With the value of bitcoin soaring to new records and some predicting a crash, central banks around the world have come under pressure to monitor these assets, evaluating their potential threat to stability.
"The so-called private 'cryptocurrencies' can never prevail as general money substitutes," Constancio said in Rome.
"Their designation is a misnomer as they are not a currency but just a commodity used as a speculative asset and as a restricted medium of exchange in very special circumstances, comprising criminal activities or failed states with collapsed institutions."
The ECB has long argued that cryptocurrencies do not pose a monetary risk, since volumes are small, and that they are mostly a consumer protection issue.
Constancio warned against central banks backing digital currencies through distributed ledger technology like blockchain.
"The use of the blockchain by central banks to create digital currency open to all citizens without limits would be really disruptive," he said.
"This would be a radical political choice that could end banking as we know it and is therefore unlikely to happen."
Blockchain, which first emerged as the system powering bitcoin, is a shared record of information that is maintained by a network of computers without the need for a trusted third party.
(Reporting by Balazs Koranyi; editing by Andrew Roche)