Advantages and Disadvantages of Electronic Cash

You know how they say that the world economy has benefited from the use of electronic money? Well, there are some who say that it hasn't. Personally, I have spent several sleepless nights wondering how can such contradictory statements exist for a concept that, by nature, is black and white? But on careful and detailed research, the well-known phrase "There are always two sides to a coin" came to my mind.

Electronic money has made monetary transactions a piece of cake. Be it an amount in millions, or money transfer to a tiny town in another continent. E-cash transactions are fast, accurate and easy. But before we get to the "two sides" of this "coin", let's see how many forms it has.

There are a few basic categories:

• Anonymous: This kind of e-cash works just like cash. Once a specific amount is withdrawn from an account, it can be used (or misused) without leaving a visible trail.
• Identified: We know this category popularly as PayPal or WebMoney. The usage and transfer of money in these systems is not entirely untraceable.
• Online: Obviously, it means that one needs to correspond with a bank (via the internet). The bank, then, gets in touch with the third party.
• Offline: One can directly conduct the transaction without any interference from the bank.
• Smart Card: Smart cards are like credit cards with a computer chip in them that stores the holder's money-related information. They are used in digital cash applications. Interesting ain't it?

Now coming to the advantages of e-money.

• Online Electronic Money
  1. Anonymity and untraceability can be maintained: User Ids are kept highly confidential.
  2. No issues regarding "Double spending": Real-time checking of all transactions makes the possibility of multiple expenditures negligible.
  3. No requirement of additional secure hardware: Existing POS (point of sale) hardware can be updated and used.
• Offline Electronic Money
  1. Portable: This system is fully offline and portable.
  2. Anonymity unless double spending: The user is anonymous unless he commits a double expenditure.
  3. Detection of Double Spender: The bank can effectively detect a double spender.
  4. Frequent synchronizations are not required: The bank doesn't need to synchronize its servers very often. This is mostly done via batch updates.

Now, the disadvantages of this marvelous mode of transaction.

• Online Electronic Money
  1. Communication Overheads: Security and anonymity cost become a bottleneck of the system. This can happen at times during real-time verifications.
  2. Massive Databases: The bank will have to maintain a detailed and confidential database.
  3. Synchronization: The bank needs to synchronize its server every time transaction is made. It would be insanely impractical to maintain.
• Offline Electronic Money
  1. Prevention may not be Immediate: Double spending may not be prevented effectively and immediately.
  2. Implementation Expenditure: The required additional hardware is quite costly to install.

There is another con to consider. E-transactions depend a lot on technology. Hence, power failure, unavailability of internet connection, undependable software and loss of records could be a hindrance in your way.

So, the next time someone speaks about e-cash, I am sure you will have enough information in hand. Let's not have the confused expressions anymore. And about using this system yourself, good idea. Just make sure you read all the disclaimers and are aware of your system thoroughly!