Forms of E-Money

E-money, also known as digital money, electronic money and e-currency, is a form of money that is digitally stored as opposed to actual paper or coin currency. The use of e-money typically involves computers, the Internet and wireless transfers. E-money is convenient because it doesn't require the consumer to carry cash and can be used for making purchases and receiving payments any time, 24 hours a day, seven days a week.

A payment network can be centralized or decentralized. Examples of a centralized payment network include PayPal and cash-u. These systems act as an e-money intermediary to the bank and allow users to exchange money digitally, which can then be withdrawn and deposited in the bank of the user's choice. Bitcoin and Ripple Monetary Systems are decentralized, meaning they are peer-to-peer as opposed to relying on a central entity to initiate and complete transactions. These systems can be less stable than a centralized system because there are no standards in place to protect the consumer and transactions are typically handled using peer-to-peer software.

Hard electronic currency is used for non-reversible transactions, such as those drawn through a bank. The benefit of this type of e-money is the reduced cost of operations. Less paperwork is involved because transactions are non-revisable, except in cases where fraud or illegal use are present.

Soft electronic currency, which includes PayPal and credit cards, are reversible. This means users can typically take back a transaction, or cancel the transaction, within a defined period. This period is usually 72 hours.

E-money can be stored on your computer, in a centralized location, on a USB card (in code) or a smart money card. Credit cards are a form of digital money. Any of these methods can be used to transfer money to individuals or companies, transfer money from one centralized location to another or make purchases on the spot at a retailer, depending on whether the individual retailer accepts the the type of e-money the consumer presents.

Identified E-money, such as credit card transactions, is a form of e-money that allows the user who withdraws the money to be tracked. It allows banks to track the payment throughout the economy. Unidentified money can be withdrawn from the bank and used like paper money. Once the money is withdrawn from a bank, the bank no longer has the ability to track it. Use of this type of e-money requires a centralized system for exchanging the e-money.

Online e-money transfers and withdrawals require an Internet connection and interaction with a bank in order to conduct a transaction with a third party. An offline transaction, which uses true digital cash, doesn't require involving a bank. This type of e-money is stored on a chip, card or other media and can be used by anyone using the same e-money system.