Is Digital Money Safe?

By PF Wilson - 24/11/2011 13:34:00

The United States Postal Service recently announced that it's looking into closing more than 3500 post offices.^[1] The reason? Volume continues to drop in the postal system, particularly for first-class mail. That makes sense, as more people rely on email and social media to communicate with friends and family. Banks too, are contemplating the future of retail locations as more and more consumers conduct business online. Are paper money and coins in the same danger? If so, how safe are digital currency and online payment services?

 

Borders Books was driven out of business, in part, because it couldn’t effectively compete with online giant Amazon.com. Online shopping continues to grow in popularity, and while many people pay with a credit card, an ever increasing number continue to use payment services like PayPal  and Chargify, or electronic  money like Bitcoin.

 

Many consumers have become familiar with so-called “phishing” and other identity theft scams. These start as an email from seemingly legitimate online companies like PayPal. However, it’s really an attempt to gain information from a customer—information that can be used to commit fraudulent transactions. Over the years PayPal has installed numerous security features, and continues to warn its customers about the bogus messages. PayPal continues to grow; and today, as part of the Ebay empire, it's the only form of payment many e-tailers will accept, particularly smaller websites. While accusations of fraud have declined in recent years, they are still being reported.

 

One online pay service that was seemingly never on the up-and-up from the beginning was E-Gold. For a time this service was second only to PayPal in number of online users, but that party ended badly for E-Gold, as it was the top choice of web criminals. Web-based crooks used E-Gold to transfer funds around the world with little detection. E-Gold’s founder ended up serving a short sentence for conspiracy to operate an unlicensed money transmitting service with conspiracy to commit money laundering.^[2]

 

A slightly different form of online payment is Bitcoin, a decentralized digital currency. Bitcoins are digital coins that can be sent through the Internet. Unlike PayPal which transfers existing forms of money, Bitcoin is itself a currency. Stored in a digital wallet on your computer, it can be used to buy goods and services online, from those that accept it as payment. Bitcoins can also be exchanged for dollars and Euros. Developed in 2009, the system started gaining traction in early 2011, but problems have arisen.

 

Problems with criminals hacking into user accounts have been reported, and several governments have accused Bitcoin as being the preferred currency of money launderers and those dealing in contraband. Bitcoin is addressing these concerns and hopes future versions will reduce these threats.

 

Using online currency and payment systems is convenient, but the user should beware. Keeping security software up to date, observing common sense procedures, and regularly monitoring your accounts are key to protecting against identity theft; and our assets both online an off.

 

References

 

[1] Mallenbaum, Carly. “Postal Service ponders closing 3,700 less busy branches.” USA Today. Web. 11-16-11 <http://www.usatoday.com/news/washington/2011-07-26-post-office-closings_n.htm>

[2] Zetter, Kim. “Bullion and Bandits: The Improbable Rise and Fall of E-Gold.” Wired. Web 11-16-11<http://www.wired.com/threatlevel/2009/06/e-gold/#more-6061>