Digital Cash



What is Digital Cash?


         Digital Cash acts much like real cash, except that it’s not on paper.  Money in your bank account is converted to a digital code.  This digital code may then be stored on a microchip, a pocket card (like a smart card), or on the hard drive of your computer.


         The concept of privacy is the driving force behind digital cash.  The user of digital cash is assured an anonymous transaction by any vendor who accepts it.  Your special bank account code can be used over the internet or at any participating merchant to purchase an item.  Everybody involved in the transaction, from the bank to the user to the vendor, agree to recognize the worth of the transaction, and thus create this new form or exchange.


How does Digital Cash work?


figure 1 (iii)


            This example shows how digital cash might work through a banking institution.  The bank creates a digital bank note by signing a message which specifies the serial number (with a primary or public key) and value of the note, and sends it to Person A. Person A, as he withdraws it, uses Chaum's technique (A Cryptography technique) to alter the serial number so that the bank will not recognize the note as being from this withdrawal. This note is now returned to the bank with the new serial number.  The bank now has a note with a new serial number.  Person A then pays Person B electronically by sending the bank note to him. Person B checks the note's validity by decrypting using the bank's public key to check its signature (new serial number validity). Person B then sends the note to the bank, which checks the serial number to confirm that this bank note hasn't been spent before. The serial number is now different from that in Person A’s withdrawal, thereby pre- venting the bank from linking the two transactions. The enabling bank merely checks the new serialized key account for the amount of the transaction and transfers the money by sending out a depository notice.  Person B using the same encrypting technique returns the depository notice with the new serialize account.  The enabling bank does not know who the merchant is only that money is available for payment.  In some respects, this is a debit card transaction with no information other than the amount of the transaction.  All initial depositor information is in the primary key account not the password account.


         Special software to enable these dual track procedures was developed by Digicash.  However this venture was not successful, nor was it successful for its successor corporation, CyberCash, Inc. 


What is the Future Vision for Digital Cash?


         The future vision is that Digital Cash be a true Internet e-commerce structure with virtual banks created solely for the purpose of transactions clearing.  The unit of money envisioned would not be limited to a cash equivalent of a unit of money from a specific country, but instead would be some Electronic Digital Equivalent Unit (EDEU).  At the time the initial notes would be issued from the enabling bank the EDEU, would be set.  Thereafter all transactions would be in the EDEU. 


         There is some resistance to this from governments.   In this system, an entity other than a governmental unit would in effect be issuing money.  Governments are concerned about its possible effects on the stability of financial markets, its effects on monetary policy, its effects on consumer protections (such as our FDIC, and FSLIC programs), and possible criminal activity effects.


         Most experts believe that the use of the internet for electronic transactions and the use of digital cash will rapidly over the next ten to twenty years, but that a fully integrated international unit of currency approach will not happen any time soon.  In the near future it seems that financial transactions will continue in the same financial market clearinghouse that is in use for current e-commerce systems.




Resources on the Web:


Class research website, has good background information for issues involved, includes other electronic payment systems also


Digital Cash White Paper:


“Possible Economic Consequences of Digital Cash”


“Cashless Society or Digital Cash?”


Book on Ecommerce Topics:  Electronic Payment Systems for E-Commerce by Donal O’Mahony, Michael Pierce, and Hitesh Tewari


Good websites for Topics and Links to other sites:


Electronic Money or E-Money or Digital Cash


Yahoos Website of Companies


Interent site for Ecommerce sources


A discussion site for Network Payment Mechanisms


Feds concern about digital cash,1283,38955,00.html


Web Page explaining the mathematics behind digital cash cryptography


Warns about the proliferation of bad consequences from digital cash




E-GOLD References requested by  Professor:,1272,44967,00.html