Electronic Currency

also known as e-money, electronic cash, electronic money, 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, 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). A very successful implementation is in the Netherlands, known as Chipknip.

All types of money which people deal with it electronically, far from traditional ways of payment like banks, cheques, paper money and coins, e-currency allow users through internet or wireless devices to pay the charges of their purchases directly from their bank accounts by electronical ways such as Smart cards, Digital wallets and micropayments.


Despite the somewhat confusing diversity of proposals that seem to offer quite different solutions, all electronic money schemes share a common basis of issues that they somehow have to address. Based on Lynch; Lundquist (1996), Matonis (1995) and Okamoto; Ohta (1991) six problem areas can be defined that have to be addressed by any system:

Independence:
Is the electronic money independent of any physical condition? It has to be transferable though open networks and storable on different devices and in different locations inside and outside these networks. Cash, evidently, is dependent on its physical condition in so far as it equates the unit-value of money with the storage medium (paper, coins) in which it resides. It can not be transferred onto any other medium without ceasing to be cash. On the other hand, the cash economy is a truly open network which all forms of physical money can enter and exit quite freely. Even though the limits of the acceptance of specific cash clearly define different segments within the network , e.g. CDN$ are accepted inside Canada only, changing from one segment into the other is not only unproblematic but an essential, institutionalized feature of the network itself (currency exchange
Can it be copied (reused) and forged? This, obviously, must be prevented. Not only must the elnge).

Security:
ectronic money software be secure but also all the communication between the partners of a transaction must not be interceptible. Cash solves this problem based on its physical properties. A bill can be in only one place at any given time, therefore the question whether is has been duplicated can be decided locally, based on the thing. The transfer of cash is done normally in the presence of both parties and therefore unproblematic.

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, however, there is no correlation between the two

Transferability:
Who can pay and who can receive money? The cash must be transferable between users in all forms of "peer-to-peer payment". With cash this is no problem while with traditional credit cards this is impossible unless the payee has the privileged merchant status that is not intended to be available for everyone.

Divisibility:
What are the payment units? The size of the units and the number of different units has to be defined. In contrast to cash, where 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 money. All sizes of units are, technically speaking, equal. The limits arise due to specific design properties.

Ease of use:
What hardware, software and expertise is required? Electronic money has to be easy to use since the systems aim, at least theoretically, at the totality of the population addressing all kinds of individual expertise.

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

On-line means there is a need to interact with a bank or another "trusted 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 money is still valid. This is similar to the way merchants currently verify credit cards at the point of sale.

On-line or off-line, those six characteristics( independence, security, privacy, transferability, divisibility, and ease of use) define the problem space that each electronic money system promoter attempts to solve for one goal: public acceptance wide enough to make the system profitable for those who run it.

Alternative systems
Technically electronic or digital money is a representation, or a system of debits and credits, used (but not limited to this) 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. An e-currency system may be fully backed by gold (like e-gold and c-gold), non-gold backed, or both gold and non-gold backed (like e-Bullion and Liberty Reserve). Also, some private 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 and WebMoney, but other systems, such as e-gold, 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.

PayPal is an e-commerce business allowing payments and money transfers to be made through the Internet. It is also a European bank based in Luxembourg. 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, for which it charges a fee. It sometimes also charges a transaction fee for receiving money (a percentage of the amount sent plus an additional fixed amount). 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 recipient's account type[citation needed].

On October 3, 2002, PayPal became a wholly owned subsidiary of eBay.Its corporate headquarters are in San Jose, California, United States at eBay's North First Street satellite office campus. The company also has significant operations in Omaha, Nebraska, Scottsdale, Arizona and Austin, Texas in the U.S.; India, Dublin, Ireland; and Berlin, Germany.

Since e-money is just a bunch of bits, a piece of e-money is very easy to duplicate. Since the copy is indistinguishable from the original you might think that counterfeiting would be impossible to detect. A trivial e-money system would allow to copy of a piece of e-money and spend both copies. It is possible to become the millionaire in a matter of a few minutes. Obviously, real e-money systems must be able to prevent or detect double spending. Online e-money systems prevent double spending by requiring merchants to contact the bank's computer with every sale. The bank computer maintains a database of all the spent pieces of e-money and can easily indicate to the merchant if a given piece of e-money is still spendable. If the bank computer says the e-money has already been spent, the merchant refuses the sale. This is very similar to the way merchants currently verify credit cards at the point of sale.

https://www.paypal.com/