Innovations in payment technologies and the emergence of digital currencies

Money and payment systems are intrinsically linked. In order for an asset to function as a medium of exchange, there needs to be a secure way of transferring that asset — a payment system. And for any system other than the exchange of physical banknotes or coins, a means of recording the values stored is also needed — a ledger.
Modern payment systems are computerised and most money exists only as digital records on commercial banks’ accounts.

This article considers recent innovations in payments technology, focusing on the emergence of privately developed, internet-based digital currencies such as Bitcoin. Digital currency schemes combine both new payment systems and new currencies. Users can trade digital currencies with each other in exchange for traditional currency or goods and services without the need for any third party (like a bank). And their creation is not controlled by any central bank. Bitcoin — currently the largest digital currency — was set up in 2009 and several thousand businesses worldwide currently accept bitcoins in payment for anything from pizza to webhosting. Most digital currencies, including Bitcoin, incorporate predetermined supply paths leading to fixed eventual supplies. An overview of how digital currencies work, including the creation of new currency, is included in this article.

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