Story 32-33

32. Electronic Money

When we talked about ecommerce, we mentioned the electronic payment. Exchanging money and goods online has some new challenges and new forms in the Internet economy. Goods are still what people expected; money maybe totally different from the green back.

Electronic money is not new to gamers – they have been used to value items in virtual currencies (sometimes even in real-world currencies)in games such as Diablo, World of Warcraft, etc. But those are just still in games.In computer networks, exchanging money electronically has already been established as a major facet of the Internet. It can be bank deposits,electronic funds transfer, payment processors, and digital currencies.

Just give a couple of concrete examples of electronic money.The Hong Kong Octopus card system, started as a transit payment system, has now grown into a virtual pocket for millions of residents in Hong Kong and Shen Zhen. PayPal and AliPay (Zhi Fu Bao) are probably the most famous centralised electronic money exchangers. They are almost the de facto bankers for Internet trading.

Another form of e-money does not set base on any real world currency or commodity; the money is purely digital. The most famous one is Bitcoin which is established in 2009. But they are not yet in widespread usage. The value of the digital currencies may be subject to the infamous “pump and dump”scheme.

33. Bitcoin

Bitcoin is perhaps the most famous internet currency nowadays.There are other digital currencies that rely on cryptography and P2P network.But they are not as influential as the Bitcoin. Many people think of them as alternative currencies; but more importantly they encapsulate protocols and the functions of contract law in the internet trading. The protocols eventually should act the same way as “see this greenback piece of paper, and give the goods equivalent to the value it shows”.

There are a few distinct advantages of Bitcoins. Bitcoins,like cash, are irrevocable. Merchants don’t have to worry about shipping a good, only to have a customer void the credit card transaction and charge-back the sale. Bitcoins are easy to send – instead of filling forms with your billing information, you just send money to a destination address that is uniquely generated for that single transaction and easily verifiable. Bitcoins can be stored as a compact number, traded by mere voice, printed on paper, or sent electronically. There is no threat of money printing by a bankrupt govern ment to dilute your savings. Transactions are pseudonymous – the wallets do not, by default have names attached to them, although transaction chains are easy to trace. It has near-zero transaction costs – you can use it for micro payments,and it costs the same to send 0.1 bitcoins or 10,000 bitcoins. Finally, it is global – so a Nigerian citizen can use it to safely transact with a US company,no credit or trust required.

The big but here is, since Bitcoins are not under any governance. To the national reserve banks, they represent anarchy and can hardly be allowed.