Digital Currencies

“There are three great friends: an old wife, an old dog, and ready money.”

—Benjamin Franklin (1706–1790)

New technology has made it possible to pay for goods and services over the Internet. Whereas some of
the methods link existing electronic banking and payment systems such as credit and debit card networks
with new retail interfaces via the Internet, new means of payment known as digital currencies have also
been developed to facilitate global electronic commerce.

Introducing Digital Currencies

Electronic money (also known as digital currency) based on stored-value, smart card, or other
technologies has been developed to facilitate consumers and businesses to engage in global electronic
commerce (see sidebar, “Digital Currency”). These cater to the increasing population of online consumers
who don’t have a credit card or those who are reluctant to provide their credit card number online. These
newly developed payments systems share some common characteristics or aims, namely:

Integrity: Keeping risk in the system at a minimum, as well as maintaining reliability and broad public
confidence in the system’s workings

Accessibility: Making the payments’ system conveniently available through one or more providers,
regardless of the income or the socioeconomic status of the user

Efficiency: Ensuring transaction speed, encouraging innovation, and demanding cost-effectivenes [2]

It is also necessary to make provisions for:

 Anonymity and traceability of payments
 Fungibility (ability to make change of funds into new denominations on demand) and
convertibility of currencies
 Security and infrastructure issues[2]

Digital Currency

Digital Gold or Digital Currency is quickly becoming popular among online users. It is very easy to open
an account, fund it, and transfer money all over the world using some of the well-known gold systems,
such as e-gold, osgold, e-bullion, evocash, and so on. This is a new wave of the future in moving money
worldwide, whether it is to send your family money or to pay for merchandise online, from those
merchants who accept this form of exchange. All of this is done instantly without delay and without heavy
transfer fees.

The basics of digital currency is to offer worldwide flexibility and mobility. This is how it works with e-
gold as an example:
1. You fill out a simple form to open a free e-gold account.
2. Then, you need to fund the account by utilizing a gold exchange service.
3. Depending on the exchanger, the fees will vary, but are usually very reasonable and their
service is speedy.
4. You can wire money to the exchanger, send them a check, or some even take credit
cards to fund your account.
5. After your account is funded, you are ready to send your gold to anyone in the world who
has an e-gold account for a maximum transfer fee of 50 cents. No matter how big or small
the transfer is to another e-gold user, the fee will never exceed 50 cents with e-gold!
 With other digital currencies, the fee can be as low as 25 cents with osgold or as high as $1 dollar
through evocash. Can you see how much money you can save in transfer fees alone? Especially when
you consider that a typical bank wire costs around $14.00, it would end up costing you a bundle if you had
to wire money to many people often!

Now, let’s say the person you just moved the funds to through e-gold wants to take it out to use in the
real world. Easy! By utilizing a similar gold exchange service, your recipient can exchange his e-gold to
cash for a small fee. Or, even better, they can get a debit card and transfer their gold to their card and use
it at any ATM to withdraw their money for a small ATM fee! Now, think of how convenient this will be
globally! Places like e-bullion offer a debit card at just $34.95. You can get an exchange service to
transfer your e-gold to your e-bullion account and then you can withdraw that money with an e-bullion
debit card! Welcome to technology!

Some say that gold is more stable and holds its own value, whereas paper money has no real value.
Think of these digital currencies as a worldwide bank account that is open 24 hours a day, 7 days a week,
and can be accessed online with a few clicks of your mouse! How incredibly mobile and accessible is
that? With places like evocash, you can earn 9% interest for keeping your money with them! Remember
to treat your digital currency like you would your regular bank account and never give out your passwords.
It’s a smart idea to change your password often by using a combination of letters and numbers that others
will not be able to guess. In addition, be sure keep sensitive information about your accounts in a safe
place outside of your computer’s hard drive.

Top Three Most Popular Digital Currencies

 E-gold is backed by gold itself, circulated electronically—a worldwide, free market currency.
You can sign up for a new e-gold account at http://www.e-gold.com/.
 Evocash is the Internet system that is transforming financial business worldwide. They have
recently redesigned their Web site (http://www.evocash.com/index.cfm?w=1024) to be more
user-friendly.
 E-Bullion’s Web premier online payments system offers customers a global e-commerce
system (http://www.e-bullion.com/)[1].

