Add Your Photos and Video to This Story

What is Digital Currency: Digital Money & Real Cash

by ePanama | January 8, 2007 at 04:13 pm | 1416 views | add comment

Here is a very simplified everyday explanation of ‘Digital Currency‘ and a description of the similarities with real cash.

Real physical cash, used in everyday transactions, is totally anonymous. The buyer or seller in any transaction does not have to exchange details, the transactions are instant & completed in real time and finally the exchange is not reversible.

For any cash transaction, it is either the sender/buyer’s or receiver/seller’s responsibility to disclose material facts about each other and the transaction. No outside record of the transaction is kept unless disclosed by the buyer, seller or third party privy to the transaction details. Additionally, the source of funds for any cash transaction is not disclosed.

Whether it is a big stack of Euros, Pounds or Dollars, it most likely will NOT have a tag attached to it describing who previously owned it or where it came from! Very few, if any, traces and or receipts are left from a cash spend and its never possible after the spend for the receiver to follow the cash back to it’s source. I am describing everyday general cash transactions such as paying a bill, loaning money to a friend or buying lunch.

While these material details are not present in the cash transaction, is it necessarily bad for you to buy your next tank of gas and pay with cash? Are you a criminal, bad person or a terrorist for spending 3 twenty dollar bills at Exxon on your way home from work? No - of course not. Its not bad, immoral or illegal. In the 1960’s, no one had plastic and everyone used cash for everyday transactions.

With the creation and evolution of the Internet, especially in the last 5 years or so, users around the globe demanded ‘digital cash’ or ‘Digital Currency’. After all….how does anyone pay for a purchase online? There must be more than a few types of digital money out there correct? If you need to spend money online from point A to point B you will need a type of digital cash to pay the lucky receiver. This should come as no surprise to anyone reading this information.

From this point on, close your eyes and let’s act as like it is the 1960’s again. Put aside any plastic cards or online banking accounts and understand that in this new world you have no charge cards, but you still have a PC. How do you make an online payment? How can you right
now send funds from virtual point A to virtual point B online?

Enter Digital Currency or Digital Cash

Digital cash (or, equivalently, electronic cash) refers to electronic records or messages which serve as money, cannot be easily counterfeited, can be verified as authentic by the
institution granting the digital cash, and can be securely transferred to others. Essentially, digital cash is a payment message bearing a digital signature which functions as a medium of exchange or store of value. *aci.net

So ‘Digital Cash’ is just an electronic unit, a message that contains a dot or a dash, which is recorded in some central place. The digital dots and dashes move online from one account into another account and that completes the transfer of ownership.

Electronic money (also known as electronic cash, electronic currency, digital currency, digital money, scrip or digital cash) refers to money which is exchanged only electronically. *wikipedia.org

It sounds a bit complicated doesn’t it, so how do you recognize or distinguish a digital cash transaction? Is it just similar to a real cash transaction? Does it have the same characteristics?

A digital currency transaction should mirror a real time cash transaction in every way possible. All aspects of a cash transaction should show up in the digital version including privacy, anonymity for both sender and receiver, instant real time transactions and the lack of any possible reversal on the sale.

This is ‘Digital Currency‘.
It has the same distinguishing characteristics as a cash transaction but it is accomplished online. Using digital currency, you can transfer funds to anyone, in any country at anytime. Its just like cash.

There are several consistent characteristics which define “Digital Currency”.

(1) The transfer is instant & ‘real time’ plus since it is ‘digital cash’, the transaction cannot be reversed. Let’s say the receiver of your online digital currency transaction is your daughter. Since she knows you, she can voluntarily send it back if she choses, but once the transaction is completed you as the sender cannot reverse it. All cash sales are final and that goes for digital currency also.

This makes perfect sense because if you pay cash for a box of popcorn at the movies, 5 minutes later can you retrieve your cash back? If you give a $5 bill to a homeless person on the street and continue walking….5 blocks later can you snap your fingers and get the money back? No, no…cash has no strings attached and you as the sender or giver cannot ‘recall the money’, nor should you be able to…the transactions are final and not reversible. These are two of the basic characteristics of digital currency transactions - they are real time and not reversible just like actual green cash money.

(2) The transfer of digital currency is private and anonymous for the sender and receiver. Generally, the account titles shown during transactions are numbers, nick names or e-mail addresses. You can usually specify your actual name if you like but most accounts are titled something like “Advertising Payments” or “Jane’s Account”.

Additionally, just like actual cash, the source of the funds is never disclosed to the receiver. No one knows where the actual money is coming from and nor does either party have an name, address or phone number.

That is great information to know if you want to track all digital money and all users, but as this is a digital currency transaction and mirrors real green cash, neither of these items are reveled to sender or receiver during the course of a transaction. Think cash…if you buy a slice of pie a Famous Ray’s in NYC are you going to tell the vendor your name and address? No - of course not and neither would you disclose this information online while spending some digital currency.

If you are reading the online archives of the Washington Post and decide to purchase a full article and download a copy, do you really need to provide the Post with your name, address and source of income? No - of course not.

If you want to download digital content such as a batch of songs for your iPod and you pay for it with digital money, should you be required to provide your name, address, job title, SSN/SIN or income bracket? No - of course not. Not providing this information, is the basis of a cash transaction. “Digital Currency” works just like cash only online through your PC.

An important quality of digital cash is that it has the potential of being entirely anonymous, through the use of mathematical “blinding” techniques, both with regards to usage and holdings. This means that, as with physical cash, there are few, if any, traces for
the government or other institutions to survey. *e-articles.info

Digital currency means real time online transactions which cannot be reversed. The set up and usage of a ‘Digital Currency’ account guarantees that neither buyer or seller will know details about each other and the source of the funds is indeterminable. Finally, the transfer and receipt of online funds is kept private between the users accounts or a third party (the currency operator). At the end of each month, you should not be receiving a print out of all your cash transactions from the local authorities….if you do there is a big problem.

These are the basics of a real cash transaction and the identical characteristics of a ‘digital currency’ transaction.

Here are a few popular examples of Digital Currency: