Electronic Currency

Filed under: by: Chui Nee


Real physical cash, used in everyday transactions, is totally anonymous. The buyer or seller in any transaction does not have to exchange details, the transactions are instant & completed in real time and finally the exchange is not reversible.


For any cash transaction, it is either the sender/buyer’s or receiver/seller’s responsibility to disclose material facts about each other and the transaction. No outside record of the transaction is kept unless disclosed by the buyer, seller or third party privy to the transaction details. Additionally, the source of funds for any cash transaction is not disclosed.


With the creation and evolution of the Internet, users around the globe demanded ‘Electronic Currency’. After all, how does anyone pay for a purchase online? So, there are a few popular examples of Electronic Currency.


















Electronic currency is also known as electronic money, electronic cash, digital money, digital cash or digital currency. It refers to the money or scrip exchanged electronically through the use of computer networks, the internet and digital stored valued systems.


Electronic Currency has the same distinguishing characteristics as a cash transaction but it is accomplished online. Using electronic currency, you can transfer funds to anyone, in any country at anytime. It’s just like cash.


There are several consistent characteristics which define “Electronic Currency”.


1) Real Time, Not Reversible


The transfer is instant and ‘real time’ plus the transaction cannot be reversed. For instant, the receiver of your online digital currency transaction is your daughter. Since she knows you, she can voluntarily send it back if she chooses, but once the transaction is completed you as the sender cannot reverse it. All cash sales are final and that goes for digital currency also.


2) Private, Anonymous


The transfer of digital currency is private and anonymous for the sender and receiver. Generally, the account titles shown during transactions are numbers, nick names or e-mail addresses. You can usually specify your actual name if you like but most accounts are titled something like “Advertising Payments” or “Jane’s Account”.


Additionally, just like actual cash, the source of the funds is never disclosed to the receiver. No one knows where the actual money is coming from and nor does either party have an name, address or phone number.


  • Advantages of Electronic Currency Payment Systems

i) Confidentiality or Privacy

One of the most attractive features of electronic currency is that, unlike real cash, it is anonymous. That is, when an electronic currency amount is sent from a customer to a merchant, there is no way to obtain information about the customer. This is one significant difference between electronic currency and credit card systems. Unlike credit card companies that collect a customer's spending habits and sell this data to third parties, the bank will have no record of the customer involved in the electronic currency transaction. Thus, by using electronic currency, the bank is unable to obtain personal information about the consumer. Therefore, this adequately protects the privacy rights of the customer.


ii) Security
The security of electronic currency is provided by the use of encryption. Many commentators point out that the manufacturers of cryptographic technology will eliminate all risks of code breaking by developing longer keys. Additionally, the enacted digital signature statutes require a certification authority to use a trustworthy system. Therefore, even though there is speculation about the security of the Internet, electronic currency consumers are probably more secure in their transactions than the more traditional ways of doing business.


  • Disadvantages of Electronic Currency Payment Systems


i) Fraud
A major disadvantage to electronic currency is fraud. If a consumer som
ehow misplaces his private key and a perpetrator uses it to withdraw funds, the bank would never know and the consumer would be liable. Credit cards on the other hand, limit the consumer's liability for unauthorized activity. Additionally, if the security code is broken and the message is intercepted, the hacker will be able to perpetrate fraud on the recipient of the message.


However, if either of these scenarios occurs, the consumer is protected by the Computer Fraud and Abuse Act. In addition, due to the advanced technology, the likelihood that these scenarios would occur is far less than the unauthorized use of a credit card. Thus, although fraud is a potential drawback of electronic currency, this risk is no greater than the traditional forms of payment.


ii) Peer-to-peer double spending
Double spending of digital coins is another potential disadvantage of electronic currency. However, this is only a potential drawback if the consumer chooses a peer-to-peer transaction. In all other transactions in the electronic currency system, the bank is able to check the serial number of each coin in a transaction against its database of spent coins, and if the coin has been spent, the transaction will be denied.


Therefore, the consumer has a choice of whether to include an intermediary (bank) in the transaction. If the consumer chooses not to include an intermediary, and then the coins are intercepted or sent to the wrong recipient, the consumer has no recourse. However, if the consumer included the intermediary, the bank checks the coins for double spending thereby protecting the consumer. Thus, the potential for the double spending of coins is only a drawback if the consumer chooses to bear the risk of the transaction.


After evaluating the risks and benefits of electronic currency, this system has a great opportunity to transform today's economic world. The electronic currency systems presently in operation provide greater privacy and security than most present forms of payment. Furthermore, the risks involved with these transactions are risks that the consumer chooses to bear. The remedies for potential fraud and double spending have already been accounted for in the systems presently in operation. Therefore, combined with speed of transaction and the availability to the consumer, the privacy and security aspects of electronic currency far outweigh the potential risks.


Hence, once the electronic currency industry is able to ensure consumers that these transactions are secure and trustworthy, it will change the way we conduct our daily lives.


Here are some links where you guys can view for more information ^^ :

http://projects.exeter.ac.uk/RDavies/arian/emoney.html

http://en.wikipedia.org/wiki/Electronic_money

http://www.ecom.jp/ecom_e/qecom/demo/elemoney.htm


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