How it is used:

Ecash is used over the Internet, email, or personal computer to other workstations in the form of secured payments of "cash" that is virtually untraceable to the user. It is backed by real currency from real banks.

The way ecash works is similar to that of electronic fund transfers done between banks. The user first must have an ecash software program and an ecash bank account from which ecash can be withdrawn or deposited. The user withdraws the ecash from the account onto her computer and spends it in the Internet without being traced or having personal information available to other parties that are involved in the process. The recipients of the ecash send the money to their bank account as with depositing "real" cash.

Other than making purchases on the Internet, ecash can also be found used in entertainment sites - on "gambling tables" in Internet casinos such as PAF Casino and Internet Casino. Ecash allows the exchange of money to be conducted in the same way as in real casinos.

Relevance to business and electronic commerce:

Even though there are more than 25,000 companies conducting business on the Internet, consumers are still not that confident with having transaction done over the Internet. This is mostly due to a lack of a readily available and secure payment system. With credit cards, consumers are concerned with the security of their information and thus deterring them from directly making purchases from the Internet. With ecash, hopefully consumers will be more comfortable with transactions over the Internet as it is a one-time transaction that cannot be traced back to the user, whereas with credit cards, hackers can obtain information of the card holder and commit frauds.

With the appearance of ecash, the need for commercial banks to be involved in electronic banking and to back the electronic currencies becomes more apparent. However, there remains a skeptical view about having monetary transactions done over the Internet as it is a fairly public domain where there is easy access. Thus increasing and promoting commercial bank's interest in the Internet and conducting business over the Internet is necessary in order to further the development of ecash and commerce in the Internet, as well as improving cryptography and security features of the systems.

While it is a grand idea to mimic the real world transactions with cash on the Internet through the use of an anonymous transaction system, at this moment it still poses a lot of logistics and legal problems and possible security hazards. There are still questions of the regulation of electronic money, how will the ecash be backed and redeemed, determining how much of money in the economy are circulated in ecash since the Internet covers such a vast area internationally. Moreover, with Internet business companies, how will taxes be applied to them when they conduct business all over the world?

Ecash is not completely anonymous as with hard cash since there is always the computer and the network, which can be traced. But do people really care about anonymity? Some people may want to track expenses if they're conducting businesses through the Internet. Also, there is the issue of possible criminal activity within the system by allowing criminals to spend illegal money easier if ecash is untraceable. The US Department of Treasury's Financial Crimes Enforcement Network provides some information on how it is addressing these issues.

Some Ecash providers:

eCash Technologies
CyberCash
Mondex
Magex

Reference sites:

First Monday: Electronic Cash and Monetary Policy - by Mark Bernkopf
Life on the Internet: Electronic Cash
Show me E-Money
Electronic Cash
Electronic Commerce and the Banking Industry - by Andreas Crede
Privacy/Online Commerce - Digital Money and Transactions