What exactly is eCash, anyway?

While digital currency is here to stay, it's also in a state of constant evolution. This fluctuation has certainly been true of electronic cash or eCash technologies. The idea itself stretches all of the way back to the 1980s, but it's only been recently that new forms of technology have given new strength to the digital dollar.

But what exactly is eCash, anyway? Is it another form of cryptocurrency or simply a digital or virtual currency? How do you convert your paper money into electronic currency? This guide will help you better understand the world of eCash, including the changes that may be ahead.

What is eCash?

The term "eCash" is something of an umbrella term. Electronic cash represents a way of paying for something without using physical currency. Basically, users would convert the money in their bank account to eCash. You can then use these funds to make electronic payments or execute a peer-to-peer transaction when sharing money between friends.

To fully understand how eCash works, it's important to know the history behind it and how it's evolved in two parallel directions.

History of eCash

The year was 1983. The internet was still in its infancy and not available for public use. But Dr. David Chaum envisioned a score of privacy concerns that would soon erupt, prompting him to create an anonymous payment system that would allow for secure transactions in the coming digital age.

It wasn't until 1990 that Chaum's vision became a reality through the company known as DigiCash. By relying on something called "blind signatures," users could perform digital transactions using what he called "cyberbucks."

Unfortunately, Chaum's vision only gained limited traction, but the idea lives on. In many ways, Chaum presaged the era of cryptocurrency and anonymous payment systems.

eCash as cryptocurrency

Today, investors can purchase eCash through one of the many cryptocurrency exchanges available online. eCash (XEC) was built by the same team of Bitcoin developers that created Bitcoin Cash.

In this form, eCash is just another flavor of bitcoin. This form of cryptocurrency relies on a distributed ledger known as a "blockchain." This tech means that transactions take place on a decentralized network with no central governing authority. The lack of oversight allows the eCash price to rise dramatically, promising great gains for those who invest in digital assets.

Unfortunately, the same instability that drives record prices also makes cryptocurrency inherently risky. In other words, when used as a form of cryptocurrency, the eCash price will not necessarily match the value of a real dollar.

Instead, it will fluctuate quite widely, along with other forms of cryptocurrency, which is why some investors are using the digital dollar as a new type of investment tool.

eCash as a form of regulated currency

More recently, two attempts have been made to create a regulated form of digital cash.

The first is known as a Central Bank Digital Currency, or CBDC. It sounds technical, but it's actually quite simple. Ordinarily, you would keep your money in an account run by one of America's private banks. With CBDC, your funds could be stored in an account run by the U.S. Federal Reserve.

The hope is simple: a digital dollar protected by a central authority could help solve some of the online security and economic challenges represented by cryptocurrency. However, this particular digital asset has yet to see meaningful traction.

Perhaps more promising is the Electronic Currency and Secure Hardware Act (ECASH Act). This recently-introduced bill would instruct the U.S. Treasury to create a pilot eCash program.

If the ECASH Act passes, this program will create an electronic version of the U.S. dollar. It would become a form of eCash in the truest sense of the word, allowing users to completely convert their bank accounts into a digital wallet. This digital money will be regarded as legal tender and accepted everywhere, just like a real dollar.

Again, this would provide users a greater level of security compared to traditional financial institutions since this eCash isn't regulated by the Federal Reserve. This decoupling means that users can store their financial information on local devices rather than needing a centralized bank account.

Offline eCash

Finally, eCash can be used both online and off. Basically, offline eCash would work just like credit cards or debit cards. Your funds, located on a hard drive, would be linked to a specially encoded card. This physical card could then be used to make transactions with participating merchants.

How would this be different than your current debit card? With a debit card, your cash is still present in your bank account. With eCash, the cash would not technically even exist in the same sense of the word.

How does eCash work?

How would you go about converting your physical cash into electronic cash? It's actually quite simple. Users would first download their money from their existing bank. They could store this money on their hard drive until they were ready to use it.

