Will that be Check, Charge, or EcashTM?
We've all heard the buzz about "Internet Commerce," "electronic cash," or "computer money." But, what exactly is it and who are the major players?
One company dealing with "cyber payments" is DigiCash, a private corporation previously of Amsterdam but now headquartered in the Silicon Valley. DigiCash was founded by Dr. David Chaum who is considered a luminary in the field of cryptography and electronic cash technology.
So, what do they do?
DigiCash creates and markets ecash, an electronic cash system used on the Internet. Many consider ecash to be the most sophisticated software in the world for secure Internet payments.
Since the beginning of its operations in April 1990, DigiCash's mission and primary activity has been to develop and license payment technology products that demonstrate the true capability of technology to protect the interests of all participants.
A little history:
The first electronic cash payment over computer networks was demonstrated during the first conference of the World Wide Web in Geneva in May, 1994. Since then, DigiCash has partnered with companies such as MasterCard, Visa, IBM, and Siemens to provide advanced payment systems.
How is it different?
DigiCash performed a trial of ecash called CyberBucks in 1994. After CyberBucks went live many copycats followed.
What differentiates DigiCash's ecash from those other digital money systems? Well, the others are account-based, accepting requests from users to move money from one account to another, which reveals when, to whom, and the amount of the transaction. These systems are also vulnerable to lost memory or lockout.
Ecash is considered the only "almost-legal" tender. Since ecash uses its own currency, it is not a substitute for credit cards. It is the only Internet payment system which creates actual electronic cash issued by partner banks. These digital coins allow for control over when and to whom identifying information is given, while reducing transaction costs.
How does it work?
Using conventional currency, such as a check, a buyer establishes an account with a participating bank which converts the money to ecash. The consumer downloads the software from the Net and is ready to spend ecash at participating merchants
So, why would anyone use it?
Ecash is designed to be used for small purchases when a credit card is unprofitable. It allows payment of amounts as low as one cent and all payments are made with the same security technology used for international money transfers. Each payment is made without any record or personal information being transferred over the Internet. It is also less risky for the merchant because the availability of funds has been established beforehand.
Ecash pays automatically and costs just one tenth of a cent per transaction. Banks will be able to float the prepaid value of ecash and charge fees for transactions. It's untraceable, purchases are anonymous and eventually, ecash won't be restricted to cyberspace, it will be used on streets, kiosks, etc.
Security & Privacy:
The main benefits of ecash are security and privacy. Ecash is the only Internet payment system that protects the payer's privacy with technology in the user's software rather than the unverifiable policy of a distant company.
If ecash is stolen, it cannot be used by someone else. If the ecash is somehow lost in a power surge the user can get money and records back. Counterfeiting poses the same challenge as breaking the codes used to protect military secrets.
Behind the user interface, the computer creates serial numbers for electronic coins and hides them in special encryption. The bank cannot recognize them as coming from any particular withdrawal or account, but the users can still prove they did or did not make a particular payment.
Ironically, the privacy and security features which make ecash unique are also what scare some about the product. Many see the strong anonymity as a way to allow money laundering and believe the cost of strong cryptography could be underestimated. Also, merchants may still be able to track a customer's purchase by user and host name because many communications systems log user connections.
Legislation:
Due to new technologies, geography is becoming increasingly irrelevant to payments. But geography is still very much a part of the laws and regulations that govern the providers of financial products and services. Basically, geography determines much of what national and state banks can legally do.
The Fed has proposed several amendments to Federal Reserve Board Regulation E, which secures ATM and electronic banking transactions. The amendments set rules for ecash and stored-value cards, which, unlike current electronic banking, will not guarantee a return of lost or stolen e-money.
Governments have good reason to oppose Internet payment systems because unifying currency in cyberspace creates a way to avoid conversion fees on international transactions. It is also difficult to tax since Internet payments cross borders easily and discreetly.
Editor's note: ecash is a trademark of DigiCash.
