In simple terms, digital currency can be defined as a form of currency that uses computer networks to make payments. Breathtaking media coverage on the future potential of cryptocurrencies such as Bitcoin has made digital money, a hot topic.
One of the main differences between digital currency and physical currency, such as cash, is that digital currency does not have any identifying characteristics that make it unique. If you take a look at the bank notes you might have in your wallet or purse, you will quickly notice that each note has a serial number – a unique string of letters and numbers that marks uniqueness of this post.
But as we know, digital objects, like songs or images, are easily reproducible endlessly on the internet. What’s stopping us from replicating digital currency in our bank accounts so easily?
Most of us have been using digital money forever. It is not the digital nature of cryptocurrencies that differentiates them from digital currency, but rather the way they secure ownership of digital property that characterizes them as transformational.
Issues surrounding digital currency and who owns it are likely to become increasingly complex, with far-reaching implications for everyday life. THE Coin counter laboratorya new initiative based in the Department of Anthropology at the University of Victoria, was created to explore these questions. Our research documents the present and future of money, as well as its effects on the way we live.
Commercial banks and payment networks, like those that use credit cards, preserve the uniqueness of our digital dollars. These institutions ensure that we don’t spend the same digital dollar more than once. Once we spend digital money, banks deduct it from our accounts so that it cannot be spent again.
The first widely used form of digital currency was magnetic stripe credit cards. The use of magnetic tape encoded with identifying information was introduced for the first time almost 50 years ago. This form of digital currency became widespread in the 1970s and 1980s, spurred by the invention of electronic point-of-sale terminals. connected to computer networks managed by Visa and Mastercard.
But how exactly does this digital currency work? When paying for something in a store, the shopper presents their credit card at the digital terminal and the merchant’s bank transmits the credit card details to the network. This credit card network requires authorization of payment from cardholder’s bank. The cardholder’s bank validates the cardholder’s details and available credit amount, then approves the purchase.
Hundreds of millions of these digital money transactions happen every day. Although this transaction involves a buyer, a seller, two banks, and a credit card network, no physical currency is actually exchanged. Instead, a series of messages are transmitted, resulting in a debt incurred by the buyer with their bank and a credit to the merchant’s bank account.
In this sense, the digital currency used here is not a material means of exchange, like notes or coins, but rather a unit of entry. This digital currency is a credit or debt in the digital records maintained by the merchant’s and consumer’s banks. Other forms of digital currency, such as debit card transactions or wire transfers, work similarly.
No central authority
Cryptocurrencies such as Bitcoin differ from forms of digital currency already commonly used by consumers around the world. The main difference is that when payments are made, a blockchain replaces the relationship between the two banks.
A blockchain is a list of records containing transaction data maintained in a distributed ledger, which is a digital record of the books of accounts for Bitcoin transactions. Copies of the general ledger are stored and retained by the thousands of computers that participate in the cryptocurrency network.
Digital currency poses the problem of double spending. How can we ensure that the same money in an individual’s account is not spent more than once? Blockchain technology solves this problem without recourse to a central authority.
In commonly used forms of digital currency, computer servers that facilitate the credit card network prevent double spending. These servers ensure that a cardholder cannot use the exact same digital dollars used to shop 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 collectively invalidated by all computers on the network, preventing any attempt to spend the same digital currency in two places.
Perhaps the real revolutionary development brought by cryptocurrencies is not their digital nature, but rather the fact that they enable the transfer of ownership of digital assets without the need for a centralized authority.
The infinite replicability enabled by the Internet has challenged notions of ownership that have long underpinned modern civilization. Blockchain and distributed ledgers maintain order of intellectual property on the Internet. Indeed, it is these aspects of cryptocurrency that could have the most lasting impact on the way we live together, both in cyberspace and real space.