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Today's Money and Digital Currency

Money is not only changing hands on the Internet, it is... changing. This should not be a surprise. New technologies are being developed daily to increase the speed and efficiencies for exchanging commodities and information. At the same time, the scope and variety of products and services, the object of these exchanges, has increased exponentially. So, to foster exchanges, money has been altered.

Finding some "change" in your pocket should not be alarming. Consider the precursor of today's money, barter activity - the mutual exchange of existing goods and services. Lasting for centuries, barter was only displaced when certain technologies created a demand. For example, when travel technologies flourished, exchanges had to take into account the different value placed on items in different geographic regions.

To understand how money is evolving, we will explore three topics:

1) The historic qualities of money provide the basis for the money we use today:

- Money has been manufactured to retain durability so that it can be held, counted, and its authenticity verified;

- Money has been linked to a country's currency. Each currency, until the 1960's was based on its country's natural resources;

- Money has been divisible into units, which retain a value of their own. These smaller units can then be added up, at any time, to create a recognized unit;

- Money has been easily transferable; and

- Nothing about money suggests ownership to any person.

2) New technologies are changing demands on transactions and creating the money of tomorrow:

- Merchants, more than ever before, require the capacity to offer instant gratification for fear of losing business to competitors. Likewise, consumers expect to purchase conveniently and promptly.

- Exchanges over the Internet can simultaneously require the purchaser's identity, while making the provision of other key transaction information optional.

- For many merchants and consumers to consider transactions, some assurances of security and authentication are required. Digital signatures have recently emerged to address these needs.

- The cost to manufacture, transport, store and guard money has become prohibitive.

3) Responding to the new forces, evolving forms of money and payment systems include the current electronic options:

CyberCash. Using a sophisticated encryption method, this pioneer of the digital wallet streams verified information to registered merchants who do not know the buyer's identity.

E-Cash. Created by DigiCash, this form of untraceable money allows cash to be used between friends and acquaintances, as well as with merchants.

Smart Cards and the Electronic Purse. This evolution of an ATM card, is meant to replace coins and bills for small transactions such as pay phones, road and bridge tolls fast-food restaurants and parking meters.

Electronic (or Digital) Wallet. This is a program that remains on a user's PC and serves as a secure repository for that person's credit card information. The information can be easily downloaded when prompted by an online merchant and permitted by the user.

First Virtual. This system acts as a third party storing and verifying personal and transaction information.

Hardwired Cash. As Microsoft enters the home banking business (in partnership with financial institutions), money may be hardwired into the computer you purchase.

NetCash. This system attempts to strike a balance between anonymous electronic currency and signed instruments that identify the parties in a transaction.

OpenMarket. Focused on both consumer and big business, OpenMarket uses a sophisticated transaction server called Transact, which conducts real-time verifications and creates "shopping carts" and "smart statements".

OrderEasy. Used by InternetMall, the largest shopping centre on the Internet, this system allows a real-time secure payment built on the encryption methods of an electronic wallet.

Secure Electronic Transaction (SET). This initiative is jointly headed by VISA and MasterCard and steered by a consortium of transaction heavyweights including IBM and Microsoft. Using an electronic wallet, SET verifies all parties of a transaction and proceeds to use a sophisticated encryption method to transfer data. SET could become the defacto standard of secure transactions in the online universe.

Last fall, Royal Bank of Canada announced one of the first North American and the first Canadian live implementation of a SET end-to-end payment solution over the Internet.

The offering is based on VeriFone software products developed using SET specifications. Royal Bank Visa merchants and small businesses conducting business online now have the capability to offer consumers a highly secure payment option for Internet commerce.

For further information contact: Adrian Horsfield, Senior Manager, Internet Commerce, Merchant Services & Point of Sale, RBC Financial Group - Telephone 416-348-6422. Or visit Royal Bank's Merchant Services & Point of Sale's website.

Internet Open Trading Protocol. This is the interoperable, vendor neutral standard for e-commerce adopted by the Internet Engineering Task Force and will impact on all of the above.

In addition to the evolution of money, other payment methods (i.e. debit cards, cheques, and credit cards) are also evolving in response to the opportunities and threats presented by the new technologies.

Whichever form of money emerges victorious, (and there may not be a single standard) being on the cutting-edge of today's business transactions requires an understanding of the relationship between three crucial elements:

1. the object of the exchange (the item purchased);

2. the means of exchange (the enabling technology); and

3. that which fosters exchange: money.

Understanding the evolving forms of a global digital currency will give tomorrow's entrepreneurs a major head start. Business today must avoid assuming that money is money is money.

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