Online Transaction Empowered by E-Currency Exchange Without

Online Transaction Empowered by E-Currency Exchange without credit card

The growth of the internet on a public scale, since its arrival in the eighties has allowed businesses to expand internationally. User interactions are no longer restricted to the local level. Easy to use web interfaces allow voice, message and video-based conversations. Entrepreneurship is much easier than before as individuals can place their product catalogues on websites without much set up costs. Country specific currencies (such as the American dollar, Euro, Rupee etc.) tend to cause problems if users need to purchase something unavailable in their location. This led to the concept of 'E-Currency' which is geared towards online transactions as it removes usage limitations based on country or nationality. The popularity of this industry grew as a way of handling the restrictions imposed on global businesses. Privacy is a major concern in this regard since there are multiple web-based transactions involved. Security features for such financial operations have had their shortfalls in the past but managed to become pretty stable. The existence of E-Currencies primarily depends on factors such as the improved privacy features, the need to generalize fund formats throughout the world and the execution time for such transactions ("Understanding the E-Currency," 2002)

Background of study

E-Currency is different from traditional forms of money, approved and issued by the government, such as Yen or Dollar. Their purchasing power and values are maintained and updated by the respective financial departments. One cannot go and ask for E-Currency bills (for example iGold, Liberty Reserve etc.) from banks or public currency conversion centers. They can regarded as specific units which have some value based on real money (in Dollars, Euros etc.). They are like digital widgets (or poker chips which can be used online) applicable in different countries. The development of such means of money which are not under direct government control does bring forth legal concerns. E-Gold is one of leading E-Currency provider which has been in existence since 1996 and has millions of customers worldwide. They have never been had to suffer any legal prosecutions or assigned an illegal status. Neither have they been blamed of breaking international laws by global organizations such as the United Nations ("Understanding the E-Currency," 2002)

A large section of E-Currencies are backed up by metal. The money deposited by customers is converted into metal bullion, which can have its ownership conveyed onto his or her associate. This form of ownership transfer can be repeated multiple times. This can be compared to 'warehouse banks' and started gaining popularity in the eighties as a result of domestic left wing extremists. They needed to conceal their assets as they went forth in abusing the financial system and extort money. While logs of transactions conducted by E-Currency companies can usually be attained by court orders, deals with a turnover of over 10 grand requires appropriate reporting. This was introduced on account of Secret service agents and economists articulating their concerns over chances of illegal money laundering via E-Currency exchanges. The history of E-Currency in the past few decades has demonstrated how easily it can be implemented in pyramid scams. Potential internet thieves insist on having their payments done via E-Currency instead of credit cards or checks. This allows charges to be placed and cleared instantly. As most of these are irreversible, fraudulent activities become easy to commit. It has been estimated that nearly half of the transactions involving E-Currencies are associated with online games or scams.

E-Currency exchange functionalities

E-currency exchange is a tool (usually exempted from government interest but exceptions do subsist) which exists for an international audience. The E-currencies applicable for transactions are listed on the website for users to choose. A payment involves transporting money (in its traditional or electronic form) to the payee account from the payer. The payment method needs to be selected before any money gets sent. The basic functionalities of such exchange websites include buying and selling of E-currency to and from the user. The participating users need to ensure that the funds they use are from trusted sources and do not fall under the jurisdiction of any restrictions (local or international).

Registered users have the authority to move their funds around by varying their transactions. Users create accounts in order to get registered and partake in transactions. The personal information disclosed by them before proceeding with an order is not revealed to external sources. Exceptions do come forth if federal law requires the disclosure of user details to relevant authorities. E-currency websites, which co-ordinate these transactions, usually have the right to ask users to authenticate their identity, in order to avoid fraud. Failure to act in accordance with these rules might exempt them using their services ("Terms of service," 2011)

Chapter 2

E-currency types

Some of the services available in such websites have been described:

This happens to be one of the most popular E-Currency services, based in Florida. It is run on gold and silver resources and is expected to have over 5 million accounts holding around $14 million. A study in January 2002 demonstrated how its customers made around 8,600 transactions on a daily basis. Nearly half of its physical reserves exist in Dubai, due to easier financial regulations. It also helps in promoting E-Dinar ("E-Currency Fact Sheet," 2011). It is run by the Gold & Silver Reserve Inc. registered under e-gold Ltd. Its operations were stopped in 2009 as the U.S. department of justice found flaws in its licenses. As of December 2010, its refund policy had been approved which let users with VAP (Value Access Plan) qualified accounts to have their equivalent dollar share of e-metals paid back to them.

