By Chris Barts
Our whole way of life is built on money. We use it to pay for nearly everything, and we demand certain things of it. Among those demands are that it be scarce enough to be valuable, able to be exchanged quickly and easily, convenient to carry around, and anonymous. The bill in your pocket meets those standards, but it is prone to wear, mutilation, being lost and stolen, and being copied. All of these problems are resolved in a system based on electronic money.
To understand the principle behind electronic money, you must understand a few things about the current system. Even today, most money exists only as entries on electronic balance sheets, ones and zeros quietly collecting interest and being lent out by banks and other institutions. Even before computers, the government only printed as much physical cash, called currency, as was needed to meet the current needs. As currency never accumulates interest, banks prefer not to hold a lot of it at any one time. Instead, they put it into circulation by cashing checks, making purchases, and other transactions. The dollars that actually earn interest and keep the economy going exist only as numbers in records and on files.
It is because of that fact electronic money can work. Electronic money is simply a group of digits stored on computers, making it infinitely more convenient in that any amount can be deducted from a balance without fumbling for coins or bills, ending the hassle of having to make change. And, in an electronic cash system, the hassle of losing money is gone, as there are no bills or coins to fall out of a pocket. Just one card that can be identified electronically if lost or stolen, much the same way a credit card can be.
But unlike credit card transactions, electronic money is anonymous. You can make purchases around the world, both in person and online or over the phone, with all the anonymity of cash yet all the long-distance conveniences of a credit card. Advanced encryption systems ensure that nobody has to know what you buy except you. All the merchant will know is that it made a sale, all the bank will know is that the money the merchant contacted it to verify is good, and you will be able to enjoy your purchase with as much privacy as you want.
It is the verification process that is the cornerstone of the electronic money system. Every piece of electronic money consists of a serial number the bank keeps track of. Trying to copy electronic money means copying that number. However, a bank will only verify a number once. Therefore, people trying to get rich by counterfeiting will not be able to spend the copies. People trying to get around this will be foiled by the fact that electronic money is encrypted using very strong methods. That encryption allows a bank to know which numbers it issued, therefore knowing which it can verify. It is these security measures, plus convenience, that make electronic money to necessary today.