1. The difference between virtual, digital, and cryptocurrencies
Virtual currencies were developed because of trust issues with financial institutions and digital transactions. Though they aren't even considered to be "money" by everyone, virtual currencies are independent of traditional banks and could eventually pose competition for them.
First, there are three terms that are sometimes used interchangeably that we need to sort out: virtual currency, digital currency, and cryptocurrency.
Virtual currency was defined in 2012 by the European Central Bank as "a type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community." Last year, the US Department of Treasury said that digital currency operates like traditional currency, but does not have all the same attributes -- as in, it doesn't have legal tender.
Digital currency, however, is a form of virtual currency that is electronically created and stored. Some types of digital currencies are cryptocurrencies, but not all of them are.
So that leads us to the more specific definition of acryptocurrency, which is a subset of digital currencies that uses cryptography for security so that it is extremely difficult to counterfeit. A defining feature of these is the fact they are not issued by any central authority.
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