Electronic Currency

Over the years, money as we know it has been evolving. The shape and form of money has changed from precious metals to metal coins and paper money with no intrinsic value and today we are presented with a formless form of money named digital or e-money. The digitization of money appears to be inevitable in the light of the recent developments with regards to the Internet and the various e-commerce opportunities presented by the world wide web. The future of e-commerce depends to a great extent on the appropriate development and diffusion of e-money.

SO what is electronic currency?

Electronic currency is also known as e-money, electronic cash, electronic currency, digital money, digital cash or digital currency. It refers to money or script transfered electronically through computer networks, the internet or digitally stored value systems. Examples of how electronic currency are used are such as Hong Kong's Octopus Card system which started as a way to pay for transit payments but has now progressed to an electronic cash system, Singapore's FeliCa card and Netherlands Chipknip which has the same use as Hong Kongs Octupus Card, and Malaysia's Touch 'n Go card.

How is digital currency used?

Currently, credit card payments accounts for about 90 percent of all Web site purchases, compared to only 25 percent of offline sales. Digital cash may not displace credit cards for large online purchases, but for small purchases it has overwhelming advantages including extremely low transaction costs. There are arrangements that enables registered users to e-mail dollars to each other or transfer amounts via wireless and hand-held devices.

What are the limitations and risks faced by e-money users?

Digital cash systems pose unique risks for both online merchants and consumers, including questions about security, the ability to safeguard users' privacy, susceptibility to counterfeiting, and suitability as a medium for online fraud. All of these generate fears among e-commerce merchants over increased legal liability. While traditional monetary systems combat fraud by using closed networks that block unauthorized access to the system, the open networks along which e-cash payments are transmitted often lack adequate safeguards against fraudulent access. Therefore, they must utilize elaborate encryption methods to code the information in such a way that only authorized parties can read it. New security apparatus and infrastructure must be devised to protect payment instruction transfers. A new public key infrastructure, which can be fairly expensive to implement but is required to diminish fraud risks.

Operational disruptions can generate serious hazards for e-cash systems. Even natural phenomena jeopardize e-cash operations. Since digital cash is networked, difficulties with the Internet's physical networks, associated hardware, or software can compromise the system's efficiency and reliability. Computer viruses, damage to a centralized switching facility, or even software updates can all pose threats.

While digital cash renders online purchases more convenient for users, it poses risks for them as well. Foremost is a lack of anonymity. Unlike regular money, most e-cash systems track users' purchases, thus failing to protect their privacy. Concerns that anonymous e-money could encourage tax evasion and money laundering have led to demands that digital cash be traceable. The issuer's integrity also raises problems. The collapse of a branded network bank could free it of all liability for the e-cash it issued.

Wednesday, June 25, 2008