Electronic payment systems, already in place for use by credit-card processors, were adapted in the 1990s for use in electronic commerce (e-commerce) on the Internet. Such
digital cash payments allow customers to pay for on-line orders using secure accounts established with specialized financial institutions; related technology is used for on-line payment of bills and direct payments using smartphones to individuals and businesses. Virtual currencies are unregulated forms of exchange that act like money but are created and controlled by computer software and are typically not backed by, and often not recognized as money by, national governments. The best-known and most widely circulated virtual currency, Bitcoin, allows its users to make online payments that are not subject to government or bank scrutiny, which has led law enforcement officials to express concerns over its potential or actual use in bypassing currency controls, in money laundering, and in financing terrorist or criminal activities. It also has experienced security breaches and theft. Its utility as a substitute for currency in ordinary transactions, however, has been greatly diminished since its creation by the extreme fluctations in its value caused by its use as a speculative investment.
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The Columbia Electronic Encyclopedia, 6th ed. Copyright © 2012, Columbia University Press. All rights reserved.
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