The history of money is long. Money is the key element in the economy. It could be described as the blood of the business cycle. Money was originally a physical substance like gold and silver. It could even be alive because cattle were one of the oldest forms of money. As a matter of fact, it was not very particle. Today, although much of the money used by individuals in their everyday transactions is still in the form of notes and coins, its quantity is small in comparison with the intangible money that exists only as entries in bank records. Perhaps coins and banknotes will become as obsolete as cowrie shells. This article will explain the nature of E-money.

E-money consists of two distinct types of e-money: identified e-money and anonymous e-money. Identified e-money contains information revealing the identity of the person who originally withdrew the money from the bank. Also, in much the same manner as credit cards, identified e-money enables the bank to track the money as it moves through the economy. Anonymous e-money works just like real paper cash. Once anonymous e-money is withdrawn from an account, it can be spent or given away without leaving a transaction trail. You create anonymous e-money by using blind signatures rather than non-blind signatures.

Since e-money is just a bunch of bits, a piece of e-money is very easy to duplicate. Since the copy is indistinguishable from the original you might think that counterfeiting would be impossible to detect. A trivial e-money system would allow one to copy of a piece of e-money and spend both copies. Obviously, real e-money systems must be able to prevent or detect double spending.

As a result one has to draw the conclusion that new form of money brings also new form of challenges. But this also applied to the older forms of money. E-money is nothing more than a further step which must be taken.