Electronic money: pros and cons of popular electronic payment systems in Russia

The classical financial system, to which we are all accustomed, has entered a phase of active development and transformation. In principle, evolution has not stopped since the appearance of the first bank debt instruments at the end of the 19th century, but the pace of change has recently increased so much that many are simply unable to keep up with the emergence of new financial instruments.

We are talking about electronic and digital money. We will not talk about digital currencies (Bitcoin, altcoins and other cryptocurrencies) in this article, since this topic needs separate coverage. Let's talk about what electronic money is and consider its advantages and disadvantages compared to the traditional financial system.

Introduction

Electronic money appeared relatively recently, but almost immediately began to play a significant role in the life of every modern person, as they have many advantages.
Among the advantages, for example, one can highlight the low cost of emissions. Electronic money, like non-cash money, does not lose its qualities over time. There is no need to organize physical security for money, and protection from theft and counterfeiting is ensured by cryptographic means. The use of electronic money is increasing every year and makes online shopping, fast international money transfers, and anonymous transactions possible. After reading this article, you will learn about a brief history of the emergence of electronic money, their types, as well as the cryptographic principles that make their use possible.

Payment card processing

To contents

When making a payment transaction, data processing occurs, which is also called processing. This is done by special processing centers. They process various money transfers: both in virtual currencies and when transferring from one plastic card to another.

Although everything takes a matter of seconds for the user, several participants are involved in such an operation:

• payment system;
• issuing bank;
• merchant acquirer;
• processing center;
• merchant organization (payment gateway).

In what form does the processing take place? The buyer transfers money, the money passes through the system participants, each of whom receives a percentage.

1) What do we mean by electronic money?

It seems wrong to present the principles of operation of electronic money without having a clear idea of ​​what exactly should be understood by the term “electronic money”. Due to the lack of a single globally accepted definition of this term, there are various definitions, but I would focus on the one given in Council Directive No. 2009/110/EC of September 16, 2009, since it excludes the mention of an electronic device on which place monetary value and is therefore one of the most common.

Electronic money is a monetary value stored in electronic form as an application to the issuer, which is issued upon receipt of funds for payment transactions and accepted by an individual or legal entity other than the issuer of electronic money.

For an unprepared person, not everything in this definition may be clear.

The issuer is an organization that issues securities, banknotes, in our case, electronic money. Each individual country has its own legislation, which determines which organizations can be issuers of electronic money. For example, in Russia only credit organizations (banks or non-bank credit organizations that have the appropriate license) can act as issuers of electronic money.

Thus, according to the definition, the issuer in some form issues virtual monetary units and transfers them to other (other than the issuer) institutions, individuals or legal entities to make payments when he himself receives real funds in an amount not less than the issued monetary value.

It is worth noting that non-cash and electronic money are not the same thing . Non-cash money is a form of national currency, a system of payments between bank accounts. Issuers of non-cash money are the central banks of countries. Electronic money is not a type of any national currency, but is considered only its equivalent; sometimes it can maintain the anonymity of the payer and is not controlled by the state. It also follows from the above definition that electronic money can be exchanged for real money and vice versa.

The European Central Bank considers that electronic money does not include traditional bank payment cards, as well as prepaid single-purpose cards (gift card, fuel card).

Virtual currency: advantages and disadvantages

To contents

Analysts believe that electronic money is the future, as it has many advantages. However, for now, in the foreseeable future, a complete abandonment of real currency seems unlikely, since virtual money has both advantages and disadvantages. The advantages include the following:

• it’s easy to transfer money from one system to another;
• electronic currency is reliably protected by a digital code: it cannot be counterfeited;
• money is available around the clock, you can make any transactions 24/7;
• high speed of transfers: most systems transfer money instantly.

Having listed the advantages, they remember the disadvantages. Against the backdrop of numerous advantages, the following are the disadvantages of virtual money:

• when withdrawing to real money, conversion rates may be unfavorable;
• fraudulent schemes are possible;
• there is a risk of an electronic wallet being hacked;
• If you lose your digital key or PIN code, you will not have access to your account;
• When an exchange platform goes bankrupt, the owner loses money.

