Not so long ago we were bartering 5 sheep for a cow, or a 'X' amount of a valuable stuff for 'Z' kilograms of food items. We also used different types of metals to pay for our purchases. Today, we pay for the services obtained with a swipe of a credit card. Nowadays explaining electronic cash or 'e-cash' is easy, as it is used in most of the big cities throughout the world. However, even though people are familiar with its benefits, they are unaware what it exactly means.
Electronic Cash Meaning
Let's take a look at a simple explanation of this. A few decades ago people used to go to bank and stand in a line to deposit or withdraw money from their bank accounts. Today, it is possible for anyone to access money in their bank account with the help of a computer. This is possible because the monetary value of your bank balance is stored electronically on the computers of your bank. This electronic form of money is referred to as electronic or digital cash. It boosts your purchasing power by making your money available to you 24×365. One can spend this digital money by accessing it online or offline.
Online Use of Electronic Cash
Technology uses computers, local area networks, and the Internet for the transfer of money paid in exchange of services obtained. This process involves 3 entities: the buyer, the seller, and the service provider. Using this technology, money can be transferred online or offline.
There are certain organizations such as Eagle Cash Technology (E-Cash), Octopus Card System, etc. which facilitate a secure transfer of money over the Internet between the seller and buyer. This enables one to do Internet shopping and enter in a transaction over the Internet, while sitting in his house or office, in fact, from anywhere in the world. This saves time and physical efforts that one has to put in, when he goes out and buys a ticket for air travel or for a movie, in person.
Within the Internet, dedicated local area networks and computers control the flow of digital cash between the entities or the bank accounts of the same person - this form of money exists as bits and bytes inside computers memory. Cash transfer systems depend on cryptology, and the use of private and public keys for the encryption and decryption of the information, that represents one's demand for transfer of money. It also uses digital signatures to verify the authenticity of source of demand.
Off-line Use of Electronic Money
Can you recall when you last visited your bank personally? If you remember the day when you queued to deposit a check or withdraw some money from your bank account, then most probably you don't use a debit or credit card. These cards have a microchip embedded in them that stores the user's latest bank account information.
Whenever a user makes use of credit or debit card to pay for his or her purchases, information in the chip is updated offline. Use of these cards have liberated people from carrying physical or paper money, and for this reason the term 'plastic money' was coined, It describes the electronic cash used through these cards. Use of these smart cards makes written checks, and withdrawal and deposit slips redundant. Automatic Teller Machines (ATMs) are important for the off-line use of money, and using these ATMs, one can use his credit or debit cards to withdraw money.
Pros and Cons of Electronic Cash
You can't handle electronic cash like paper money or metal coins, that means you can't hide it like in the old days. It exits in the bank's computer, and someone hacking into it can transfer money from your account, as well as steal your password and identity, which is meant to help you to carry out your transactions. An Internet crime involving your account can spell trouble for you, either due to financial loss or identity theft.
It is granted that using this system, you can access your money from anywhere in the world, however, the digital cash technology may leave you hanging by the thread, in case the main computer or the server of this system is down because of some problem. The disadvantage of electronic payment systems is that your money becomes useless, if the servers of these systems are not online and accessible.
In case of a computer virus attack, a computer can lock in and make a significant percentage of the liquid cash redundant. Of course, the chances of happening this kind of things are getting smaller and smaller due to the advances in the Internet security measures employed.
If you go through the history of electronic money, you will find that it was first used by the Western Union in 1980s for electronic funds transfer. Today, the concept has become so big that, sooner or later, it is going to replace paper money from the economy of the world.
Now, most of us are using it in the form of debit and credit cards. Getting ready to experience its advantages and disadvantages as we do in case of every other system, is what we should be gearing ourselves for. There is no doubt that electronic cash is already playing a big role in the financial world, and will slowly, but surely, be creeping into our everyday lives, if not already.