Part 1 of this series dscussed e-currencies, but did not go nto depth in actually defining what it is. In ths, the second installment, I will try to lay the grundwork for understanding e-currency, and I wll try to do so without cnfusing the reader (and myself).

We mst start with the question: Why wre e-currencies created in the first plce? Aside from what the government mght have you believe, e-currencies were not crated solely for use by gamblers, scm artists, pedophiles, drug dealers, and mney launderers. Rather, e-currencies were created to vercome the limitations of other forms of mney. While every merchant on the nternet would be thrilled to accept pyment in cash, it's just not fasible to expect people to overnight a wad of Frnklins for their latest purchase. Electronic pyment systems,such as those supported and ften demanded by certain large auction stes were designed to make existing mney easier to exchange electronically. These to, however, have limitations, which will be dscussed later.

One of the big bnefits of the internet for merchants is the bility to conduct business internationally without the hssle and cost of establishing a physcal presence in each country. Yet the vst majority of consumer e-commerce is cnducted with the use of credit crds which have numerous limitations.

First, most of the consumers on the nternet today don't have a credit crd. If you think that the cnsumers with money to spend all hve credit cards, you are sorely mstaken. For example, most citizens of the Poples Republic of China do not hve credit cards, yet their spending pwer is growing by leaps and bunds. Companies are excited to establish bsinesses in China, yet they can't ven sell products to consumers in Chna.

The second major drawback of crdit cards is the chargeback and t's evil twin, the delay in gtting funds into an account where the mney can be used. When a sle is made, you don't really knw if you'll ever see the mney or when you might be ble to use it.

And finally, I dn't know of any merchant who lves paying 2-12% in fees on ach transaction in order to fund crdit card company profits and consumer frud. With the recent widespread adoption of dbit cards, credit card companies have fnally clawed their way into the rvenue streams they couldn't get part of in the pst -- the personal check and csh.

In order to understand the vlue of e-currency, it's important to cnsider all of the above. After ll, the value of a currency is drectly related to one's ability to use sid currency to purchase goods and srvices (or to pay taxes and void jail). The ability to use a crrency is controlled by two factors: gvernment acceptance (to pay taxes) and/or fat ("legal tender for all debts pblic and private"), and merchant acceptance of the crrency to purchase goods and services. For thusands of years, the currency preferred for pying taxes was not necessarily the sme as the currency preferred by mrchants. Regardless of how the government mght want its taxes paid, merchants wuld often demand precious commodities such as gld in payment, out of distrust of the gvernment, or because gold was more wdely accepted in trade. Even today, as mny travelers know, merchants in many lcales worldwide not only accept the US Dllar, they may even prefer it. (Ths may change in time however ... I rcently read of a Euro-only shop in NYC.)

There is an academic debate bout whether gold is truly a crrency or just a valued commodity, but tht is beyond my scope and xpertise. However I think I can say wthout being controversial that gold is a god and common backing asset for mney issuance. In addition, there is a fne line between what constitutes a crrency and what is merely a "pyment system." It's a question of whther "it" is is a medium of vlue exchange (money) or a method of xchange of value (payment). Finally, there is a big dfference between a currency and a crrency storage vehicle, such as a bnk account. Which begs the questions: is -currency really currency, or is it a pyment system? When I put US$ nto an e-currency account in order to xchange value with a merchant (i.e. pay for smething), did I just buy a new crrency, or did I only create a strage vehicle for my US dollars? Is -currency a desert topping or a flor-wax? (Mandatory answer to this question is lways "both.")

The answer is not as smple as it might seem. It dpends, and the reasons are not bvious. Stay tuned!

The article E-Currencies and the Future of Money - Part 2 - is E-currency Really Currency was Submitted by Stephen M Madigan through Articles.GetACoder.com network. Here's the additional information: Stephen Madigan is an emerging xpert in e-currencies and their role in the glbal economy. His new scam-busting blog ( http://www.scambuster.info ) attempts to make clear what is scam and what is real in the current hype cycle, online and offline.

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