2) Types of electronic money.

According to the type of technical device, electronic money is of two types: based on smart cards (card-based) and based on networks (network-based). Let's look at both types one by one.

Electronic money can be stored and transferred using so-called smart cards. Smart card is a plastic card with a built-in microprocessor that has a programmable read-only memory, operating system and RAM. Smart cards are microcomputers. Their operating system supports the file system and contains a large number of cryptographic security features. Thus, money is stored in the form of records (“money files”) in the computer memory located on the card. Some of the most famous projects using smart cards are Mondex and Visa Cash.

It should now be obvious that smart cards are different from regular bank cards. Let us emphasize this again. A regular card does not contain information about the account status, but is only a tool for accessing the current account. When you deposit money into your bank account, your debit or credit card will not be credited. When topping up smart cards, the account balance is reduced by exactly the amount by which the smart card was topped up.

The second type of electronic money in terms of technical design is network-based . This type is currently the most common, most convenient and secure means of payment, as it uses data encryption and an electronic signature. This type of electronic money is used as a program or network resource and is used by most commercial services. (WebMoney, Yandex.Money, E-gold, E-port, PayCash)

According to state regulation of the status of electronic money, fiat and non-fiat electronic money are distinguished.

Fiat money is money expressed in government currency. The emission of electronic fiat money occurs according to the rules of national central banks. The state, through laws, obliges all citizens to accept fiat electronic money for payment. An example of fiat electronic money is the well-known PayPal system.

Non-fiat electronic money refers to non-state payment systems and is issued by private payment associations. Their reliability is not guaranteed by the state, although they are often tied to the exchange rate of national currencies. Non-fiat network-based electronic money is widespread. (WebMoney, QIWI, EasyPay)

In each of the described types, user identification may or may not be required ( personalized systems ) (anonymous or non-personalized systems ).

Neteller

Neteller is a payment system founded in 1999. Country of registration: Great Britain. The service is a fast and easy way to transfer money via the Internet. Allows you to send funds even to those who do not have a Neteller account by notifying you by email.

Features of the Neteller payment system:

• Verification is optional and affects transaction limits and available deposit methods. Verification is available only after replenishing your account.
• You cannot order a card.
• The resource supports 28 world currencies.
• You can top up your balance and withdraw funds using a bank card, cryptocurrency, or a large selection of common and even rare payment systems.
• All transactions requiring currency exchange are subject to a 3.99% fee. Commission for account replenishment is 2.5%. For transfer to another user 1.45%. For withdrawal – from zero to 1.45% + 0.50 USD, depending on the withdrawal method.
• It is possible to work with the cryptocurrencies Bitcoin, EOS, Bitcoin Cash, Ethereum, Ethereum Classic, Litecoin, Ripple, XLM, 0x.
• If you do not use your account for 12 months while its balance is positive, you will be charged a monthly fee of 5 USD (account currency equivalent).

3) A brief history of the emergence of electronic money.

Let's talk about the history of electronic money.

Until the end of the 19th century, payments were made in cash (“tangible”) money. Over time, the need arose to manage your funds more effectively. With the development of computer technology, paper media increasingly began to be replaced by electronic media.

In the 80s of the 20th century, microprocessors began to be installed in plastic cards. It was then that significant changes began to occur.

In 1982 , American scientist, computer scientist and cryptographer David Chaum proposed the idea of ​​a blind signature in his work, which is considered the beginning of the history of secure digital money.

In 1989 , he founded the company DigiCash . DigiCash became involved in electronic transactions, where Chaum's cryptographic protocols allowed anonymous payments.

