How you can make money on the exchange of electronic money, Digital currency - Wikipedia
Digital cash will bring us benefits as well as problems. One major benefit of digital cash is its increased efficiency, which will open new business opportunities, especially for small businesses. On the other hand, it will bring us four problems: taxation and money laundering, instability of the foreign exchange rate, disturbance of money supply, and the possibility of financial crisis.
There is one important attribute of digital cash, however, that overshadows these benefits and problems. It is the transnationality of digital cash--the ability of digital cash to flow freely across national borders. Every bank can issue it, and everybody all over the world can use it.
Digital Cash by Brad Puffer In the last few years scores of companies have been formed, sporting appropriately cyber-sounding names, all aiming to be a part of the future of money. Some use the internet to facilitate secure transactions through credit card sales. Others, through complex algorithms, convert your bank dollars to digital code - complete with your digital signature - which can be sent to online vendors. Still others are setting up independent systems of electronic money which use their own network of vendors and users. What is digital money, and where is it taking us?
This transnationality is a cause for both benefits and problems and could have significant repercussions internationally. From the economic standpoint, the most important characteristic of digital cash is its transnationality.
If digital cash circulated only within a traditional national border and was controlled under a central monetary authority, there would be no economic implications that would be worth analyzing. In this case, digital cash would be nothing more than a convenient transaction method such as a credit card.
Electronic money refers to money that exists in banking computer systems that may be used to facilitate electronic transactions. Although its value is backed by fiat currency and may, therefore, be exchanged into a physical, tangible form, electronic money is primarily used for electronic transactions due to the sheer convenience of this methodology.
However, digital cash is more than that. Its transnationality has the potential to cause conflict between cyberspace and nation-states. If digital cash spreads successfully in the 21st century, its history may be written as a record of its battle with nation-states. Introduction What are the economic consequences of digital cash?
What are its implications from the viewpoint of economics? In recent years, several proposals for electronic cash have appeared in cyberspace, and some of them have begun their services already. But the economic consequences of these endeavors have not yet been examined. Some people stress that an important economic consequence of electronic cash is the free issue of private currency by commercial banks or other nonfirms, as Hayek said in his celebrated book Denationalization of Money Hayek, ; Mantonis, ; Wall Street Journal, 23 November However, if we look at the history of money, we realize that it is not an easy task to make privately issued currency credible in the eyes of the public.
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As far as there exists a competition among banks, private banks will often end in bankruptcy, and the credibility of the privately issued currency will suffer as a result. In this paper, I discuss another consequence of digital cash. My main conclusions are as follows. The most important characteristic of digital cash is its transnationality; digital cash has no national borders--that is, it is not controlled by any central bank of any nation-state.
Electronic Money (e-money), Explained
If digital cash circulated only within a traditional national border and was controlled under a central money authority, there would be no economic implications because, in that case, digital cash would be nothing more than a convenient transaction method such as a credit card or prepaid card. But in reality, digital cash has no national borders--a fact that will bring both new benefits and new problems to the economy as a whole.
The main benefit will be an unprecedented efficiency of international payments.
The problem will be that digital cash's transnationality will tend to increase the instability of the monetary system. In section 2, I provide a brief overview of the electronic payment system. In section 3, I discuss consequences of digital cash from the viewpoint of monetary economics.
Electronic Money Definition
In section 4, I discuss the transnationality of digital cash and present a possible future scenario for an illustrative purpose, and in section 5, I state my conclusions. Overview of the electronic payment system  There are over a dozen proposals for electronic payment systems on the Internet. To briefly overview these proposals, let us begin with the problems we encounter when we pay a bill by sending our credit card number through the Internet.
We can point out the following four problems with respect to a credit card payment through the Internet when compared to a cash payment in the real world: Security.
Credit card numbers may be tapped by others because the Internet is an open system. In the real world, we can avoid fraud by using cards only at trustworthy or familiar stores. In cyberspace, however, we cannot avoid the possibility of falling victim to the tapping when we send card numbers through the Internet.
Possible Economic Consequences of Digital Cash
Credit card payments usually charge a small fee. Although this cost is low, it can be a heavy overhead cost when the payment itself is very small, say 50 cents. As a result, credit cards cannot be used for very small payments, while cash payments can be used for even 1 cent. Peer-to-peer payments.
Credit cards can be used only at authorized stores. Unauthorized small businesses or individuals cannot receive money via the credit card.
3 Ways To Make Money With Digital Currency
In other words, credit cards cannot be used for peer-to-peer payment, while cash can be used for it, of course. Receipts from credit card payments leave records of user's expenditures to credit card companies, so credit card companies know what goods and service users bought and where and when they were bought.
In other words, a user's expenditures by credit card can be traced, while cash payments are untraceable. Proposed electronic payment systems try, more or less, to cope with these problems.
According to the extent to which these systems cope with these problems, I divide them into three categories: credit-card-based, check-type, and cash-type systems. Credit-card-based systems To avoid the risk of tapping, First Virtual Holding began a payment system in how you can make money on the exchange of electronic money users send only their passwords instead of their credit card numbers when purchasing an item Figure 1 i.
In this system, a user registers in advance with First Virtual Holding a password and a credit card number. In purchasing goods or services at the shop on the Internet, the user sends only the password to the shop.
After purchasing, the user receives a confirmation e-mail asking whether the purchase is valid. When the user replies yes to this mail, the bill is deducted from the credit card account. Because this system is simple and easy to understand, especially for people who are not computer experts, it has been diffused already to some extent. Besides First Virtual, Visa and MasterCard are also planning a similar credit-card-based system for trading on binary options system using encryption technology in how you can make money on the exchange of electronic money of passwords.
But these credit-card-based systems solve only the security problem. As Figure 1 i shows, these systems handle only the communication between the user and the shop in cyberspace.
The transaction of money remains to be done by the conventional credit card transaction system. Thus, a fee is also necessary, and a peer-to-peer transaction is impossible. Untraceability is not guaranteed.
Check-type systems The conventional check system is closer to cash than a credit card payment is, because with checking, the fees are almost zero except for the cost of a stamp, and peer-to-peer transactions are possible.
As a result, several proposals have emerged to invent checks on the Internet that would be transferable between individuals Cybercash, NetCheck, etc.