Electronic Money and Blockchain
Emoney, commonly referred to as electronic currency or a form of digital money used to pay for goods and services, has been introduced to assist financial transfers from one user to other users without geographical restrictions.
The PayPal service is the most well-known type of electronic money. By linking it to the account of a credit or checking card, an individual or business can open a PayPal account.
E-money functions similarly to traditional or legal tender as long as the sellers will accept financial transfers from the buyer’s PayPal (or other electronic money) account. E-money is not managed by the central bank; instead, it is a private payment system.
The advantages of bitcoin have recently been the subject of debate among economists, journalists, and government officials. Bitcoin, unlike PayPal, is not managed by a single entity but rather is the outcome of a decentralized network of interconnected computers.
Bitcoins are manufactured by people who carry out the sophisticated calculations required to ensure that any online transactions done with bitcoins are legitimate and that no one tries to make the same purchase more than once.
Successful candidates for these calculations receive a fixed sum of bitcoins, usually 25. The maximum number of bitcoins that may be created through this “mining” process is 21 million, and that number is anticipated to be achieved in 2030.
Some people refer to bitcoin as a “cryptocurrency” since it is easy to buy and sell it against dollars and other currencies on websites. Smartphones can be used to buy bitcoins and store them in “digital wallets.”
Then, using your smartphone to scan a barcode, you may make purchases at a store that accepts bitcoins. Many websites, including BitPay in Atlanta, allow businesses to process bitcoin transactions in a manner similar to how they handle credit card transactions.
Why do buyers and sellers choose bitcoins over credit cards or cash? Because it’s a new and unique way to buy goods, as well as because utilizing your smartphone to make purchases is simple, bitcoins may be growing in popularity among some consumers.
A permanent record of the transaction will be kept by your credit card company when you make a purchase with one. Since there is no record of your purchase, bitcoin transactions are more discreet.
Because merchants only pay 1% of sales in processing fees, as opposed to almost 3% for credit card purchases, some retailers prefer bitcoin transactions to credit card transactions.
Additionally, unlike credit card transactions, which permit the customer to reject the purchase up to a month after the transaction, a sale done with bitcoin is final as if it were made in cash.
Bitcoin may have some benefits, but it hasn’t yet gained much popularity. One of the advantages of bitcoin was destroyed by the introduction of Apple Pay and Android Pay, which allowed users to make payments using their mobile devices and a credit or debit card.
A few businesses also question bitcoin’s software’s capacity to manage numerous transactions. Mt. Gox, the most well-known bitcoin online exchange with a Japanese base, broke down in 2015, significantly reducing public confidence in cryptocurrencies.
Some officials are concerned that the exchange’s investors may have an impact on how much bitcoins and other virtual currencies are worth. It was unclear if these price swings reflected underlying variations in the supply and demand for bitcoins or were the result of investors manipulating the price of bitcoins.
Despite its challenges, blockchain technology, which forms the core of bitcoin, has attracted the attention of businesses and government authorities who are working to increase the speed, effectiveness, and security of the payment system.
A digital ledger or online system that tracks ownership of money, securities, and other items like music and movies can be referred to as the blockchain.
Global enterprises and people may be able to complete transactions swiftly and securely using blockchain through secure websites. By completely eliminating banks and other middlemen with the use of blockchain technology, costs might be greatly reduced.
The technical difficulty and expensive cost of blockchain are the biggest barriers for businesses considering it. If costs fall down over time, the technology might be included in the payment system.
A “cashless world,” which some observers have predicted is coming, is made possible by blockchain and other innovative payment systems.
According to research by the Federal Reserve, the percentage of non-cash payments is continuing to rise, and more than two-thirds of all non-cash payments are now made electronically. It is not surprising that fewer than 2 billion checks are being written annually.
However, for two main reasons, a completely cashless (or checkless) society may be challenging to achieve in the near future.
First, building the infrastructure for an e-payments system is expensive, as we mentioned with regard to blockchain. Second, although proponents of the blockchain say its encryption technology can solve this issue, many homes and businesses are concerned about maintaining their privacy in an electronic system that is vulnerable to computer hackers.
Although the amount of paper used in the payments system will probably continue to decline, it won’t completely disappear.
Classifications of Electronic Money
Depending on the technology used to store the value of money, e-money products may be hardware- or software-based.
For hardware-based devices, the buying power is stored in a physical object, such as chips or a card with hardware-based security features. Typically, devices that do not require a real-time connection to an external server are used for money transfers.
Software-based products use specific software that runs on common personal computers and tablet PCs. The device often has to connect online to distant servers that manage the purchasing power in order to transfer value in the form of money. There are designs that incorporate features based on both software and hardware.
Features of Electronic Money
The following characteristics are highly common in electronic money, just like they are in actual paper money:
Storage of Value: Electronic money can function as a storage facility, similar to physical currency, with the primary distinction being that its value is kept in an electronic format until it is physically withdrawn.
Medium of Exchange: Electronic money is a type of exchange; as such, it can be used to pay for both products and services.
Unit of Account: Digital currency offers an equivalent measure for the value of the goods or services being traded, much like paper money does.
Standard for Deferred Payments: Electronic money is used to grant credit that will be repaid in the future or as a way of deferred payments.
Benefits of Electronic Money
- The accounts can be set up quickly
- Digital accounts may be less expensive for transaction fees, but you’ll have to have to pay more for cash withdrawals as well as deposits.
- It assists in preventing fraud because it tracks all transactions history of the money-sending and receiving parties.
- Innovative and mobile-based banking features that allow for easier management of accounts and speedy and simple completion of transactions.
- Multi-currency accounts can be accessed easily
- Accounts can be linked to other services like bookkeeping software.