In 1993 , DigiCash created the first digital currency not controlled by central banks by issuing one million “Cyberbucks” tokens. The user, using special software, generated a large random number used as the number of the electronic banknote. This number was then placed in a money file in which the denomination of the banknote was publicly available. The file was signed with the user's electronic signature and sent to the issuer. The issuer, having received a file from the user, checked whether the electronic digital signature corresponded to the digital signature of the user from whom it was sent. If the signature matched, the issuer placed its digital signature on the file, certifying that it contained the number of the electronic banknote whose denomination was indicated in it. (The concepts of electronic signature and blind signature are discussed in detail below)

In 1994 , the central banks of the European Union officially recognized the existence of electronic money by analyzing prepaid cards that were then considered electronic money. Prepaid cards are media on which the value is encrypted in a special way. You can encrypt money, minutes, and the number of trips on such cards (for example, the familiar troika). They are usually anonymous.

Next, many Internet wallets were created, with the help of which users were given the opportunity to convert real money into electronic money and vice versa and exchange digital money on the Internet.

Cryptocurrency regulation

To contents

In different countries, approaches to regulating the cryptocurrency market differ significantly. It is legal tender in Japan. The decision was made by the authorities in 2016 after the collapse of the Mt.Gox digital currency exchange. The Japanese leadership, after analyzing the circumstances, announced the need to regulate the market.

The term “cryptocurrency” is not officially established in Russia. The use of such money is not prohibited by law. However, this does not prevent courts from sometimes deeming transactions involving the use of electronic currency illegal.

Bitcoin: what is it

The most popular cryptocurrency gets its name from the merger of two English words – bit and coin. The first designates the minimum unit of computer memory. The second literally means “coin”.

The procedure for earning virtual money in Bitcoin, like other cryptocurrencies, is called mining. This is the activity of a computer system aimed at solving a complex computational operation. That is, Bitcoin is backed by a single value – the performance of computer equipment.

Pros and cons of Bitcoin

This system is attractive simply because it has existed for about ten years, so people are accustomed to trusting it. Cryptocurrency also has a number of advantages:

• system participants are equal in rights and responsibilities;
• unlimited volume and number of transactions;
• low commissions for transactions;
• high level of protection of wallets and transactions;
• transparency of payments;
• opportunity to earn money from mining.

For business, this kind of money came in handy, as it expands prospects and increases opportunities for generating income. Entrepreneurs refuse the services of a bank that charges exorbitant fees. Businessmen make settlements with a client when the latter has no other means of transferring money.

Bitcoin mining

To earn money in the Bitcoin system, you first need to decide what you need for this. There is a traditional scheme that requires a powerful computer and special software. But a simplified option for making money is also available - cloud mining. In the second case, there is no need to purchase equipment, but you will have to spend money on cloud computing power.

4) Disadvantages of traditional payments that led to the creation of electronic money

It is no secret that outsiders, having learned about the time and amount of an individual’s payments, can determine the location of the payment maker, his social circle, and lifestyle. On the other hand, cash payment, although anonymous, has some obvious disadvantages. It is unreliable because it is not protected from physical theft, does not contain confirmation of payment and is not controlled , as a result of which it can be used as bribes, tax evasion or on the black market. For the reasons described above, David Chaum, in his 1982 paper, proposed new cryptographic principles that would allow the creation of an automatic payment system with the following characteristics:

1. It is impossible for a third party to determine the recipient of the money (anonymity of payments), to find out the time and amount of the transaction;
2. The ability to provide proof of payment, and in some special circumstances, to determine the identity of the recipient (for example, in the case of legal proceedings);
3. The ability to stop using stolen funds, stopping the transaction.

Chaum's main proposal was a blind digital signature , which allows you to fulfill the described requirements. A blind signature is a type of electronic signature.

An electronic signature is some information in electronic form that is attached to other information in electronic form (signed information) and is used to identify the person signing the information. The role of the signatory in the case of electronic money is assigned to the issuer. In this case, monetary files are signed (often called electronic coins). Let's understand what a blind signature is.

Principle of operation

Ensuring the successful functioning of the electronic payment system is the willingness of trading organizations and service representatives to accept virtual coins as payment.

