Digital Cash

Digital cash, also known as digital money or e-cash, is the electronic currency used to make purchases for merchandise and services, mostly through online transactions. Users pre-purchase cash credits from a digital cash provider, then transfer these credits to vendors in lieu of using a credit card, bank account number, or check. When users pay for purchases using digital cash, clearance for the purchase is done automatically online, and neither a bank nor credit-card vendor need to be contacted for approval.

David Chaum, creator of DigiCash, Inc., the first digital cash-transfer company, is credited with being the father of digital cash. The primary motivators for the invention of digital cash were to enable consumers to shop and purchase from any online store without waiting for their checks to be mailed and cleared; to allow them to shop from any store without worrying if the store accepted specific credit cards; and, more importantly, to transcend real-world currency exchange rates to create a globally accepted, universal currency.

To begin using digital cash, users need to set up an account with a digital-cash service provider. Money is transferred from users' real-world bank accounts or credit cards and stored as digital money either in their online accounts, on their computer's hard drive, or in electronic “wallets” as pieces of encrypted information.

Once an account is started, users of digital cash are given public keys. The concept of a key in cryptography references a very large string of random numbers that encrypt coded information and help to make it indistinguishable from a stream of other random bits. Such keys are generated in pairs—a public key and a private key.

The public key is a string of numbers that is available to anyone using a system, and can be freely given to anyone by the user. The private key is one to which only the user has access, and it is kept secret. Both keys are needed to encode and decode the message or transaction. If you sent a transaction request that was encoded using your private key, the recipient would need your public key in order to read the information, and vice versa. Current users of digital cash do not need to worry about learning their code numbers, as the digital-cash providers automatically retrieve the appropriate codes.

There are two kinds of digital cash currently available for consumers to use: identified digital cash (IDC) and anonymous digital cash (ADC). Using IDC is similar to making purchases using credit cards and checks. IDC leaves transaction trails, as personal information about the purchaser is contained with the IDC. This [Page 137]information enables banks, stores, and other recipients of IDC to trace where the money originally came from. In order to obtain an IDC account, a user must identify an account from which the money was transferred, as well as enable a non-blind signature. By contrast, ADC does not contain any personal information, nor can a transaction trail be created; in this sense, it works in the same manner as do cash purchases.

In its early stages, digital-cash companies such as DigiCash utilized only bank accounts; users specified amounts of money that were then taken from their accounts and converted to digital money. However, one of the latest trends in digital cash is for users to supply an online-payment service company, such as the popular PayPal service, with a credit card or bank account number from which money can be taken.

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