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Differences between digital, electronic & virtual money

Differences between digital and scriptural money

To fully understand the difference between digital, electronic and virtual money, we first need to look at the difference between scriptural and digital money.

The major difference between digital and scriptural currencies lies in their management and control. Cashless money is managed and controlled via a centralized system, i.e. it is controlled by the banks and the government, and is overseen by the Central Bank. Digital currency, on the other hand, operates via a decentralized system that is not controlled by banks or the government.

Book money corresponds to legal tender. It represents the balance of bank deposits, also known as “writing money”. Cashless money is therefore a set of entries between accounts, and circulates via cashless means of payment such as cheques, bank transfers, direct debits and cards.

Digital currency exists only in digital form, i.e. it is not tangible. Dematerialized and digital supports may exist, but it can never have a tangible form like a banknote. Digital currencies fall into 2 main categories:

  • Virtual currency
  • Electronic money

By definition, digital and scriptural currencies are both dematerialized. Although they may or may not have a physical medium, the big difference lies in the creation and control of this currency.

Focus on virtual currency

Virtual currency is therefore part of digital money and is managed and controlled by a decentralized system. Virtual currency is no longer directly linked to official currency, which has a legal tender.

There are 3 types of virtual currency:

  • The closed virtual currency
  • One-way virtual currency
  • Bidirectional virtual currency

Closed virtual currency has no connection with the real economy, and is used in video games to purchase packs or hardware, for example. This money is called “closed” because it has no link with legal tender, and cannot be transformed into scriptural money.

Unidirectional flow virtual currencies, for example, include all types of kitty, loyalty points, Airmiles and so on. In other words, it’s money created from cashless purchases, i.e. legal tender. However, it is said to be unidirectional, as this virtual currency cannot be converted back into legal tender.

Two-way flow virtual currency corresponds to cryptocurrencies such as bitcoin. It’s money that can be bought for legal tender and then converted back into legal tender.

Focus on electronic money: prepaid cards & wallets

Like virtual currency, e-money is part of digital money. There are 2 types of electronic money:

  • Prepaid cards (e.g. gift cards)
  • Electronic wallets (e.g. PayPal)

Electronic money can therefore be used without necessarily having a bank account, and is based on the concept of prepayment. In other words, the monetary value has already been purchased upstream by the customer. For example, to use and pay with the PayPal wallet, the customer has to transfer money to or receive money from his PayPal account, i.e. scriptural money which, once on his wallet, becomes electronic money. It’s the same principle as a gift card (prepaid card).

Electronic money uses the same currency as legal tender. Electronic money therefore retains a link with “conventional” money, as it is equal to 1:1, i.e. 1 euro of legal tender (scriptural) is equal to 1 euro of electronic money.

Several wallets can also communicate with each other. With CentralPay’s Easy Wallet solution, you can simplify the exchange of digital assets between your users by orchestrating instant wallet-to-wallet movements.