From an economic point of view these are secondary aspects of electronic payment. Nevertheless I will explain how virtual money works in general. Virtual money is a 'mint based' electronic payment system and provides analogously to real money anonymity in cyber space. At present, both buyer and seller must have deposits at the issuing bank. Funds in the mint are no longer bank deposits.
Buyers can withdraw funds from the mint at any time.
The funds can be transferred to the hard disk drive of the buyer's personal computer. The funds in the mint and on the buyer's hard disk can be regarded as electronic wallets. For cash settlements, the buyer simply encrypts the amount of virtual money needed and sends it to the seller. But the idea of competing monies is not a purely theoretical idea of economists. There is empirical evidence that such systems existed in the real world.