The terms “digital currency” and “cryptocurrency” are often used interchangeably but there is a key difference between the two. “Digital currency” is an umbrella term that refers to any form of money or currency that exists in digital form—including cryptocurrency. It also includes central bank digital currencies (CBDCs), which are government-issued digital cash and operate very differently from crypto.

Different digital currencies work in different ways, and those differences are shaping everything from privacy expectations to cross-border payments to how institutions design their core systems. Below, we’ll explore how cryptocurrencies can differ from other digital currencies, including distinctions in underlying infrastructure. We’ll also discuss how businesses can approach integrating digital currencies into their financial systems.

What’s in this article?

• What’s the difference between digital currency and cryptocurrency?
  
• How CBDCs challenge the decentralization premise of crypto
  
• What infrastructure and security models underlie digital currencies?
  
• How both state-backed and decentralized currencies are shaping global payments
  
• How businesses can approach integrating digital currencies into their systems
  
• How Stripe can help
  

What’s the difference between digital currency and cryptocurrency?

All cryptocurrencies are digital currencies, but not all digital currencies are crypto. Here’s a closer look at how each term is defined.

Digital currencies

Digital currencies can either be centrally managed or decentralized. A central bank digital currency (CBDC), for example, is fully overseen by a central bank. Cryptocurrency, which is also a form of digital currency, is decentralized.

Cryptocurrencies

Cryptocurrencies run on public, open blockchain ecosystems that anyone can join, and they’re not issued or managed by any central authority. The network is secured through decentralized consensus mechanisms such as proof of work (PoW) or proof of stake (PoS). Users hold their own private keys, transactions are transparent and irreversible, and the system operates without a single point of control.

Values for most cryptocurrencies can fluctuate widely because no government or institution stabilizes them. Stablecoins, however, are a type of cryptocurrency that have a stable value because they’re tied to other assets such as fiat currencies.

Other key distinctions

• Technology: Crypto runs on public blockchains. Other digital currencies might use private ledgers or traditional databases.

• Privacy: Crypto transactions are traceable, but they aren’t tied to a person’s real identity. Centrally managed digital currencies give the issuer complete visibility into who’s spending, how much, and where.

• Legal status: Some digital currencies, namely CBDCs, are legal tender. Crypto isn’t.

While everything in this space is digital, the structure, oversight, and implications of these currencies can differ.

How CBDCs challenge the decentralization premise of crypto

Cryptocurrencies and CBDCs represent different ways that digital money operates.

The fundamental idea behind cryptocurrency is that money can work without a central authority. It emphasizes openness, individual control, and neutrality. For example, for cryptocurrencies such as Bitcoin and Ether, anyone can run a node or validate a transaction, and rules are enforced by protocol, not institutions. No single party can reverse, censor, or block transactions.

CBDCs recentralize control. A CBDC is government-issued, centrally controlled, and fully permissioned. The system is closed and only approved participants can access or operate it. For that reason, governments have enormous influence over the CBDCs they issue. For example, China’s e-CNY includes the capabilities to limit where or how funds are spent, track transactions in real time, and freeze or recall digital funds.

What infrastructure and security models underlie digital currencies?

Although all digital currencies live online, their security protocols and infrastructure differ. Here’s how cryptocurrencies and CBDCs handle security and underlying structure.

Crypto security and infrastructure

Cryptocurrencies are powered by public blockchains. Their design prioritizes resilience and transparency.

Here’s what that looks like:

• Distributed ledger: Copies of the blockchain are stored on thousands of nodes around the world. Consensus mechanisms, such as proof of work (PoW) or proof of stake (PoS), ensure all nodes agree on the state of the ledger. This decentralized setup allows for a global reach and easier cross-border payments, as well as better uptime and resilience.

• Structural security: Transactions are digitally signed, timestamped, and added to blocks that are cryptographically linked. Once confirmed, they’re practically irreversible. This can eliminate chargeback fraud.

• Individual control: Users hold their own private keys. That makes individual custody secure, but if the holder loses their keys, they lose their funds.

Stablecoins are a specific form of cryptocurrency designed to reliably hold their value. They operate slightly differently from other types of crypto and from CBDCs.

Here’s a closer look:

• Central control, distributed infrastructure: Stablecoins run on public blockchains, but they’re generally issued and managed by a single entity. Unlike CBDCs, stablecoins are generally issued by private companies.

