NOVA Online | Secrets of Making Money | Digital Cash (2024)

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 inyour bank account is converted to a digital code, stored on a microchip, apocket card, or on the hard drive of your computer, and can be used foranonymous transactions by any vendor who accepts it. Your special bankaccount code can be used over the internet to purchase a new CD, or can bepresented in card form at the local supermarket for food. Everybody involvedin the transaction, from the bank to the user to the vendor, all agree torecognize its worth, and thus create this new form of exchange.

The internet may be the natural environment in which digital cash willflourish. In fact, if the internet is to continue to grow, many experts arguethat it must become commercial. But fears that credit card numbers and otherpersonal information could be snatched away by a clever hacker make many usersapprehensive about buying goods over the internet.

To bring consumers to the internet, many corporations have rushed intodeveloping new technologies to create secure and efficient transactions overthe World Wide Web. Many of the new technologies depend on systems, likecredit card purchases, that are already familiar to users. By pre-registeringyour credit card numbers in a secure computer, users can send a special codeover the internet to authorize use of your number. The card number itselfnever travels over the internet and you even receive an e-mail confirming yourpurchase. Another system uses a complex encryption method so that if someonedid manage to steal your number, the number would be completely useless tothem. These forms of electronic transactions are the first, and most familiarstep, for commercializing the web and beginning the process of electronicmonetary exchange.

But the use of digital cash, though convenient, may bring with it complexproblems. Because digital money is anonymous, criminals could use untraceabledigital money to evade taxes or launder money. Money could flow instantlybetween countries without being traced. Computer hackers could break intodigital cash systems and instantly download the wealth of thousands ofcustomers.

The potential problems go beyond those posed by anonymity. If your hard drivecrashes, would you lose not only a hard drive and valuable information, but allof your digital cash as well? Could digital cash wreak havoc on traditionalbank and government-controlled monetary systems? Would large private companiestake power away from traditional banks by controlling and regulating largeholdings of digital cash? And will digital cash be available to those whocannot 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 tocircumvent banks entirely to create direct company to company transfers. Mostexperts believe that the use of the internet for electronic transactions andthe use of digital cash will rapidly increase over the next ten to twentyyears, but it won't replace the real cash you can crinkle in your hand any timesoon.

© | Updated August 2002