Electronic Money
Electronic money (also known as e-money, electronic cash, electronic currency, digital money, digital cash or digital currency) refers to
money or scrip which is exchanged only electronically. Typically, this involves use of computer networks, the internet and digital stored
value systems. Electronic Funds Transfer (EFT) and direct deposit are examples of electronic money. Also, it is a collective term for
financial cryptography and technologies enabling it.
While electronic money has been an interesting problem for cryptography (see for example the work of David Chaum and Markus Jakobsson),
to date, use of digital cash has been relatively low-scale. One rare success has been Hong Kong's Octopus card system, which started
as a transit payment system and has grown into a widely used electronic cash system. Singapore also has an electronic money implementation
for its public transportation system (commuter trains, bus, etc), which is very similar to Hong Kong's Octopus card and based on the same
type of card (FeliCa). There is also one implementation in the Netherlands, known as Chipknip.
Alternative electronic money systems:
Technically electronic or digital money is a representation, or a system of debits and credits, used to exchange value, within another system,
or itself as a stand alone system, online or offline. Also sometimes the term electronic money is used to refer to the provider itself.
A private currency may use gold to provide extra security, such as digital gold currency. Also, some organizations, such as the
US military use private currencies such as Eagle Cash.
Many systems will sell their electronic currency directly to the end user, such as Paypal, WebMoney and Wirex, but other systems,
such as Liberty Reserve, sell only through third party digital currency exchangers.
In the case of Octopus Card in Hong Kong, deposits work similarly to banks'. After Octopus Card Limited receives money for deposit from users,
the money is deposited into banks, which is similar to debit-card-issuing banks redepositing money at central banks.
Some community currencies, like some LETS systems, work with electronic transactions. Cyclos Software allows creation of
electronic community currencies.
Ripple monetary system is a project to develop a distributed system of electronic money independent of local currency.
Off-line 'anonymous' Electronic Money:
In the use of off-line electronic money, the merchant does not need to interact with the bank before accepting a coin from the user.
Instead he can collect multiple coins Spent by users and Deposit them later with the bank. In principle this could be done off-line,
i.e. the merchant could go to the bank with his storage media to exchange e-cash for cash. Nevertheless the merchant is guaranteed
that the user's e-coin will either be accepted by the bank, or the bank will be able to identify and punish the cheating user.
In this way a user is prevented from spending the same coin twice (double-spending). Off-line e-cash schemes also need to protect
against cheating merchants, i.e. merchants that want to deposit a coin twice (and then blame the user).
Using cryptography, anonymous ecash was introduced by David Chaum. He used blind signatures to achieve unlinkability between withdrawal
and spend transactions. In cryptography, e-cash usually refers to anonymous e-cash. Depending on the properties of the payment
transactions, one distinguishes between on-line and off-line e-cash. The first off-line e-cash system was proposed by Chaum and Naor.
Like the first on-line scheme, it is based on RSA blind signatures.
Future Evolution of Electronic Money:
The main focuses of digital cash development are 1) being able to use it through a wider range of hardware such as secured credit cards;
and 2) linked bank accounts that would generally be used over an internet means, for exchange with a secure micropayment system such as
in large corporations (Paypal).
Theoretical developments in the area of decentralized money are underway that may rival traditional, centralized money. Systems of
accounting such as Altruistic Economics are emerging that are entirely electronic, and can be more efficient and more realistic
because they do not assume a zero-sum transaction model.
Electronic Money Issues:
Although digital cash can provide many benefits such as convenience and privacy, increased efficiency of transactions,
lower transaction fees, new business opportunities with the expansion of economic activities on the Internet,
there are many potential issues with the use of digital cash. The transfer of digital currencies raises local issues
such as how to levy taxes or the possible ease of money laundering. There are also potential macroeconomic effects
such as exchange rate instabilities and shortage of money supplies (total amount of digital cash versus total amount
of real cash available, basically the possibility that digital cash could exceed the real cash available).
These issues may only be addressable by some type of cyberspace regulations or laws that regulate the transactions and watch for signs of trouble.
References
- David Chaum, Blind signatures for untraceable payments, Advances in Cryptology - Crypto '82, Springer-Verlag (1983), 199-203. (PDF)
- Chaum, D., Fiat, A., and Naor, M. 1990. Untraceable electronic cash. In Proceedings on Advances in Cryptology (Santa Barbara, California, United States). S. Goldwasser, Ed. Springer-Verlag New York, New York, NY, 319-327.
- Wikipedia.org
