Cryptocurrency vs Digital Currency, how well can you distinguish the two?

The Central Bank of Kenya proposes introducing Central Bank Digital Currency (CBDC), a digital currency that will be a virtual version of the shilling.

CBDC’s introduction is deemed as a step that could complement mobile money in the local market, and ease cross-border payments.

Globally, the endless debate has been happening over the last few years in regard to the introduction of CBDC in states. Some countries like Nigeria and The Bahamas have already adopted them.

The growth rate of some cryptos such as Bitcoin, Ethereum in recent years, has instilled fears in central banks over control of money supply and payment systems. The impact can equally threaten a country’s economic stability.

According to the IMF, almost 100 countries are actively evaluating CBDCs.

South Africa, China, Ghana, are among those undertaking pilot tests. For instance, China aims to fully digitize the yuan by this year in Beijing, adopting it fully in the longer term.

How digital currencies relates with cryptocurrencies

Since their invention, many people cannot differentiate the two.

Indeed, the idea of CBDC is traced to cryptocurrencies.

The cryptocurrency ecosystems provide a glimpse of an alternate currency system in which cumbersome regulations do not dictate the terms of each transaction. They are hard to counterfeit and are secured by consensus mechanisms that prevent tampering. It is a wallet/store of value secured by encryption.

The CBDCs are designed to be similar to cryptocurrencies, but they may not require blockchain technology or consensus mechanisms. They’re in electronic form (Fiat money), issued without a backup physical commodity, such as mineral, but rather by the government issuing it.

In summary, the two differ in use, volatility, stability, regulation, and circulation.

Some of the key distinctions between these forms of digital money are as follows.

Stability vs Volatility

The value of cryptos is determined by the laws of demand and supply. The higher demand in a given cryptocurrency simulates a higher cost of purchase, and vice-versa.

Cryptocurrencies lack central authority to control stability, making them highly volatile. Additionally, experts say that cryptos operate in speculative “immature” markets, making them highly volatile.

The value of CBDC is controlled by the central bank. This helps in minimizing fluctuations that could weaken the economy/market. To stabilize the economy, the government employs a series of fiscal policies, usually in relation to other currencies

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Centralised vs Decentralised

Cryptos are user-generated through a process called “mining”.

Lack of backing by central banks means they aren’t legal tender, even though accepted in some transactions. However, some corporations like Meta’s Diem, back cryptos. Such backing, often by an asset reserve of the corporation, makes them relatively reliable.

CBDCs are issued by central banks, hence are legal tender and centralized.

The government has control over the amount of CBDCs in circulation. This ensures no shortage or oversupply of digital currency, which can lead to inflation or deflation.

Regulated vs Unregulated

The centralisation of digital currencies lets the central bank closely monitor and regulate the transactions. The regulator has the power to freeze, cancel or flag certain transactions that violate financial laws.

Decentralised cryptocurrencies are regulated by wallet owners. Authorities have no control or regulation on how and when are used. 

Transparency vs Confidentiality

Transactions records in digital currencies are only available to the sender and the receiver, together with the host bank. This information is private and can only be made public through a court order.

The use of a decentralised ledger in cryptos discloses transactions details to the public domain. Anyone can access and track payments and transfers from one wallet to another.


Digital currencies are globally acceptable. As of today, different banking systems operate an electronic form of physical money between them. For instance, a Kenyan CBDC can be exchanged with a Nigerian naira.

Cryptocurrencies can only be operated within the same blockchain that created them. For example, Ethereum cannot be converted into Bitcoin.

At the same time, only select businesses across the world accept payment for goods and services in crypto.