• Fast, low-cost settlements: Because they share the same blockchain-based foundation as cryptocurrencies, stablecoins can provide round-the-clock uptime and fast, low-cost settlements on a global scale.

• Pricing stability: Unlike other forms of crypto, a stablecoin’s value is meant to stay fixed. Generally, this means its value is tied to more stable assets, such as fiat. This can help shield businesses from the price fluctuations of traditional crypto.

CBDC security and infrastructure

CBDCs are typically built on permissioned ledgers, blockchain-like systems where access is limited to approved entities.

As a result, their structure is quite different. Here’s what it entails:

• Centralized ledger: The central bank (or a consortium it manages) validates all transactions.

• Built-in identity: Unlike crypto, where pseudonymity is the norm, CBDCs are designed to integrate with existing identity systems, such as Know Your Customer (KYC) and Anti-Money Laundering (AML).

• Potential for recovery and reversibility: Because the system is centrally governed, lost credentials can be reset, and fraudulent transactions can be reversed.

Crypto operates as an open network with no central gatekeeper, while CBDCs operate as closed systems defined and controlled by a single authority. Stablecoins have similarities to both, which can make them an attractive alternative for businesses.

How both state-backed and decentralized currencies are shaping global payments

The future of global payments is likely to run on a stack of different payment types. Businesses will benefit from being able to transact across all of them.

Here’s what to keep in mind:

• Global complexity with CBDCs: A CBDC might simplify payments at home because it’s government-backed, price-stable, and easily integrated. But cross-border use is harder, since most CBDCs aren’t designed for global use. Projects such as mBridge are exploring how digital dollars, euros, and yuan could transact without legacy intermediaries, but no common standard has emerged yet. Stablecoins and other cryptocurrencies, on the other hand, don’t have this issue.

• Competing standards, diverging values: As countries and private institutions deploy digital money, some CBDCs and stablecoins emphasize privacy (e.g., the EU’s digital euro), while others prioritize control (e.g., China’s programmable e-CNY), which further creates a fragmented environment. Businesses need to be aware of the trade-offs of each.

• A multisystem future: The more divergence, the more valuable private, interoperable alternatives become. For example, stablecoins such as USD Coin (USDC) can move across borders in seconds. This makes them a practical bridge for regions with limited banking access, lower-cost remittances, and platforms serving users in multiple countries.

How businesses can approach integrating digital currencies into their systems

Businesses that want to support digital currencies need infrastructure that can handle both state-backed and decentralized currencies.

Here’s what to consider:

• Start with use cases: CBDCs could streamline domestic payments, improve settlement speed, and enable direct disbursements from governments. Stablecoins and crypto are already powering global transactions, especially where local currencies are volatile or payment systems are slow.

• Create flexible infrastructure: Some businesses are building their infrastructure in-house. Others are layering in payment application programming interfaces (APIs), custody partners, or third-party systems. Stripe’s approach—handling stablecoin payouts behind the scenes while letting businesses operate in dollars—is one model for abstracting complexity without compromising speed.

• Plan for risk and compliance: Crypto introduces risks such as custody, compliance, and volatility. Stablecoins limit volatility, but still come with compliance and custody challenges. CBDCs, on the other hand, generally have the same regulations as traditional cash. Institutions need tools for AML and KYC checks at the wallet-level, smart contracts that follow jurisdictional rules, and support for reversibility where regulation requires it.

How Stripe can help

Stripe Payments provides a unified, global payments solution that helps any business—from scaling startups to global enterprises—accept payments online, in person, and around the world. Businesses can accept stablecoin payments from almost anywhere in the world that settle as fiat in their Stripe balance.

Stripe Payments can help you:

• Optimize your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment UIs, access to 125+ payment methods, including stablecoins and crypto.

• Expand to new markets faster: Reach customers worldwide and reduce the complexity and cost of multicurrency management with cross-border payment options, available in 195 countries across 135+ currencies.

• Unify payments in person and online: Build a unified commerce experience across online and in-person channels to personalize interactions, reward loyalty, and grow revenue.

• Improve payments performance: Increase revenue with a range of customizable, easy-to-configure payment tools, including no-code fraud protection and advanced capabilities to improve authorization rates.

• Move faster with a flexible, reliable platform for growth: Build on a platform designed to scale with you, with 99.999% historical uptime and industry-leading reliability.

Learn more about how Stripe Payments can power your online and in-person payments, or get started today.