Electronic Currency

What Is Electronic Currency?
As a result of recent proliferation of computers, modems and telecommunications links, modern methods of rendering payment, i.e., electronic currency (a/k/a digital cash, virtual cash, electronic (e-) cash, digicash, electronic (e-) money, digital money, Internet currency, cybercash or cyberbucks), are receiving a great deal of attention from both consumers and merchants.

Electronic currency is essentially a system that allows a person to pay for goods or services by transmitting a number from one computer to another. These transactions are carried out electronically, transferring funds from one party to another, by either a debit or credit. These funds are instantly cleared and secured by using strong encryption, thus eliminating the payment risk to the consumer. It is only a matter of time before electronic currency will replace the present monetary systems. Thus, electronic currency is the digital representation of money, or more accurately, the digital representation of currency.

Purchasing Electronic Currency
Using electronic currency is like using a virtual ATM. A user simply connects to the Internet and verifies ownership of the account. The user may then withdraw the desired amount of the electronic currency. At this point, the bank issues a very large, unique random number in an electronic coin format (the "serial number" of the coin) to the user, which the bank signs with their private key. Instead of putting paper cash in your wallet, the user's software stores these electronic coins on the hard drive of the computer.

Once receiving the coins, the computer stores these notes until the user desires to make a purchase. When the user finds the desired product online, the computer collects the notes needed to pay for the item. These notes are then sent to the seller, who sends them to the digital bank.

Upon receiving the coins, the bank verifies the coin's serial number against its list of spent coins. If the user has not spent the coin previously, the bank credits the account of the vendor and the vendor ships the product to the user.

Examples of Electronic Currency

Electronic Currency's Unique Feature -- Blinded Coins
Since the issuer's digital signature authenticates the serial number on each electronic coin, the coin's redemption links its original holder to the transaction. However, consumers can avoid this by using blinded coins. Using the "blinding" technique, the bank can validate the coins without knowing the payer's identity. Therefore, this prevents the bank from recognizing the coins as having come from the payer's account.

Using public key cryptography, the electronic currency system provides each bank, customer (payer) and merchant (payee) with their own public and private keys.

To create a blinded coin, a bank customer must first make a request for electronic currency. The bank will then withdraw this pre-set denomination from the customer's account in the form of digital coins. The customer's software then generates a 100-digit random serial number for each coin. Since the length of the randomly generated serial number is large, it guarantees with high probability that the serial numbers of any two coins will not be the same. The coins are then "blinded" by multiplying them by a random factor. The customer then signs the blinded coins with his private key, encrypts the coins with the public key of the bank and then sends them to the bank.

When the bank receives the coins, the bank removes the signature, signs the coins with its own private key and registers its worth -- thereby "stamping" a value on the certificate. The bank then encrypts the coins with the customer's public key and sends them to the customer. The customer then decrypts the coins with his private key and "unblinds" them by dividing out the random factor. By using the blinding/unblinding process, the customer prevents the bank from associating subsequently spent coins with withdrawals from his bank account. Therefore, the bank is unable to know when or where you shopped, or what you bought.

Conclusion
Presently, electronic currency is at the early stages of implementation. As we are in the twenty-first century, a consumer's wallet will hold less paper cash, coins and magnetic strip cards. Instead, smart cards, e.g., Mondex, will contain electronic currency and other financial information that will automatically execute a transaction. Once the electronic currency industry is able to ensure consumers that these transactions are secure and trustworthy, it will change the way we conduct our daily lives.

Related links:
http://www.murdoch.edu.au/elaw/issues/v6n3/ishman63.html