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Digital Cash
by Brad Puffer
In the last few years scores of companies have been formed, sporting
appropriately cyber-sounding names, all aiming to be a part of the future of
money. Some use the internet to facilitate secure transactions through credit
card sales. Others, through complex algorithms, convert your bank dollars to
digital code - complete with your digital signature - which can be sent to
online vendors. Still others are setting up independent systems of electronic
money which use their own network of vendors and users.
What is digital money, and where is it taking us?
Digital cash acts much like real cash, except that it's not on paper. Money in
your bank account is converted to a digital code, stored on a microchip, a
pocket card, or on the hard drive of your computer, and can be used for
anonymous transactions by any vendor who accepts it. Your special bank
account code can be used over the internet to purchase a new CD, or can be
presented in card form at the local supermarket for food. Everybody involved
in the transaction, from the bank to the user to the vendor, all agree to
recognize its worth, and thus create this new form of exchange.
The internet may be the natural environment in which digital cash will
flourish. In fact, if the internet is to continue to grow, many experts argue
that it must become commercial. But fears that credit card numbers and other
personal information could be snatched away by a clever hacker make many users
apprehensive about buying goods over the internet.
To bring consumers to the internet, many corporations have rushed into
developing new technologies to create secure and efficient transactions over
the World Wide Web. Many of the new technologies depend on systems, like
credit card purchases, that are already familiar to users. By pre-registering
your credit card numbers in a secure computer, users can send a special code
over the internet to authorize use of your number. The card number itself
never travels over the internet and you even receive an e-mail confirming your
purchase. Another system uses a complex encryption method so that if someone
did manage to steal your number, the number would be completely useless to
them. These forms of electronic transactions are the first, and most familiar
step, for commercializing the web and beginning the process of electronic
monetary exchange.
But the use of digital cash, though convenient, may bring with it complex
problems. Because digital money is anonymous, criminals could use untraceable
digital money to evade taxes or launder money. Money could flow instantly
between countries without being traced. Computer hackers could break into
digital cash systems and instantly download the wealth of thousands of
customers.
The potential problems go beyond those posed by anonymity. If your hard drive
crashes, would you lose not only a hard drive and valuable information, but all
of your digital cash as well? Could digital cash wreak havoc on traditional
bank and government-controlled monetary systems? Would large private companies
take power away from traditional banks by controlling and regulating large
holdings of digital cash? And will digital cash be available to those who
cannot afford personal computers?
Along with potential problems, digital cash brings with it clear advantages over traditional money.
For the user, electronic money is precise, simple and convenient. For banks,
it could mean the elimination of thousands of paper transactions and, in turn,
the reduction in user fees. For corporations, it could mean the ability to
circumvent banks entirely to create direct company to company transfers. Most
experts believe that the use of the internet for electronic transactions and
the use of digital cash will rapidly increase over the next ten to twenty
years, but it won't replace the real cash you can crinkle in your hand any time
soon.
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