Digital Cash


The Concept of Digital Cash
Forms of Digital Money
Advantages of Digital Money
Introduction to E-cash
Sources of E-cash
Critical Issues with E-cash
Conclusion
Links

 
The Concept of Digital Cash

On the verge of a new millennium, we are experiencing a truly remarkable achievement of the western legal tradition and one of the most critical turning points in the history of the expansion of trade and e-commerce -- it is the concept of electronic or digital cash.  E-Cash is technologically designed to link existing bank networks, buyers, and sellers worldwide.
Researchers have predicted that we will soon find true electronic cash or digital tokens accepted as the equivalent of legal tender circulating over the internet’s wires.  Electronic payment is a final exchange that takes place on-line between buyers and sellers.  Content is usually some form of digital financial instrument (encrypted credit card numbers, electronic checks, or digital cash) backed by a bank, intermediary or by legal tender.

Ref:  E-Money (That’s what I want): www.wired.com

Ref:  Arrival of electronic money, or e-cash. The Internet, still: www.memex.org

Today, about $245 billion of business is done over electronic networks, the year 2000 about $ 1650 billion of business will be done over electronic networks.  In the USA, 56% of US companies will sell their products online by the year 2000, up from 24% in 1998.  E-cash seems to be even more popular in Europe.  According to some latest research, one statistics shows that 68% of U.K. consumers shopping habit had changed because of their access to internet retailing and total number sales attributable to the internet average almost 5% of total sales.  The Internet, still growing at 10% a month, passed a magic point sometime last year, call it the moment when the internet stopped being just a network and became a "market"--a market of 20 million people without a medium of exchange. The players range from the big --Visa, Microsoft, and Citibank -- to the obscure -- DigiCash, CyberCash, and First Virtual Holdings, to name a few.
Bill Gates, the CEO of Microsoft envisions this concept of an “ electronic wallet” as his favorite idea—a microchip storing e-cash, credit card information, and other tidbits of information one might wish to carry with one’s pocket.  In recent years, we have noticed that from Microsoft to financial giants such as Citibank and Visa International and other smaller operations are trying their best to implement their own version of e-cash—the currency of the future.
In the following paragraphs, some of the aspects of digital money are presented.
 
 
Forms of Digital Money
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Researchers over the world have come up with quite a few concepts for digital money.  These different types of digital money and their individual attributes are listed below.


 
 
 
Advantages of Digital Money
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Digital money has overcome the disadvantage of the existing paper-based money and gained popularity by having the following features:
 

The following table, which shows the comparison among Cash, E-cash and Credit cards, illustrates the advantages of digital money over the conventional cash as well as credit cards.

Table 1: Comparison of Cash, Digital Cash and Credit Card
 
Issues
Cash
Chaumian e-cash
Credit Cards
What if I lose it?
Who ever finds it, keeps it.If it gets destroyed its gone.
Unlike real cash you can make a back up copy of it, which you keep in a safe place. If you lose it, you simply restore it fro the flopy and deposit into the bank.
You notify the bank and it lists the card as stolen.
What if someone steels it?
It's theirs
If you have a copy of the cash, who ever gets to the bank first gets the cash.
You notify the bank and the it lists the card as stolen.
What is the limit of my loss?
The amount lost or stolen.
The amount lost or stolen.
Usually about $50.
Can I cancel a transaction?
No.
Usually no.
If you buy something on your card and it turns out to be not what you ordered, the bank will often help.
Can I find out who got the money?
As a rule, no.
Tracing e-cash is much easier, because it all done by computer: you let the bank know what coins you want traced and it can do it for you.
Usually it is on your statement. If it is not, the bank will tell you.
Can the other person find out who I am?
No.
No.
Yes, your name is on your card.
Can anyone else find out about the transaction?
No.
No.
Your bank, ??? anyone else???
Can it be used for extension/tax evation/bribes?
Yes.
No, at least not DigiCash. 
No.
Can I sell for it?
Yes.
Yes.
No, not unless you are a "merchant".
Can I give it to a friend as a gift?
Yes.
Yes.
No, not unless your friend is a "merchant".
Special features: 
  • Legal tender within its own country.
  • Can be easily yet safely sent by email
  • Can be encrypted 
  • Usually tied to a credit facility.

