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Published: 13-Oct-12
What Is Digital Currency-How Does It Work
What is digital currency? It is defined as: money stored and transferred in digital form. Sounds simple enough, but how does it all work?

This type of currency is thought to be good to use for making purchases on the internet because if it works the way it was meant to, transactions should be rather anonymous and untraceable back to the payer or user.

This means that hackers would no longer be able to gather personal information from people who use their credit cards to make online purchases. This would obviously decrease the number of stolen identities that happen every day.

To help you understand more of, "what is digital currency?" I have done quite a bit of research on the subject and have found that there are several different types out there, each with it's own unique qualities.

Here are just a few with their descriptions following:

1. Digital Gold Currency - This type is backed by gold stored in vaults. The gold provides an extra measure of security and if you hold this type of currency, you could possibly directly exchange it for solid gold bullion.

2. Centralized Currency Systems - these are like PayPal and these companies allow you to send money all over the world as long as you have money in the account. For some services provided by these types of companies, you get charged a fee on the receivers end of the transaction.

3. Decentralized Currency Systems - Like Bitcoin are all based on cryptography and/or trust networks. Also called Hard Electronic Currency, it is intended to be more like using cash to make your transaction but your transaction is non-refundable once made. This type of system only works in one direction.

The E-cash idea has evolved along with the evolution of the Internet. People just do not feel comfortable with giving their personal credit card information over the Internet when making a purchase.

Too many bad things can happen like identity theft. No one wants their identity stolen.

So, many companies have attempted to create this type of payment or monetary system to minimize the risks of shopping online.

Many countries have successfully created systems for "in-house" use such as Hong Kong's Octopus card. This card works just like a sort of debit card where the user loads money onto the card and then all the money is deposited into a bank. They can then use the card for anything they need to use it for.

Some countries are working on or have systems that allow the user to transfer money through mobile devices. I think this is somewhat like what Chase lets their customers do. Their customers can take a picture of their check, front and back, with their phone and make their deposit electronically.

I do hope that this gives you some idea of what is digital currency and how it is attempting to take it's place in the world of e-commerce. There may be a little more to it than I could describe in just one small article but I think you can get a good idea.


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