Cryptocurrencies are virtual currencies that are built from a cryptographic base that makes them immutable and secure.
Its technological base is the blockchain, the chain of blocks, which consists of chaining transaction data in a confidential way, with a time stamp that prevents them from being altered and thus guarantees the reliability of the transactions.
This technology prevents data modification and makes attempts to access these transactions extremely difficult. Cryptocurrencies were born more than a decade ago as an attempt at decentralized currency, which was outside the Central Banks.
Differences between cryptocurrencies and tokens
The most classic definition of cryptocurrencies is that they are virtual currencies that are built from a cryptographic base that guarantees their security and immutability. However, tokens also come into play in this universe. Bitcoin and Ethereum are cryptocurrencies because they have their own independent ledgers, they can be sent, received and / or mined, which means that new units of currency can be created.
Virtual currencies tend to have the same characteristics as fiat money and can be used for the exchange of goods and services. However, some of them comply with more attributes, since they also function as a facilitator of transactions.
Instead, tokens are considered digital assets that are used within a certain blockchain project. These require another chain of blocks to function. Ethereum is the most common platform to create tokens, due to its smart contract function. The tokens can be used as a means of payment in decentralized applications, the so-called DApps.
What is the value of cryptocurrencies?
Cryptocurrencies are another form of digital money, but it is not the only one. This route does not have the guarantee of the States, but since its issuance is restricted to a certain amount, its price is assured, as well as its rarity and value.
Bitcoin, the best-known cryptocurrency, has a limited total number of coins issued, every so often the amount of them is reduced and this is what guarantees their value. Only mining is the process that frees coins after costly computing jobs that use up a lot of network resources.
Knowing what an Ethereum, a Ripple, a Bitcoin or a NEO is worth depends on its price in the market at that moment. At the end of the day, it does not matter what the shape of the coins is, since they all get their value by a credit-based arrangement. In this sense, current fiat currencies, legal tender currencies, and cryptocurrencies are basically similar in terms of their value, since their value depends on trust.
Digital currencies: cryptocurrencies and virtual currencies
Digital currency is a term used to describe all forms of electronic money. This bag includes both cryptocurrencies and virtual currencies. Cryptocurrencies, which are digital currencies, only exist in digital or electronic form and are intangible, not like fiat money. This means they can only be used with designated connected networks or e-wallets. There are usually no intermediaries or banks, which means that transactions are instantaneous and a very low fee is applied, sometimes nonexistent.
Virtual currencies, although they are digital by definition, are a form of digital money in an unregulated environment, issued and controlled by their developers and used as a payment method between members of a specific virtual community. That is the definition that the European Central Bank of virtual currencies.
In the video game sector, for example, there are currencies that are not based on cryptography and only apply to that scenario. Its most common use is to unlock additional content to continue advancing in the game.
The growing interest of governments in cryptocurrencies
The popularity of cryptocurrencies has been growing exponentially since its appearance in 2009, with the creation of Bitcoin. After them came hundreds of more digital currencies to the point that it is currently known that there are more than 2,500 cryptocurrencies on the network.
However, governments did not start paying attention to them until only about five years ago, when the value of some of them began to increase exponentially. At the European level, the Court of Justice of the European Union determined in October 2015 that bitcoin and other virtual currencies can be exchanged tax-free throughout the continent.
This judicial decision accelerated the procedures to regularize cryptocurrencies throughout the continent, something that has been postponed over the years, as many countries have not yet transposed into their respective laws what was agreed in the directives
