Digital, virtual and crypto currency: what's the difference?
Digital currency, virtual currency, cryptocurrency, e-money: the names overlap. Here's how they fit together.
Digital currency is any money that exists in electronic form, including your bank balance, payment-app balances, central bank digital currencies and crypto. Virtual currency is digital value that isn't official legal tender, like cryptocurrency or in-game coins. Cryptocurrency is a kind of virtual currency secured by cryptography and usually recorded on a public blockchain.
Types of electronic money
| Type | Example | Who stands behind it |
|---|---|---|
| Bank deposits | Your checking account balance | Your bank, often with deposit insurance |
| E-money and app balances | Payment-app or prepaid card balances | The company, under money-transmitter rules |
| CBDC | Digital euro (proposed), China's e-CNY | A central bank (what is a CBDC?) |
| Stablecoins | USDC, USDT | A private issuer holding reserves (stablecoins) |
| Cryptocurrency | Bitcoin, Ether | No issuer; network rules and market demand |
| Closed virtual currencies | In-game coins, loyalty points | The game or company; usually can't be cashed out |
Virtual currency, the legal term
US regulators have used "virtual currency" since at least 2013 for value that works like money but isn't legal tender. FinCEN treats businesses that exchange it as money transmitters, and the IRS now uses the broader term "digital assets" for crypto, stablecoins and NFTs, treating them as property for tax.
Is crypto "encrypted money"?
Not really, despite the name. Most blockchains are public: anyone can see every transaction and balance. The "crypto" refers to cryptography used to sign transactions with private keys and to link blocks with hashes, not to hide them. That's why crypto is less anonymous than many people think.
Frequently asked questions
Is bitcoin a digital currency?
Yes. It's a digital currency, a virtual currency (it isn't legal tender in the US) and a cryptocurrency.
Is PayPal a cryptocurrency?
No. A PayPal balance is electronic money held by a company. PayPal does let some users buy crypto and issues its own stablecoin, but the balance itself isn't crypto.
What's the difference between a CBDC and crypto?
A CBDC is issued and controlled by a central bank. Cryptocurrencies like bitcoin have no central issuer.
Where to next
Sources
- Application of FinCEN's regulations to persons administering, exchanging, or using virtual currencies (2013)
- Digital assets (IRS)
Written for beginners and checked against the sources listed. Last reviewed October 26, 2026. This page is educational and is not financial, tax or legal advice. How we write and check pages.