The guarantee of system reliability was the provision of online currency with real money.

The main stages of payment using electronic money:

1. The holder of the electronic wallet transfers money to the issuer’s account, after which his electronic account is replenished with virtual currency, minus a commission percentage.
2. With digital cash, the buyer pays for goods or services in an organization that allows payments with electronic money.
3. Subsequently, the organization returns the online coins to the holder of the payment system, receiving real money in return.

This system of work brings benefits to each of the parties to the transaction. The issuer producing virtual money receives a commission in the form of a percentage. The organization accepting the payment reduces its costs (for collection, cashiers' work, storing money), which reduces the price tags for products. The buyer receives discounts and pays a lower price, which is associated with a reduction in store costs.

5) The essence of the idea of ​​a blind signature

The essence of the idea of ​​a blind digital signature can be easily understood from the artificial example described below. Let's imagine that a vote needs to be held. In this case, voters cannot be present at the polling station, but each of them wants to vote without the election organizer knowing what choice they made, and also to be able to make sure that their vote will definitely be counted. The problem can be solved if you use special envelopes made of carbon paper (shown in gray in the picture). The envelopes in the figure are numbered to show that they are different (there is no correlation with the items). Writing a signature on such an envelope will leave a similar mark on the ballots inside it. The ballot itself cannot be seen, since such an envelope is opaque. Voting will be carried out according to the following scheme:

1. The voter places the completed ballot in the above-described copy paper envelope (for brevity, we will call it a special envelope), the special envelope is placed in an envelope made of plain paper (for brevity, hereinafter - a regular envelope, drawn in white). The outer regular envelope is marked with the address to which it needs to be sent back (the address of the voter himself). The resulting envelope is sent to the election organizer in an envelope.
2. The organizer receives a compound envelope, takes out a special one, signs it in a unique way, places it in a new regular envelope and sends it back to the voter. Thus, only verified voters (those who have received a unique signature valid for this vote) will be able to vote.
3. Having received the envelope, the voter takes out the ballot, checks for the organizer’s signature on it and sends it to the organizer on voting day in a regular envelope without mentioning his return address.
4. The organizer receives ballots from each voter and places them on a public display. Each voter has the opportunity to count their votes and verify their unique signature. Moreover, if an individual voter remembers a distinctive detail of their ballot (for example, the texture of the paper, a torn piece in a certain place), then they will be able to find it on the display. The organizer, when signing the ballot, did not see it (he could only see a special envelope). Consequently, the anonymity of all voters is preserved.

I will briefly repeat the features of a blind signature. The user obtains a signature on the message without revealing the message itself to the signer; only the signer can create the signature. The concept of a blind signature should now be clear.

Spoiler

Basic information from cryptography.

The reader needs a brief introduction to asymmetric cryptosystems.

An asymmetric cryptosystem is a cryptographic system that uses two keys - a public and a private one.

The public key is publicly available, but the private key is kept secret. However, calculating a private key from a known public key must be a complex computational task.

In an electronic signature scheme, the owner of the private key can sign a message, and users, knowing the public key, can verify that the signature was made by the owner of the key.

Bitcoin mining faucets

To contents

After the emergence of cryptocurrency, an effective method of disseminating information was developed to popularize it. For this purpose, websites called Bitcoin faucets were created. They posted information about virtual money, but through them it was also possible to earn money in the simplest way - after entering the captcha, a small amount was transferred to the Bitcoin wallet.

Various earning systems using faucets

Special sites work on different principles, although the essence is common: you need to complete a basic task. You can’t make a lot of money from this: Bitcoin faucets usually have restrictions. For example, you will be able to click on a link only once per hour. There are the following schemes for making money:

• watch a promotional video;
• scroll through the pages of the site;
• subscribe to updates;
• conduct a survey.

Payment for work on Bitcoin faucets is carried out promptly. You can withdraw earned money when the minimum amount available for withdrawal has accumulated.

