Electronic currency

Electronic Currency also known as e-money, electronic cash, electronic money, digital money, digital cash or digital currency which refers to money or scrip which is exchanged only electronically. Typically, this involves use of computer networks, internet and digital stored value systems

The examples of electronic currency are Electronic Fund Transfer (EFT) and direct deposit. EFT refers to the computer-based systems used to perform financial transactions electronically while direct deposit is a banking term used that refer to certain systems used to transfer money.

The main focuses of electronic currency development are being able to use it through a wider range of hardware such as secured credit cards and linked bank accounts that would be used over an internet for exchange with a secure micropayment system such as in large corporations.

Characteristics of Electronic Currency:

• Independence - Cash is dependent on its physical condition as it associates the unit-value of money with the storage medium in which it resides. Although the limits of the acceptance of specific cash clearly define different segments within the network, all forms of physical money can enter and exit freely. For example, CDN$ are only accepted inside Canada.
  
• Security - Electronic currency software must be secure. Cash solves this problem based on its physical properties. A bill can be in only one place at any time and therefore it may be duplicated. The transfer of cash is done in the presence of both parties.

• Ease of use - Electronic currency has to be easy to use as the systems aim at the totality of the population addressing all kinds of individual expertise.

• Privacy - What kinds of transactional information are generated and who has access to them? All levels of privacy are technically possible. Privacy is related to the encryption technology used in the security features of the system.



• Transferability - The cash must be transferable between users in all forms of "peer-to-peer payment". With traditional credit cards, transferable of cash may not work because the payee has the privileged merchant status that is not proposed to be available for everyone.


• Divisibility - The size of the units and the number of different units has to be defined. In contrast to cash, the physical properties limit not only the size but also the number of units due to reasons of practicality, these constraints do not apply to electronic currency.

There are two different types of approaches to electronic currency: on-line and off-line electronic currency.

• On-line - On-line means that a need to interact with a bank or third party via modem or network to conduct a transaction. On-line systems prevent fraud by requiring merchants to contact the bank's computer with every sale. The bank's computer maintains a database that can indicate to the merchant if a given piece of electronic currency is still valid. This is similar to the way that merchants currently verify credit cards at the point of sale.
  
  
  
• Off-line - Off-line means that a transaction can be conducted without involve a bank directly. Off-line electronic currency systems prevent fraud in two different ways: hardware and a software approach. The hardware approach relies on some kind of a tamper-proof chip in a smart card that keeps a mini database. The software approach is to structure the electronic currency and cryptographic protocols to reveal the identity of the double spender. If users of the off-line electronic currency know they will get caught, the incidence of double spending will be minimized.
  

On-line or off-line define the problem space that each electronic currency system promoter attempts to solve public acceptance so the system is profitable for those who run it.

The example of Electronic Currency is PayPal. PayPal is an e-commerce business that allows the transfer of payments and money made through the Internet. The service started in the United States but has now spread too many parts of the world. It serves as an electronic alternative to traditional paper methods such as cheques and money orders. PayPal performs payment processing for online vendors, auction sites, and other corporate users. It also charges a transaction fee for receiving money. The fees charged depend on the currency used, the payment option used, the country of the sender, the country of the recipient, the amount sent and the type recipient's account.

Electronic currency provides many benefits such as convenience and privacy, increased efficiency of transactions, lower transaction fees, and new business opportunities. However, there are many potential issues with the use of electronic currency. The transfer of electronic currency 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. These issues may only be solved by cyberspace regulations or laws that regulate the transactions.