Cryptocurrency is not electronic money

Let’s get down to business! What do you think? Is cryptocurrency a type of electronic money? Well, definitely not! Cryptocurrency isn’t a type of electronic money, but virtual money or digital money.

We encourage you to delve deeper and learn more about different money types: “electronic money”, “virtual money” and “digital money”. How do these terms fit in together? There is too much buzz and very often people mistakenly use them interchangeably. This is why the confusion around these terms isn’t cleared. The problem is that people think if cryptocurrency is stored electronically, then they call it “electronic money”. Nevertheless, “electronic money” by definition has its own legislative scope.

What is electronic money?

Electronic money (e-money) is a digital alternative to cash. “Digital alternative to cash” means that this is “fiat” money and this money can be in a cash or digital format without any additional conversion. European Central Bank (ECB) defines e-money as a monetary value stored electronically and used on devices to make payments. Depending on the technology used to store the monetary value, e-money products can be hardware and software-based – for example, payment cards, virtual cards and payment accounts.

Electronic money can be only issued by designated institutions, such as banks and e-money institutions (EMI) – all of them are licensed to issue electronic money.

What is digital currency?

Digital currency is an umbrella term of regulated and unregulated digital money. It is purely available in a digital form and isn’t linked to physical cash, which means that digital currency isn’t the same electronic money. Digital currencies are intangible and can be managed using a computer or e-wallet that is linked to specific networks. All cryptocurrencies are digital currencies, but not all digital currencies are crypto. There are other digital currencies, including e-gold and game money.

What is virtual currency?

Virtual currency is an unregulated digital currency that exists only in an electronic or digital form. You need a digital wallet, mobile, web or desktop application to make payments through secure online networks. This electronic representation of monetary value can be used as a means of payment. Any natural or legal person can electronically transfer, store and trade virtual currency. Nevertheless, virtual currencies aren’t used as a store of value, account’s unit or a value used to settle the exchange. It is important to understand the role of virtual currency. This type of currency doesn’t replace the fiat currency and isn’t issued by a central bank or other banking authority – meaning that today virtual currency is unregulated currency, but it is a matter of time that virtual currency will become regulated. Central Banks and regulators actively work on developing new, regulated and officially issued virtual currency types (e.g., cryptocurrency).

What is cryptocurrency?

Let’s summarise everything. Cryptocurrency is a virtual currency that relies on strong cryptography to securely validate transactions and record them digitally on a blockchain, for example, or any other type of distributed ledger. Virtual currency is a type of digital currency. This implies that cryptocurrency is also a type of digital currency. Arguably, though, it isn't a type of e-money, because it isn’t regulated or issued by any bank or e-money financial institution (EMI).