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E-Cash/Digital Cash

Cash is the most widely used form of payment in today's life. The currency notes and coins that we use in our daily life are printed or minted by the Government. The digital equivalent of cash is called e-cash. 

Digital cash (sometime called electronic cash) was one of the first forms of alternative payment systems developed for e-commerce. The basic idea behind all digital cash systems is payment over the Internet by transmitting unique, authenticated tokens representing cash value from customer to merchants.

Working of Digital Cash 
In a digital cash system, cash exists in the form of validated tokens represented by a string of digits. E-cash is purchased form an on-line currency server (bank). This involves two steps: 
1) Establishment of an account.  
2) Maintaining enough money to back the purchase.
 
The bank issues a string of digits, and debits the account with a withdrawal equal to the value of the currency (tokens) issues. The customer uses the e-cash software on his computer to generate a random number, which serves as a "note". In exchange for the amount debited from the customer's account, the bank digitally signs the note for the amount requested and transmits the note back to the customer.

The user can spend the digital money at any shop that accepts e-cash, without having to transmit a credit card number. As soon as the user wants to spend some e-cash, the software transmits the proper amount of tokens to the merchant, who then relays them to the bank for redemption. The bank has to insure that each token is used only once and hence each token that comes up for redemption is recorded in the database. In the event the bank detects a token being used more than once, the bank informs the merchant that it is worthless. Another scheme along the same lines, called blind signatures, assigns e-cash to the buyer and does not retain the details of the buyer. When the e-cash software generates a note, it masks the original number of "blinds" the note using a random number ana transmits it to the bank. 

Even the bank cannot connect its validation to a particular customer since the customer's original note number was blinded when it was signed. He hank honors the token when it receives it from the merchant as it contains the validation stamp the bank originally stamped on the tokens. This system preserves the anonymity, as the bank cannot relate the money to any particular buyer. Figure 3.11 depicts the flow of the payment using digital cash.



Advantages of Digital Cash
1) Digital cash provides an opportunity for individuals to act as micro merchants, offering their wares on the Internet for exchange in e-cash. This e- cash could then be used as normal cash for other purchases on the Net. 

2) The cost of electronic transactions is generally small, and merchants can charge for small amounts of information without incurring huge transaction fees. 

3) The small denomination digital tokens are called micro-cash and transactions using micro-cash are called micro-transactions. Micro-cash can be used for items such as stock quote or a report. Networked users could also rent software, such as Java applications by paying a small amount for each use. 

Disadvantages of Digital Cash 
1) With digital cash, criminals would be able to perform illegal transactions anonymously and untraceably. 

2) The cost of creating digital cash is high. Because it is expensive to invest in the advanced technology of the IC cards and equipment and to set up the required minimum infrastructure, the commitment to this mode of transaction must be authentic, official and for the long term. 

3) Power failures, loss of records, and undependable software often cause a major setback in promoting the technology. 

4) Privacy is a difficult issue as it is inseparatable from security. Hackers have also aimed at collecting information and using it fraudulently. The principal drawback of e-transactions is the lack of privacy features associated with traditional cash transactions. The anonymity that can be achieved by dealing in cash is missing. But blinding causes another problem.


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