E-cash and virtual currency as alternative payment methods

Abstract

This paper describes e-cash and virtual currencies and analyses their differences as alternative means of payment. E-cash, the digital equivalent of government-issued physical notes and coins, is stored on a chip carried by consumers and merchants. Virtual currencies are not backed by sovereign governments and are mostly used online. E-cash is fully exchangeable to government-backed currency at a one-to-one ratio; virtual currency may not be. For both, the lack of broad acceptance for payment currently limits their use. To succeed, digital currencies need to achieve a critical mass of consumers and merchants willing to use them.