Electronic transactions have gotten more and more common, in the Internet age. Most people in developed countries now do some or all of their banking online. Have you ever used PayPal to send or receive money? Then you have experienced electronic money. But what is it, and how does it work? Here are 6 things you should know about electronic money.
License Required to Work with Electronic Money
In many places, when you use electronic money or transact in it, a license from a financial regulator is required. Is it a UK EMI License or some other type of regulatory license, this is so that the transferred money is not used for illegal activities such as fraud and tax evasion. Apart from banks and credit card companies, other businesses including online marketplaces may additionally require a license in some cases.
To illustrate, Vendors on eBay or Amazon Marketplace must follow rules on how they handle payments made using the PayPal service – this includes not charging the customer’s credit card unless the item has been shipped to them. Failure to follow these guidelines may result in their account being suspended by eBay/Amazon and/or fines or other penalties imposed by law enforcement agencies.
Definition of Electronic Money
Electronic money is solely money that’s stored and transferred electronically. You can think of it as a more modern version of notes and notes, only with less tangible benefits such as the ability to be transferred over great distances nearly immediately (and minus the trouble of carrying around heavy coins and notes).
Electronic Money Does Not Have to Have a Central Authority
Transferred electronic money doesn’t must be managed by a single entity. In fact, several forms of electronic money are created and managed collectively by their users. Cryptocurrencies like Bitcoin operate on this basis – there isn’t any central authority, but sophisticated peer-to-peer network that tracks all transactions. The use of cryptography ensures that all participants in this system can work with confidence, knowing that they’re dealing with one another and not a fake or fraudulent account (which would be very difficult to set up).
Bitcoin has become popular over the years because of its popularity and the perception amongst many businesses and consumers that it’s safer than fiat currency. This stems partly from what has been mentioned about the difficulty of counterfeiting, but there are other reasons as well. Because bitcoins are limited in number, they can’t be minted or simply minted by a central authority, which can lead a country to bankruptcy (as is the case when uncontrolled money printing weakens the value of existing paper money/coins).
Electronic Money Has Real World Value
While it is impossible to hold and touch some types of electronic money in the same way you would hold paper currency, that doesn’t suggest they’re counterfeit. Electronic money is real-world currency: it is just a matter of where the value is stored. Coins or notes are simply a form of representation of real money – normally this means an accounting ledger entry someplace together with the notes/coins used as real currency.
The same is true for most types of electronic money, such as the transactions PayPal processes on your behalf when selling goods online: even though the funds appear in your PayPal account balance, not in the vendor’s account (and represent more theoretical dollars that aren’t physically exist), they must have value and can be used to pay for goods and services as if they were paper money.
Electronic Money Can Be Stolen/Hacked
Forms of e-currency work just like their physical counterparts – anyone with access to your account or personal details can potentially steal your e-money (or even money held by the business you give access to). This includes every kind of individuals, from hackerstrying to break through the website’s security system to the young lady who works at the courier company where you sent a package with electronic payment included in it.
In either case, once e-money has been stolen, it can be very difficult (if not impossible) to return it to its rightful owner – which is why it needs to be protected just like cash. While some types of e-money such as Bitcoin are more secure than others (i.e. Bitcoin is not utterly anonymous, but it’s somewhat easy to make Bitcoin payments without revealing your identity), all e-currencies are prone to attack.
Electronic Money Can Be Exchanged Easily
Due to the digital nature of information, all existing forms of electronic money are easily exchangeable – no magical devices or complex technology apart from a computer and an online connection are needed.
As such, it’s difficult to transfer physical cash by simply typing numbers into a website – physical forms of e-currency require a more personal approach.
Electronic forms of currency may seem somewhat new and complex compared to traditional fiat money, but they’ve really been around for many years. As long as a trust-based system exists (such as the underlying Bitcoin), electronic currencies can be used securely for online transactions.
