Physical and Digital Money

·      Case as Physical Money

o  You can transfer (or spend or give away) as much of what you have as you want, when you want, without any third parties approving or censoring the transaction or taking a commission for the privilege.

o  Under normal circumstances, once you have cash, it is yours, it is under your control, and you can transfer it again immediately to somebody else.

·      Advantages

o  The transfer of physical money immediately extinguishes a financial obligation and leaves nobody waiting for anything else.

·      Disadvantages

o  it does not work at a distance.

§  Unless you carry it in person, you cannot transfer physical cash to someone on the other side of the room.

·      Fact

o  This is where digital money becomes highly useful.

 

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·      Case as Digital Money

o  Digital money differs from physical money in that it relies on bookkeepers who are trusted by their customers to keep accurate accounts of balances they hold.

·      Advantages

o  it does work at a distance.

·      Disadvantages

o  you cannot own and directly control digital money yourself.

 

 

What can I do to get control on digital money?

·      To own digital money, you must open an account somewhere with someone else—a bank, PayPal, an ewallet.

 

·      The ‘someone else’ is a third party whom you trust to keep books and records of how much money you have with them—or, more specifically, how much they must pay you on demand or transfer to someone else at your request.

 

·      Your account with a third party is a record of an agreement of trust between you: simultaneously how much you of an agreement of trust between you: simultaneously how much you have with them, and how much they owe you.

 

·      Without the third party, you would need to keep bilateral records of debts with everyone, even people who you may not trust or who may not trust you, and this is not feasible.

 

·      Instead, you instruct your bank to pay the merchant, and your bank does this.

 

·      The merchant is happy, as they trust their bank (well, more than they trust you).

 

·      Unlike cash, which settles using the transfer of physical tokens, digital money settles by increasing and decreasing balances in accounts held by trusted intermediaries.

 

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Is any difference between -

Online Card Payment and Physical Card Payment?

 

·      There is a big difference between

o  online card payments, where you type the numbers, and

o  physical card payments, where you tap or swipe the physical card.

 

·      Online transactions have higher rates of fraud,

o  So, in an effort to make fraud harder,

§  need to provide more details—

·      address and

·      the three digits on the back of the card.

 

·      Merchants are charged higher fees for these types of payments to offset the cost of fraud prevention and the losses from fraud.

 

·      Since, cash is an anonymous bearer asset -

o  which does not record or contain identity information,

o  therefore, to open an account with a bank, wallet, or other trusted third party,

§  regulations require that the third party can identify you.

 

·      Usually that means –

o  a photo ID to match name and face, and

o  a utility bill or other ‘official’ registered communication (for example from a government department) to validate your address.

 

·      Identity information is not just collected when opening accounts.

o  It is also collected and used for validation purposes when some electronic payments are made: when you pay online using a credit or debit card you need to supply your name and address as a first gateway against fraud.