This is an E-Currency company set up on the private sector with Islamic Mint. It is devoted to restoring currencies made from gold and silver as mentioned in the Muslim holy book, Quran. Islamic Mint representatives (from countries like Spain, Switzerland, Germany and Malaysia) are affiliated to Murabitun movement (a western subsidiary of the Islamic sufi movement established by a scottish who converted to the Muslim faith). This faction is strongly against the Al-Qaeda line of thought and is not related to the Taliban. They aim at instituting the global Muslim image as way of possible changes in world finance which support the 'Quranic' mode of using gold and silver currencies ("E-Currency Fact Sheet," 2011).

This is a payment method established along the lines of Paypal. Users can process payments, receive funds and set it up in online stores. They can use Euros, U.S. dollars, Roubles etc. To retrieve Webmoney equivalents. A bank transfer is the easiest way to fill up one's Webmoney account. They have a CashU card option as well. E-Currency exchange websites are a lucrative way to use funds stored in disparate sources ("What is webmoney," 2007)

Liberty Reserve (L.R.) is an online payment processor which allows money to be sent or received anywhere in the world. L.R. payments follow a 100% irreversible transaction policy which cannot be negated. They have their main servers established outside the United States, in Holland. It does not support direct funding from bank accounts. This makes E-Currency exchange websites the only option. It is geared towards smaller webmasters for advertising or promoting their web-based services ("Liberty Reserve reviewed," 2007)

This is different from how the others operate. It is linked to the market rate of gold. Money deposited here will vary based on the rise or fall of gold prices. If a user locks or reverse locks their personal funds at a particular time, they can profit considerably. Like Liberty Reserve, national currency such as dollars or euros cannot be used. Exchange websites are the fastest way to enable their iGolds processor and make necessary payments ("igolds.net," 2010).

This is a financial services organization, with its headquarters located in the United States. It deals with one on one money transfers, commercial financing and money orders. It is spread over 200 countries and draws in annual revenues of $5 billion. It gained a lot of popularity as a telegram exchange service before its termination ("About us," 2011).

This is a service founded by Canadian capitalists using their technical knowhow. Their mechanism simplifies online payment services through two account types -- personal and businesss. Users need to verify their accounts to use direct debit and withdraw money to a selected bank account. Business accounts have additional processing fees in order to ensure a protected seller profile and reliable administration ("Account types," 2011).

This has one of the difficult registration processes among E-Currency websites. One needs to make sure that their selected password follows the necessary regulations. Users are given their personal identification key or PIK. This is a 16 digit number which must always be kept at hand. A three party system safeguards the E-Currency stored in Pecunix from any hindrances or responsibilities. The company is protected from both their client and user base. The Pecunix foundation operates exclusively for the resources it stores, rather than for the assistance of its account holders. The Pecunix fee structure is slightly different from others. Usually websites charge one or a combination of a storage fee and an additional percentage. Pecunix has connected their storage fee with transaction charges to make it financially more advantageous for customers ("What do we know," n.d.).

Chapter 3

E-Currency exchange website usage

A general overview of how E-Currency exchange websites work is shown by the block diagram below

User Account Creation

E-currency transactions are conducted under the free will of the user who has to submit details such as their first and last name, email address, residential address, city, state, country, postal code, country, contact number, any specification via comments and a captcha-based confirmation code. This does not imply violation of their privacy and the E-currency website reserves the right to approve users based on what their employees think. Transactions which comply with all the terms and get confirmed are irreversible. The name of the user does not show up initially. After completing all the fields (or the required fields with an * placed against them), he or she gets directed to their account page. Any future changes such as a change of address or an update in their E-Currency account can be executed by simply removing the old one, typing in the new one and clicking the 'Update' button. It is crucial to make these updates otherwise transferring money to an inactive account may result in losses. ("Terms of service," 2011)

It is important to understand that E-currency exchange websites are responsible only for the exchange and cannot be held liable for individual bank system errors for each E-currency type. This involves processing delays, failure of receipt access or website malfunction. Those issues are handled by the support systems of the relevant system. The website should not and does not care about how the sender and receiver might be related and need not make accommodations for each scenario. Services are provided according the current exchange rates which may vary. Everything is displayed to the user and it is their responsibility to check these out prior to proceeding with a transaction. Any disagreements relating to the exchange rate values cannot be discussed with the E-currency website as these are set up by the individual banks. If any particular bank decides on applying fees for using their services, it will be reflected on the E-currency website. Users may use the website for a variety of reasons. However extensive commercial uses generally require explicitly notifying the website administrators. Users are not supposed to falsify any of these communications. Any country specific taxation needs to be handled by the user. Any negligence or misconduct experienced from website authorities can be reported with proper proof ("Terms of service," 2011)

E-Currency Exchange transaction

The functionality of E-Currency exchange websites is fairly simple. Users are greeted with a homepage which lists out the providers they support.

