E-Currency (Electronic Money)

Hi there, first and foremost, before we begin on this topic, there obviously will be some question marks on top of your heads.

What in the world are E-Currency??

Fret no more, Shu is here to ward off the question marks! =D



Well, let's begin by saying that E-Currency is simply another type of money that is only transacted online. And one of the most common forms of E-Currency that is widely seen all over the net is PayPal.

How does it work?
Well, it is pretty simple (In the case of PayPal):

You purchase e-Currency from PayPal by paying them through Credit Card.
The Bank transfers your money to PayPal.
PayPal gives you back the equivalent of your money, and you now possess e-Money,
You purchase another item online and pay the seller via PayPal
The Seller is then able to retrieve his money via PayPal

Wait, Do you mean PayPal is giving free services? - NO, no and NO!
Like all banks, for EACH transaction you make, PayPal charges a processing fee. This fee applies to other e-Currencies as well, although some may not charge for it. (e.g. US Military e-Currency: Eagle Cash)

Further examples of e-Currencies
e-Gold, c-Gold, e-Bullion, Liberty Reserve, WebMoney, etc.

General characteristics of E-Currencies
E-Currencies can be divided into 2 types and 2 variaties, the 2 types being "Identified" and "Anonymous" e-Money. And the 2 variaties being "Online" and "Offline" e-Money.

1) What are "Identified" and "Anonymous" e-Money?

If the issuers have codes encrypted into the e-Money they issue, then the money is classified as Identified. Vice versa, if the money is not encrypted with a code. Then it is Anonymous. The reason being that, with encryption of a code, the e-Money works like Credit Cards where it can be tracked as it moves along the economy. However with Anonymous e-Money, the money is just like real cash and cannot be precisely tracked about.

2) What are the "Online" and "Offline" variaties?

If a particular e-Money requires the owner to be online via the net to transact, it is then known as "Online" e-Money, while for "Offline" e-Money, the user does not have to be online.

So basically, we can divide e-Currencies into 2 types and 2 varieties. Namely: Identified Online e-Money, Identified Offline e-Money, Anonymous Online e-Money and Anonymous Offline e-Money. Offline anonymous e-money (true digital cash) is the most complex form of e-money.

However, as good E-Currency maybe, it does have it's drawbacks.

One major drawback is the double-spending problem. As we have said above, Offline anonymous e-Money is the most complex form of e-Money because the design allows certain people to exploit it and gain double spending.

What is double spending?
To clarify, double spending occurs due to the fact that e-Money are only Bits of Information and are easily duplicated. Therefore, 1 person could duplicate the same data twice and use it at 2 merchants to purchase 2 separate items.

This exploit is very obvious usually in offline transactions because the transaction is processed later. Double spending is usually preventable in online transactions because the bank requires the merchant to send the e-Money to check whether it has been spent, or not. If it already has been spent, the merchant will be instructed to refuse the sale, preventing the possiblility of double spending.

However, with technological advances, banks are now very capable of preventing double spending even in Anonymous offline e-Money. Observer chips are now additions to a user's e-Money and will help detect double spending. Furthermore, with implementation of Observer chips, it is speculated that users will not attempt to double spend for their identity is no longer anonymous.

With the information above, I hope you would be able to gain valuable insights about e-Money and e-Currencies.

See yaz..Till the next post!
Shu, signing off! =D


References
http://en.wikipedia.org/wiki/Electronic_currency
http://www.projects.ex.ac.uk/RDavies/arian/emoneyfaq.html
http://businesslord.com/

*By Shu*