Ref:  Electronic Payment Schemes page Cash Chaumian e-cash Credit : www.cs.monash
 
 
 
 
Introduction to E-cash
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Public-key cryptography and digital signatures (both blind and non-blind signatures) make e-money possible.  The basic gist is that banks and customers would have public-key encryption keys. Public-key encryption keys come in pairs. A private key known only to the owner, and a public key, made available to everyone. Whatever the private key encrypts, the public key can decrypt, and vice verse. Banks and customers use their keys to encrypt (for security) and sign (for identification) blocks of digital data that represent money orders. A bank "signs" money order using its private key and customers and merchants verify the signed money orders using the bank's widely published public key. Customers sign deposits and withdraws using their private key and the bank uses the customer's public key to verify the signed withdraws and deposits.
There are two fundamental approaches to e-cash: smartcard - based and software-only. Visa's Stored Value Card is an example of the smartcard - based approach. The best-known example of the software-only approach, which aims mostly at Internet usage, is E-cash, from DigiCash (Amsterdam). The E-cash system ensures privacy with "blind signatures," which authenticate payments without revealing the payer's identity. Several banks have started issuing E-cash, and a rapidly growing number of cyber-merchants now accept it.
 

E-cash is always prepaid, as opposed to credit (pay later) cards and debit (directly access an account) cards. The issuing body -- not necessarily a bank -- allocates value to a coded digital message, which is stored on a smartcard or a computer system and guarantees a fixed reimbursement value, often through specialist "e-cash clearing" services.
In general, there are two distinct types of e-money: identified e-money and anonymous e-money (also known as digital cash). Identified e-money contains information revealing the identity of the person who originally withdrew the money from the bank.  Also, in much the same manner as credit cards, identified e-money enables the bank to track the money as it moves through the economy.  Anonymous e-money works just like real paper cash.  Once anonymous e-money is withdrawn from an account, it can be spent or given away without leaving a transaction trail.  You create anonymous e-money by using blind signatures rather than non-blind signatures.
 

There are two varieties of each type of e-money: online e-money and offline e-money.  Online means that we need to interact with a bank (via modem or network) to conduct a transaction with a third party.  Offline allows us to conduct a transaction without having to directly involve a bank.  Offline anonymous e-money (true digital cash) is the most complex form of e-money because of the double-spending problem.  Since e-money is just a bunch of bits, a piece of e-money is very easy to duplicate.  Online e-money systems prevent double spending by requiring merchants to contact the bank's computer with every sale. The bank computer maintains a database of all the spent pieces of e-money and can easily indicate to the merchant if a given piece of e-money is still spend able. If the bank computer says the e-money has already been spent, the merchant refuses the sale. This is very similar to the way merchants currently verify credit cards at the point of sale.
 

The way Digital cash works:  a hypothetical situation
 

In order to use digitalcash a user first establishes an account at her bank, such as First Digital, just as he/she would open an account in a regular bank account.  When the user wants cash, he/she sends an electronic mail message to First Digital requesting, say, $100.  Using one of the available ‘public key encryption”, she encrypts her message, scrambles it using First Digital’s public encryption code so that only First Digital can make any sense out of it.  She also can electronically sign the message using her own private encrypted code and consequently, the First Digital bank would have to verify the message for authenticity.  According to the user’s request, First Digital debits her account by $100 and sends off cyber-currency, which consists simply of a digital file, a string of 1 s and 0s that the bank’s computer will recognize as the equivalent of a $100 bill.  Obviously, the file encrypted and sighed by First Digital.  Now, if the user wants to buy something from internet he/she transfers this file to the seller and then the seller decrypts the file.  Upon verifying First Digital as the issuer of the currency by transmitting it back to First Digital, the bank credit the sellers account accordingly.

Ref: E-Cash: Can’t live with it, Can’t live without it- www.cli.org
 
 
 
Sources of E-cash
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At the present time, there are seven large companies in the E-cash business.  E-cash can be obtained from Cybercash, Digicash, IBM, MasterCard, and Microsoft.  Banks, which offer E-Cash include Advance Bank (Australia), Deutsche Bank (Germany), Mark Twain Bank (Missouri, U.S.), and Merita Bank/EUnet (Finland).

