was adopted by the Verkhovna Rada of Ukraine, but has not yet entered into force.
A fundamental feature of cryptocurrencies is that information is stored in the blockchain, making it impossible to change information in one block without having to make changes to all subsequent ones.
Each cryptocurrency has its own unique properties, so the potential of this type of digital currency is enormous. At the same time, cryptocurrency, as a technological innovation, has a special mission: it can give a certain category of people a chance to escape poverty. How? By providing banking services to those who don't have access to them.
While sovereign digital currencies can replicate some of the features of cryptocurrencies using blockchain technology, they will not be able to fully realize some of the most attractive characteristics of crypto:
- Anonymity.No one knows how much money the owner of a crypto wallet has, what they spend it on, or who they send it to (cryptography ensures payment privacy).
- Decentralization.Cryptocurrencies are not controlled by the state or have any other central governing body.
- Management.Cryptocurrencies are not subject to uncontrolled emission.
Conclusion
Electronic money, digital currency, and cryptocurrency are not identical concepts. Cryptocurrency is an unregulated virtual currency, a type of digital currency, but not a type of electronic money.
Each of the listed payment methods has its own characteristics. All are used in Ukraine. It's important not to confuse these concepts and to deepen your knowledge of each to find the most effective ones for your business.
It is also worth remembering that the most important tool for business iswebsite, hosted on a securehostingTo ensure that a web resource helps you achieve your goals faster and more effectively, it is important to choose a good one.domain.SSL certificateand registrationtrademarkwill help secure your business's online operations. These services can be ordered from the company.NIC.UA.