If they are a returning customer, a login using their previous username and password directs them to the exchange page right away. Several websites provide the additional facility of security questions. This is to stay prepared for when a returning customer forgets his login information. He or she needs to answer questions (whose answers were entered previously by them) and reset his password. Optionally a 'forgot password' link sends their original password (or an auto generated one) to their email accounts.

A new customer needs to complete and save the empty fields for the E-Currency companies they have accounts in. This allows for one-click currency exchanges in the future. All the rates can be viewed and are dynamically updated from their parent websites.

The 'Buy' currency link shows the exchange out (webmoney, liberty reserve and iGolds) and exchange in (Western Union, XCoin and Bank Transfer) services with the respective conversion ratio.

The 'Sell' currency link displays the same options with a different conversion ratio (Christian, n.d.)

After the proper selections are made, the amount can be mentioned in a textbox. The equivalent amount which is being received or sent is dynamically calculated and displayed. Confirming the transaction directs the user to the shopping cart. This displays all the previous selections for a last time before finalizing it. Any fees which might have been charged by the website are usually shown here.

A chart showing the fees associated with the popular E-Currency websites is shown in the table below:

Company

Account Maintenance

Fees to receive funds

Fees to send/spend funds

E-Gold

1% per month

1%

0%

Paypal

$0

0%

2.4 to 3.4% + $0.30

Liberty Reserve

$0

1%

1%

Webmoney

$0

0.8%

0.8%

iGolds.net

$0

$0

$0

Moneybookers

$0

0%

1.9%-7.9% + 0.29 €

iKobo

$0

0%

$3( upto $60)

$5 +6%( over$60)

Netteller

$0

3.5%

3.5%

Pecunix

$0

0%

0.5% (upto $3,000),

0.25% (after $3,000)

Goldmoney

0.15-0.98% per annum

0.98-5.27%

0%

A confirmation page or email shows up as a receipt. This can be saved for future references in case any issues show up. E-Currency exchange websites are mostly framed on a secure server and equipped with SSL or other related encryption features. Their authenticity can be judged based on the website structure. There should be enough support available to help the users. A detailed contact information page containing the name, email and phone number of the website administrator is a good sign. Live support is a great feature which can help out users who are unsure of how to proceed and need immediate help.

If support operators are unavailable at the time, users can type their issue on a contact form provided. (Christian, n.d.)

Chapter 4

Security Threats

Crime on the internet is on the rise. The chances of financial harm are a lot easier on the web than in real. Physical banks are prone to instances of gunned robberies, currency counterfeiting and disloyal employees. On a literal scale, stolen credit cards and identity theft from social security numbers are pretty frequent. The virtual equivalents of these crimes are fairly common these days. According to an analyst from Aberdeen Group (Eric Hemmendinger), even though the number of potential criminals on the streets today goes beyond their equivalent on the web, an individual can get accomplish a lot more felonies online with the right knowledge. E-Currency exchange websites, on being hacked can have confidential user information stolen which is used to extort money to unauthorized accounts. Competent virtual criminals can get the whole process done pretty smoothly, before the administrators can take any actions. This is less risky than planning and performing a physical theft. Some of these are

1. Fake websites -- Hackers can create counterfeit websites which appear to be the same as the original. This can be achieved by copying the website design, buttons and information. The domain name is registered as something which is very similar to the authentic website (like http://www.speedemoney.com / in place of http://www.speed-emoney.com/). Users are then subjected to phishing where spam emails are sent out asking them to logon to their account (for reasons such as suspicious account activity). These emails contain links to the fake websites. Customers who fall in this trap, sign in to the fake websites using their username and confidential password. This login screen never shows an error since they are set up to collect the information rather than authentication. Hackers get notified every time an innocent user does this. They can just use their information on the real website and remove funds from their account. This kind of threat can be avoided by applying some basic safety habits, such as creating appropriate bookmarks on the browser and double checking the web address before signing in.