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| 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):
Ref: Arrival of electronic money, or e-cash. The Internet, still:
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:
Table 1: Comparison
of Cash, Digital Cash and Credit Card
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Ref: Electronic
Payment Schemes page Cash Chaumian e-cash Credit :
| Introduction to E-cash |
|
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-
| 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:
The DigiCash web site:
Research at IBM:
1998 / Cover Story / When Will E-Cash Jingle in Your Pocket.
| Critical Issues with E-cash |
|
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, :
An excellent (but
slow) link to many sources of e-cash information hosted by M.E. Peirce
in Dublin, Ireland.
Phillip Hallam-Baker's
W3C extensive collection of links to electronic payment schemes:
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:
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