Digital currencies

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Digital currencies and payment systems

While secure commerce servers are intended to protect transaction data being sent over Internet, digital currencies and other types of digital payment mechanisms are intended to carry value in a protected digital form over the Internet.

Two approaches are taken by companies offering this service type. One is to link a customer payment method (credit card, checking account or some other source of funds) to an online identity, managed by service provider. The difference is that the payment system usually requires participants to register in some way with the payment system sponsor while commerce environments usually permit customer to use credit card or a payment system. The payment method may also become merged into applications themselves as how protocols are introduced which define procedures for translating business using existing non digital payment methods.

Digital checking can also take advantage of same technique, in much the same way that debit cards are used the same way as credit cards-consumers present the card to the merchant who must get an authorization for purchase. The charges are paid immediately out of consumer’s checking account, rather than at the end of monthly billing cycle.

A different approach is used for actual digital currencies as opposed to payment systems. Usually anyone can participate by opening an account with a financial institution offering digital currency service. Client software is used to withdraw money from account, check on balances and maintain a digital wallet that holds the value on participants’ computer. Cash exchanges between a user and the bank use same types of cryptographic technologies. Digital signatures guarantee cash transfers and transactions may be encrypted.

Protocols for public transport of private information

The electronic commerce community has taken great steps to adopt security protocols and standards which are necessary to make traditionally unsecured channels such as Internet attractive to the average consumer.