Ref:  www.wnet.org
        www.fame.org
        The DigiCash web site: www.digicash.com
        Research at IBM: www.ibm.net
      1998 / Cover Story / When Will E-Cash Jingle in Your Pocket.  www.byte.com.
      www.assetconsultants.com
 
 
 
 
 
 
 
 
 
 
 
Critical Issues with E-cash
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In the most ambitious concept of E-cash, we would experience a currency -- units of money in the form of digital files instead of engraved notes that can be passed around from one computer to the other with no record, yet incapable of being forged.  A customer can draw such e-cash from his or her financial institution, which will have a record of the transaction, just as a withdrawal or check is recorded now.  However, the encrypted e-cash file could be handed off without the knowledge of anyone but the parties involved with the transaction.
As with any new concept, E-cash has raised quite a few concerns associated with its features.  A few key issues are discussed below.
 

Privacy Issue:
 

Truly anonymous digital cash would be possible with an anonymous bank account. If the bank account is anonymous, then withdrawals and deposits cannot be traced to the owner. Digital cash would actually enhance transactional privacy if banks that support digital cash become willing to open anonymous accounts, and to accept deposits in digital cash. In this scenario, anonymous bank accounts, combined with anonymous purchases and payment, would be even more private than cash, since both the seller and buyer could mask their identity.  Even if a bank wanted to offer this service, regulatory authorities would be likely to oppose it.

If anonymity becomes a cyberspace cash system, we will have to accept its potential abuse- as in copyright violations, fraud and money laundering.  On the other hand, a lack of anonymity will mean that every move that we make, and every file that we take, will be traceable, which will open the door to surveillance like we have never experienced.

The Unintended Consequences of E-Cash Electronic cash, : www.law.miami.edu
An excellent (but slow) link to many sources of e-cash information hosted by M.E. Peirce in Dublin, Ireland. http://ganges.cs.tcd.ie/mepeirce/Project/intro.html
Phillip Hallam-Baker's W3C extensive collection of links to electronic payment schemes: www.w3.org

Regulation Issue:
 

The policy-maker's perspective on digital cash generally and anonymous digital cash in particular is complicated by uncertainty about the capabilities of the technologies, on the market's reaction to them, and on their effect on privacy and law enforcement. The policy-maker's task is further complicated by the multiple and sometimes conflicting objectives that her policy might be designed to serve.  Although at the present time, there is no clear regulations of e-cash; in reality, a regulatory system would have to emerge for transactions using e-cash.  Anonymous and virtually untraceable e-cash transactions will eventually occupy a place in an underground domain where the law is an uncertain presence.  Consequently, the commercial law regulators will eventually determine the ultimate fate of lawful activity on the global network.
 

Taxation Issue:

Transaction based taxes account for a significant portion of state and local government revenue.  Hence, Congress is considering to implement a transaction based national sales or value added tax.  If the electronic money really made to function, payments such as buying a car could be made in this new form of currency since there would be no problem of the bulk nature of the paper-based money and more importantly, no risk of robbery.  However, from a taxation point of view, even much larger and more significant transactions could be effected safely and securely, which eliminate records of many taxable transactions.
 

As a result, we see that the government may move to prevent any truly anonymous and untraceable e-cash system for developing.  So, we except the politics and business e-cash to play out.  E-cash can’t escape the scrutiny and regulations since it poses a threat to a nation’s revenue raising capabilities.  In recent years, researchers at Sandia National Lab has come up with another concept of e-cash, which allows the government for crime control while maintaining privacy for all other users.
 
 
 
Conclusion
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The driving force behind e-cash is its potential for cost reduction.  Handling physical cash is expensive for banks and payees, and paper checks are even more so. E-cash payments, on the other hand, can be authenticated off-line. Transactions are fast and convenient, and they reduce administrative overhead. In addition, e-cash is a proven technology. While trials are just beginning in the U.S., approximately 50 e-cash systems are already operational around the world in e-commerce sectors.  From all the advancement made towards implementing the concept of e-cash along with the advances in computer networks and, in processor speed and in databases, and with advances in note counterfeiting technology and with both individuals’ and businesses’ desire for remote and more conventional financial transaction, some forms of anonymous e-cash will be widespread within the next five to ten years.

Ref: abracad.users.netlink
 
 
 
 
 
 
 
 
 
 
 
 
 
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