Once the user wants to make a transaction, they simply access this digital wallet to transfer funds to the merchant. Since eCash is legal tender, you can spend it just as you would a regular dollar. However, like any other payment system, the merchant would need compatible software to support the digital currency used in the transaction.

Who runs this software? The software platform would be run by a participating eCash bank. If the ECASH Act passes, traditional banks might start offering additional eCash options in the very near future.

If you're a business owner, this electronic cash can be transferred to your bank account just like a regular dollar. However, the merchant would pay transaction fees to facilitate the sale, though these fees may depend on the eCash banks that regulate these electronic payments.

Advantages of digital cash vs. other digital currency

Digital transactions are, of course, nothing new, and cash transactions have long been eclipsed by electronic alternatives. What makes eCash unique? There are several advantages to using digital cash over other forms of digital currency:

Make anonymous transactions

With an eCash service, the electronic dollar would be token-based rather than account-based. This setup means that the electronic cash would be stored on a digital card, hard drive, or smartphone rather than linked to an actual account.

Such an approach makes it easier to conduct anonymous transactions since the transaction would not be linked back to the customer's account or broadcast over a distributed ledger as with Bitcoin Cash.

The flip side, though, may already be obvious. In a token-based system, there's little room for error. Lose your phone or your card, and you lose all of the cash that was stored there. This risk means that eCash has all of the benefits and disadvantages of a regular dollar.

No minimum balance requirements

At many banks, customers are expected to maintain a certain account balance, lest they be charged a fee. But switching to digital assets eliminates these minimum balance requirements and other traditional fees.

This feature means that even customers without bank accounts will still be able to conduct electronic purchases and make peer-to-peer transfers, thanks to the rise of eCash technology.

Participate in the global economy

If the Electronic Currency and Secure Hardware Act (ECASH Act) passes, it could be the first of many stepping stones toward a more universal financial system. This development would eliminate exchange rates that have historically served as barriers to global commerce.

In other words, your digital dollar could potentially allow you to conduct business around the world, including places where other forms of payment are not accepted.

Offer additional payment options

As a business owner, you know the importance of offering multiple forms of payment for your transactions. If you routinely send invoices to your clients, then offering these diverse forms of payment can help you receive money faster than ever before, giving you more working capital to invest in your business.

Grow your investments

For some, the cryptocurrency form of eCash (XEC) offers the promise of big returns. In fact, even the companies that allow the exchange of cryptocurrencies typically boast of a large market cap, which shows that this financial technology isn't going anywhere for a while.

How to buy eCash

If the ECASH act passes, it's likely that many traditional banks will support this new technology. That means in the near future, you may simply be able to convert your cash into an electronic version and spend it anywhere that eCash is accepted.

Until then, you may consider buying eCash from one of the popular cryptocurrency exchanges that abound online. Here's how you can use these systems to purchase eCash:

1. Create an account with a cryptocurrency exchange

Most crypto sites will allow you to get started with just a username and password, though there will be some additional factors to protect your finances. You'll also need to be at least 18 years old to use these exchanges.

2. Enter your payment details

Once you sign in, you'll need to update your payment details. You can purchase eCash using your credit or debit cards or by exchanging other forms of cryptocurrency, such as what you have earned in Bitcoin Cash.

3. Select your order type

Most modern exchanges allow you to select your order type. A limit order allows you to set the price at which you want to purchase eCash. In other words, when the eCash price reaches your specified level, the order is executed.

If the eCash price never drops to a desirable level, you won't be charged. This setup ensures that you don't overpay when making this sort of transaction.

Similarly, a "market buy" fills your order at the best price available. Again, this is designed to protect customers from unfavorable fluctuations in the price of this currency.

4. Monitor your investment

One of the most important steps in owning any investment is to keep tabs on its current price. This consideration is especially valid in the volatile world of digital assets, where prices are known to change dramatically. You may face situations where the value of your investment drops unexpectedly, and you'll want to liquidate these digital assets to mitigate your losses.

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Frequently asked questions

The world of digital money seems to change every day. Here are some answers to common questions about eCash: