Characteristics of Purely Electronic Digital Currencies

Digital currencies rely on advanced information technologies and high-speed communications networks to store, transmit, and receive representations of value. Furthermore, digital currencies for the most part depend upon technological developments in cryptography to provide security in an open networked environment—such as public key infrastructure and encryption mechanisms. They rely on reduced costs and economies of scale created by technological advances.

Digital currencies require “loading” from funds held within the financial system. This involves “the exchange of cash or deposits for digital value backed by an issuer.” An instance of this could take place over the Internet by downloading electronic money onto a PC hard drive, or by a consumer transferring electronic cash onto a smart card at an ATM and simultaneously debiting his bank account.