6) Withdrawing and depositing electronic money using a blind signature

The difference between a blind signature and a regular electronic signature is the imposition of a mask on the message. At the same time, the signature itself does not change when applying and removing the mask. Next, the message is an electronic coin (as described earlier, an electronic coin is some file in electronic form).

Electronic money withdrawal algorithm

1. The client (K) generates a sequence and multiplies it by a randomly selected factor (masks the sequence).
2. K encrypts the result and sends it to the issuer (E).
3. E decrypts the received message with a secret key, signs the message with an electronic signature corresponding to the denomination of the coin, encrypts the message and sends it to K.
4. K decrypts the message and removes the masking factor.

Algorithm for depositing electronic money

1. K sends the message received from E back, after encrypting it with the public key.
2. E makes sure that the money file has not been used, enters the money file number into the database and credits the corresponding denomination to K’s account.

ePayments

Since 2011, the electronic payment acceptance system with British roots has provided services to users in 168 countries.

ePayments offers:

• make transfers from different countries without commission;
• the possibility of mass payments to users of other electronic payment systems with a commission of up to 3%;
• accepting payments from partners and employees;
• cash out, make purchases and pay for services;
• After registration, you can issue a personal plastic ePayments Card for 3 years, which makes it possible to make transactions anywhere in the world.

The cost of an international card with delivery is $5.9 with free service. You can withdraw money from an ATM in the currency of the country in which the ePayments Card holder is located. Commission for cash withdrawal is $2.6 or €2.4.

7) Implementation of blind signature

There are different protocols for implementing blind signing. For example, the mathematical apparatus of elliptic curves, bilinear pairings, and braid groups are used. Due to the fact that the introduction of the reader to the course of the matter is quite extensive and the general principle remains the same (was presented above), I will allow myself to omit the description of these implementations. As part of the integrity of the article, I will give an implementation based on the RSA protocol, since this implementation is the very first and was carried out by Chaum.

Implementation of blind signing using the RSA protocol

Let us demonstrate the implementation of a blind signature using the canonical example of Alice and Bob for cryptography. Let (p, e) be Bob’s public key, p be the modulus used for calculations, and e be the public exponent of the key. m is Alice's message that needs to be signed.

1. Alice chooses a random masking factor r that is coprime to p (numbers are coprime if their greatest common divisor is 1) and calculates:

2. Alice sends m' to Bob.

3. Bob, using his private key d, calculates:

4. Bob sends s' to Alice.

5. Alice removes her disguise and receives a message signed by Bob:

Qiwi

Russian payment service, in which you only need a phone number to create a wallet.

The system is focused on:

• transfers to a card and between wallets;
• payment for mobile communications, television, transport and utility services;
• repayment of loans from different banks;
• payment of taxes, fines, educational and tourism services;
• directing funds to charity.

Each user has the opportunity to conveniently manage money when issuing a plastic card. You can top up your electronic account without commission:

1. From a bank card from 2000 rubles;
2. From a mobile phone account – the commission amount is set by the mobile operator;
3. In the Qiwi terminal – from 500 rubles.

In addition, for the convenience of users, there are other ways to replenish a Qiwi wallet - through ATMs, communication shops, transfer from another account, online banking or another terminal. To withdraw money to a card of another bank, you will have to pay a commission of up to 1.5% of the payment amount, for payment of services - 0-2%.

Conclusion

Over the past decades, as a consequence of the popularity of the Internet, it has become possible to perform financial transactions remotely. Electronic money, which previously raised doubts among users, now operates on a par with paper banknotes. To be able to manage digital currency, electronic payment systems have been created, which, if chosen correctly, will serve as reliable tools for exchanging virtual financial funds.

What payment systems do you like? Write your opinion in the comments and don’t forget to rate the article!

Rate this article:

[Total: 16 Average: 3.3/5] (Article Rating: 3.3 out of 5)

Author of the article Victoria Pchelinova Freelancer, creative and business