Chapter 23: Digital Currencies

This chapter discusses the market implications of adopting electronic payment systems and digital currencies in electronic commerce. The key to understanding and exploiting electronic commerce is to recognize it as a market mechanism, in which all components of a market interact and must be analyzed collectively. For example, electronic payment systems bring more than lowered transaction costs, affecting product choices, pricing, and competition. This chapter also examines economic implications of electronic payment systems—especially micropayments enabled by digital currencies in terms of size advantage, the lemons problem, digital product pricing, product differentiation—the commoditization of consumer information and advertisements, and copyrights. In short, electronic payment systems are one of the critical factors that allow process innovations via electronic commerce. Finally, these process innovations may either promote competitive and efficient markets or worsen the trend toward the vertical integration and monopolization in the globalized economy.