BEYOND LOCAL: Digital money has changed the way we live

Beyond simple cryptocurrency, digital cash is one of the predominant forms of currency in use today.

This article by Daromir Rudnyckyj, University of Victoria, originally appeared on Conversation and is republished here with permission.

Simply put, digital currency can be defined as a form of money that uses computer networks to make payments. Breathless media coverage of 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 any banknotes you might have in your wallet or purse, you’ll quickly notice that each note has a serial number – a unique string of letters and numbers that marks uniqueness. of this post.

But we know that digital objects, such as songs or images, are easily reproducible to infinity on the internet. What’s stopping us from replicating digital currency so easily in our bank accounts?

Most of us have always used digital money. It is not the digital nature of cryptocurrencies that differentiates them from digital currency, but rather the manner in which they secure ownership of digital property that characterizes them as transformational.

The issues of digital money and who owns it are likely to grow in complexity, with profound implications for everyday life. The Counter Currency Laboratory, a 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 and its effects on our way of life.

Credit card

Commercial banks and payment networks, such as those that use credit cards, preserve the uniqueness of our digital dollars. These institutions ensure that we do not spend the same digital dollar more than once. Once we have spent digital money, banks deduct it from our accounts so that it can no longer be spent.

The first widely used form of digital currency was credit cards with magnetic stripes. The use of magnetic stripe encoded with identifying information was first introduced 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 operated by companies like Visa and Mastercard.

But how exactly does this digital currency work? When paying for something in a store, the shopper taps their credit card on the digital terminal and the merchant’s bank transmits the credit card details to the network. This credit card network requests payment authorization from the cardholder’s bank. The cardholder’s bank validates the cardholder’s details and the amount of credit available, then approves the purchase.

Hundreds of millions of these digital monetary transactions take place 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 physical medium of exchange, like notes or coins, but rather a book-entry unit. This digital currency is a credit or debt in the digital records maintained by merchant and consumer banks. Other forms of digital currency, such as debit card transactions or wire transfers, work the same way.

No central authority

Cryptocurrencies such as Bitcoin differ from the 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 that is kept in a distributed ledger, which is a digital record of the books of accounts for bitcoin transactions. Ledger copies are stored and maintained by the thousands of computers that participate in the cryptocurrency network.

Digital currency poses the problem of double spending. How to ensure that the same money in an individual’s account is not spent more than once? Blockchain technology solves this problem without resorting to a central authority.

In commonly used forms of digital currency, the 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 buy groceries 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 in the network, preventing any attempt to spend the same digital currency in two places.

Digital Property

Perhaps the real revolutionary development caused by cryptocurrencies is not their digital nature, but rather that they allow the transfer of ownership of digital assets without resorting to centralized authority.

The infinite replicability enabled by the Internet has challenged notions of ownership that have long underpinned modern civilization. Blockchain and distributed ledgers police intellectual property on the internet. Indeed, it is these aspects of cryptocurrency that can have the most lasting impact on the way we live together, both in cyberspace and in real space.

Daromir Rudnyckyj, Professor, Anthropology, University of Victoria

This article is republished from The Conversation under a Creative Commons license. Read the original article.