Applications
Digital currencies enable new types of payments, goods, and services (information and online
entertainment)—such as microproducts and micropayments. They share some fundamental properties,
namely:
 They represent monetary value.
 They are exchangeable as payments for goods and services, currency and coin, and other
tokens.
 They can be stored and retrieved.
 They are tamper-resistant in that they are difficult to copy or forge [2].
 Digital currencies are intended to permit their users to move funds electronically within an
environment. They include “tokens” of value expressed in digital form, in the same sense that a
casino chip is a token of value expressed in physical form. Furthermore, digital currencies are
designed to serve as the electronic version of paper cash, carrying the same attributes as the
physical medium—anonymity and liquidity. There are basically two types of digital currency
systems: purely electronic digital cash refers to digital money systems that use computers to
transfer value over networked environments, such as the Internet, and stored-value “smart cards”
retain value on a microchip embedded on a card, and are used in the “physical” world at the point
of sale, or through computers equipped with a smart card reader.

Characteristics of Purely Electronic Digital Currencies

 Digital currencies rely on advanced information technologies and high-speed communications networks
to store, transmit, and receive representations of value. Furthermore, digital currencies for the most part
depend upon technological developments in cryptography to provide security in an open networked
environment—such as public key infrastructure and encryption mechanisms. They rely on reduced costs
and economies of scale created by technological advances.

Digital currencies require “loading” from funds held within the financial system. This involves “the
exchange of cash or deposits for digital value backed by an issuer.” An instance of this could take place
over the Internet by downloading electronic money onto a PC hard drive, or by a consumer transferring
electronic cash onto a smart card at an ATM and simultaneously debiting his bank account.

Characteristics of Stored-Value Cards

The principal function of stored-value or smart cards is the portable storage and retrieval of data. These
applications have evolved from existing electronic funds transfer mechanisms using debit cards, such as
prepaid cards and copy machine cards. The embedded integrated circuit on the card defines the
capabilities of the product, and possible components may include a microprocessor, nonstatic random
access memory (RAM), read only memory (ROM), erasable programmable read only memory (EPROM),
other nonvolatile memory, and special purpose coprocessors.

These characteristics make smart cards a viable medium for a digital currency payment system. In
making a payment through stored-value cards, the following points can be noted:
 There are no backend settlements involved.
 There is no audit trail for transactions.
 If a card is lost, the same result is achieved when actual cash is lost—it’s gone.
 Developers are working on ways to deliver card-to-card funds transfers [2].

Stored-value cards have met with high approval ratings among consumers in Europe, and are gaining
increasing popularity in the United States. Stored-value smart cards are capable of more than facilitating
payments. They can offer added-value information, including digital certificates for identification purposes,
and may authenticate a secure transaction.

It is worth noting that computer hardware manufacturers have started to include smart card readers with
their PCs and PC keyboards. The ubiquity of this digital currency system in on the rise.

So, why use digital currencies? Let’s take a look.

Using Digital Currencies

Digital currencies are cheaper, faster, safer, global, and more private than traditional credit cards and
bank wires. In other words, digital currencies will prove to be as world-changing as the invention of the
printing press and gunpowder. Digital currencies link together financial institutions and markets across the
globe in a way that allows instantaneous value transfers with a mere fraction of the cost associated with
traditional bank wires and credit cards. The architects of the new digital economy are busily at work
creating new financial products and linking digital currencies to “old-world” financial networks, allowing
you to easily convert your digital currencies to cash anywhere in the world. Here are some of the reasons
that digital currencies are the best way to do business on or off the Net!

Digital Currencies Are Cheaper!

Transaction costs using credit cards or PayPal (for example) range from 2.2% to 4.2%. International
bank wires cost, on average, $43 to $73 using Western Union. Digital currencies allow transactions to
take place from as low as 0.1% (GoldMoney), to 2% on the very high end (Standard Transactions). In
other words, the cheapest digital currency on the Net allows online transactions for forty-five times less
than credit cards. Even the most expensive digital currency costs less than a credit card transaction!
Digital currencies lower transaction costs by three orders of magnitude! This means that transactions that
were previously too expensive to make because of the time, money, and effort involved are now feasible
using digital currencies, such as e-gold, gold-grams, Standard Dollars, Standard Gold, e-Bullion, and
Hansa Dollars. For retail merchants who process a high volume of credit card transactions, the savings
can be significant! The savings in transaction costs can then be passed along to their customers in the
form of lower prices, which helps merchants accepting digital currencies to gain a competitive advantage.

Digital Currencies Are Faster!

The average credit card transaction can be reversed for three to six months after the sale takes place.
This leaves merchants in a vulnerable position. Cheapskates reverse the charges on a regular basis
against merchants who deliver the goods. This kind of theft drives up prices for everyone to cover the cost
of lost goods and money due to fraudulent credit card use [5]. Bank wires in-country take at least three
days to clear. International bank wires can take up to two weeks to clear! Digital currencies solve these
problems by allowing instantaneous and nonreversible transactions! For merchants, this means that all
sales are final. They don’t have to worry about having their account frozen because some hacker used a
stolen credit card at their store. This also means that when you need to send money to a friend or family
member anywhere in the world, you can do it in a few seconds, and they can withdraw it as cash from an
ATM machine the very next morning. That’s fast!

