Electronic money
Electronic money must have certain properties if it is to be used with the same flexibility as normal money. If these properties are wholly or partially absent, the capabilities of electronic money are necessarily more or less limited. The essential properties necessary to minimize the difference between electronic money and real money are described below.

An important, although in principle trivial, property of electronic money is that it can be completely and automatically processed by machines. This is the only way in which large systems can be operated economically.

Electronic money must not be bound to a particular medium, such as smart cards. It must be possible to transfer electronic money using any desired medium, such as a network or computer.

Electronic money must be divisible, so that any desired amount can be paid without recourse to using normal money. This is similar to normal money, which although not arbitrarily divisible, is available in a sufficient number of different denominations that normal purchases can be made using a small number of coins and banknotes.

Payment systems with centralized architectures can be easily monitored by the purse system operator, with opportunities for fraud being very limited. The best example of such a system is the online authorization of credit card purchases. However, centralized systems suffer from many drawbacks. They are expensive, vulnerable to technical disturbances, inflexible and difficult to modify or extend. Systems with decentralized architectures minimize these drawbacks. This can be seen very clearly with payments in the private sphere, in which money changes hands without any involvement by a central body. Electronic money should also have this property, since it otherwise cannot compete with normal money. For an electronic payment system, in concrete terms this means that it must be possible to make offline payments and to make payments directly from one purse to another one. The property of allowing direct payments between purses (purse-to-purse transactions) is sometimes called ‘transferability’.

Despite the demand for anonymity, electronic money must allow the purse system operator to monitor the system, since this is the only way in which manipulations and security gaps can be recognized and eliminated. This is exactly the same as the situation with normal money, in which every citizen is obliged to immediately report counterfeit money to the appropriate authorities. In the case of electronic money, the purse system operator is responsible for guarding against fraud and forgery, and he can and must monitor the consistency of payment flows.

A fundamental property of electronic money must naturally be security against forgery. Any system will collapse within a short time if it is possible to forge or duplicate money in any form or manipulate payment flows. This is why cryptographic functions are used so extensively in the field of electronic payments, since this is the only way to achieve the required level of security.

Anonymity means that it is impossible for anyone to associate payments with particular persons. The value of this requirement is very much a question of perspective. From a technical perspective, the purse issuer desires a system with as little anonymity as possible, so he can monitor the system in the best possible manner. The possibility of fraud is very limited in nonanonymous systems, since anyone who commits a fraud can quickly be identified. Government agencies, such as the police and tax authorities, have similar interests. Non-anonymous electronic money would give them considerably more scope for monitoring financial transactions than they have enjoyed up to now with normal money. The position of purse users is diametrically opposite. They consider current payment methods using normal money to represent an excellent state of affairs, and they regard complete anonymity and non-traceability of payment transactions as the optimum solution. Particularly with regard to anonymity, operators of electronic purse systems often choose a compromise solution in the interest of system security. For instance, in most systems payments are anonymous, but loading electronic purses is not. This allows the system to be monitored reasonably well in a simple manner at a relatively low cost. At first sight, some of these properties appear to be contradictory. For instance, in many cases complete anonymity and optimum system monitoring are mutually exclusive. However, this field is in the early stages of development, and there are already systems being planned in which these two properties can definitely be realized simultaneously. There are two properties of real money that are not mentioned above, although they are highly significant. The first is that real money is legal tender that must be accepted by everyone in a particular country. In almost all countries, vendors of goods or services are obliged to accept the legal currency of that country as a means of payment. The second property relates to the stability of the currency. Except for a few countries with high rates of inflation, the legal currency in circulation has a stable value. If this is not the case, people resort to barter or using foreign currencies.