In addition to cryptocurrencies, digital money has changed the way we live

winy (62)in Project HOPE • 2 years ago

Simply put, digital money can be defined as a form of currency that uses computer networks to make payments.

One of the main differences between digital money and physical currency like cash is that digital money lacks any identifying features that make it unique.

But as we know, digital objects like songs or pictures are easily infinitely reproducible on the Internet. What prevents us from reproducing digital money in our bank accounts so easily?

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Most of us use digital money all the time. It is not the digital nature of cryptocurrencies that sets them apart from digital money, but rather how they secure ownership of digital assets that marks them as transformative.

Issues with digital money and who owns it are likely to grow in complexity, with far-reaching implications in everyday life. To explore these questions, The Counter Currency Laboratory, a new initiative based in the Department of Anthropology at the University of Victoria, was established. Our research there documents the present and future of money and its impact on how we live.

Credit Cards

Commercial banks and payment networks like those that use credit cards protect the uniqueness of our digital dollars. These institutions guarantee that we will not spend the same digital dollar more than once. Once we spend digital money, the banks take it out of our accounts so it can't be spent again.

The first widely used form of digital money was magnetic stripe credit cards. The use of a magnetic stripe encoded with identification information was first introduced almost 50 years ago. This form of digital money became widespread in the 1970s and 1980s, spurred by the invention of electronic point-of-sale terminals connected to computer networks managed by companies such as Visa and Mastercard.

But how exactly does this digital money work? When paying for something in a store, the buyer places their credit card on a digital terminal and the merchant's bank transmits the credit card details to the network. This credit card network requires payment authorization from the cardholder's bank. The cardholder's bank verifies the cardholder's details and the amount of available credit and then approves the purchase.

Hundreds of millions of these digital money transactions take place every day. Rather, a series of messages are transmitted that lead to a debt incurred by the shopper to their bank and credit to the merchant's bank account.

In this sense, digital money as used here is not a material medium of exchange like banknotes or coins, but rather a unit of account. This digital money is a credit or debt on the digital ledgers maintained by both the merchant and the consumer's banks. Other forms of digital money, such as debit card transactions or electronic transfers, work similarly.

No central authority

Cryptocurrencies like Bitcoin are different from the forms of digital money already commonly used by consumers around the world. The main difference is that in payments blockchain replaces the relationship between two banks.

Blockchain is a list of records containing transaction data that is held in a distributed ledger, which is a digital ledger record for Bitcoin transactions. Copies of the ledgers are stored and managed by thousands of computers participating in the cryptocurrency network.

Digital money presents a double spending problem. How can one ensure that the same money in an individual's account is not spent more than once? Blockchain technology solves this problem without turning to a central authority.

For commonly used forms of digital money, the computer servers that facilitate the credit card network prevent double-spending. These servers ensure that the cardholder cannot use the exact same digital dollars used to buy food at the supermarket to also buy a round of drinks at the pub.

In the Bitcoin network, any attempt to spend the same Bitcoin twice would be canceled collectively by all computers on the network, preventing any attempt to spend the same digital money in two places.

Digital Ownership

Perhaps the real revolutionary development that cryptocurrencies have brought lies not in their digital nature, but rather in the fact that they allow the transfer of ownership of digital assets without the aid of a centralized authority.

The infinite replicability enabled by the Internet has challenged notions of property that have long been the mainstay of modern civilization. In fact, it is these aspects of cryptocurrency that may have the most lasting impact on how we live together, both in cyberspace and in real life.