Digital Currencies Are International!

PayPal, for example, only works in the United States. In order for people outside the United States to
sell their product or service on the Web, they have needed an international credit card merchant account.
The problem is, outside the United States and Europe, merchant accounts can be difficult to obtain. This
creates a barrier to entry that makes it harder for international entrepreneurs to offer their products and
services to the world. Digital currencies solve this problem by allowing instantaneous transfers of money
anywhere in the world! As the network of exchange agents grows, it is now possible to quickly and easily
convert your digital currency to cash in any country in the world. A Standard Reserve “Instant World
Account” allows account holders to convert their Standard Gold or Standard Dollars into cash at any ATM
machine on the planet! E-bullion offers an anonymous numbered offshore debit card. This means that no
matter where you are, if you can find an ATM machine, you can convert your Digital Currency into local
currency!

Digital Currencies Are Safer!

Credit card fraud is becoming increasingly prevalent as hackers steal card numbers from computer
networks, crooks root through your garbage and steal your identity, and other nefarious thieves devise
ways to get your account number. Digital currencies offer a higher level of security than credit cards. Even
the lowest level of security for digital money, an account number and password, is one order of magnitude
safer than a credit card. All a thief needs to steal a credit card is the account number. With digital
currencies, the merchant never sees your password, so it is impossible for a thief to steal it, unless you
give it to him yourself (by letting him access your computer). For example, GoldMoney supports digital
certificates for customer identification. These certificates cryptographically verify that you are you. This
prevents thieves from accessing your account. E-bullion and E-gold are now offering similar security
measures to their clients. It is also possible to combine digital certificates with an affordable biometric
fingerprint reader to make sure that absolutely no one has access to your account but you. This is the
highest level of security currently available on the Net, but there are other improvements still to come.

Digital Currencies Allow Person-to-Person Payments!

Digital currencies allow one thing that credit cards never will: person-to-person payments. As previously
mentioned, PayPal is limited to the United States. So, what do you do when you want to buy a collector’s
doll that you found in an online classified ad, but the owner lives in New Zealand and you live in the
United States? Digital currencies allow you to spend your money to anyone else who has a digital
currency account. It only takes a few moments for your friend to open his own account by using the
Internet, and in most cases it doesn’t cost a penny! Person-to-person payments allow small-scale
merchants to get started without the added expense of maintaining a credit card merchant account. This
means lower costs of entry into the marketplace and lower costs of doing business!

Digital Currencies Allow You to Protect Your Privacy!

It is a known fact that traditional banks store massive databases that track all of your account activity in
the name of “know your customer,” “fighting the war on drugs,” and, more recently, “the war on terrorism.”
In reality, banks conveniently use those databases to sell information about their customers’ spending
habits to other companies, and governments use that data to find excuses to confiscate your money and
property. So, not only does your government have access to all of your spending habits, but so does any
individual or organization who is willing to pay for it.

Most digital currencies are housed in “capital-friendly” jurisdictions with strict privacy protection laws [6].
For someone to get your account information, they have to obtain a court order in the country where your
digital currency is headquartered. This means that true crimes can be prosecuted, but your privacy will
remain intact if you are just an average law-abiding customer. Think of it as guaranteeing yourself the
right to “due process.” Furthermore, it is impossible to use digital currencies for money-laundering. You
have to spend your national money (such as U.S. dollars) through an exchange agent in order to
purchase digital currency in the first place. Because exchange agents all have accounts at banks with
anti-money-laundering practices in place, this means that all money used to purchase digital currencies is
theoretically “clean.” Clean money in, clean money out!

So, digital currencies are able to provide privacy to their customers, and still be able to guarantee that
they are not being used for money laundering. Digital currencies are “orthogonal” to the traditional
financial world. As long as all the money coming in and out goes through banks with anti-money-
laundering practices in place, then money laundering is impossible. Furthermore, all of the digital
currencies in business at this time are firmly committed to discouraging crime and money laundering,
while at the same time protecting the privacy of their account holders. This means you can use digital
currencies to do business with confidence that you are in good company! You can obtain a Standard
Reserve Instant World Card or an e-bullion Debit Card and withdraw your digital currency from any ATM
machine in the world as cash. But, because the cards are processed in an offshore jurisdiction, you can
be assured that your privacy is protected. Because both of these companies are diligent in preventing
money laundering, you can be assured that you are in good company [8].

So, are there any economic consequences of using digital currencies? In other words, do digital
currencies have any serious consequences for the structure of the economies? Let’s take a look.