Digital cash (Electronic cash or e-cash )

 Digital cash (Electronic cash or e-cash )

• eCash, also known as electronic cash, it is a digital money product that provides a way to pay for products and services without resorting to paper or coin currency. 

•  One of the first forms of alternative payment systems 

• It is not a legal tender (not cash) but a form of value storage and value exchange

• Not really “cash” – rather, are forms of value storage and value exchange that have limited convertibility into other forms of value, and require intermediaries to convert 

• Many of early examples have disappeared; concepts survive as part of P2P payment systems 

• An alternative payment system developed for e-commerce in which unique, authenticated tokens representing cash value are transmitted from consumer to merchants.

• In these schemes, users would deposit money in a bank or provide a credit card. Banks would issue digital tokens (unique encrypted numbers) for various denominations of cash, and consumers could “spend” these at merchants' sites. In return, merchants submit these electronic token to their banks.

• Digital cash can also be used for micropayments or larger purchases. Digital cash is currency represented in electronic form that moves outside the normal network of money (paper currency, coins, checks, credit cards).

• Users are supplied with client software and can exchange money with another e-cash user over the Internet or with a retailer accepting e-cash.

• Electronic cash should have two important characteristics in common with real currency:

- It must be possible to spend electronic cash only once.

- Electronic cash ought to be anonymous.

• The most important characteristic of cash is convenience. - If electronic cash requires special hardware or software, it will not be convenient for people to use.

• eCoin.net is an example of a digital cash service. In addition to facilitating micropayments, digital cash can be useful for people who do not have credit cards and wish to make Web purchases.

• Other examples include E-gold, DigiCash, First Virtual, and Millicent, etc.

 Two models emerged for e-cash transactions:

the online form of eCash

• The online form of eCash, which was introduced by the now-defunct DigiCash, worked for all types of Internet transactions.

• Online cash storage means that an online bank is involved in all transfers of electronic cash.

offline form of e-cash 

• The offline form of e-cash involved a digitally encoded card that replaced paper money. Mondex developed and tested this model with different banks, but the company has now transitioned into the development and management of smart cards also used for financial transactions.

• Offline cash storage is the virtual equivalent of money you keep in your wallet. However, it must prevent double or fraudulent spending

 Online vs Offline Cash Model 

Online Cash Model 

• Always on & up Internet connection is required 

• No extra hardware required 

• Less chances of fraud 

• No latency in funds transfer to merchant

 Offline Cash Model

 • Internet connection to bank is not needed to be always up.

 • Extra hardware required (TRD)

 • More chances of fraud

 • Latency in funds transfer

 Advantages of Electronic Cash

• Electronic cash transactions are more efficient and less costly than other methods.
• The distance that an electronic transaction must travel does not affect cost.
• The fixed cost of hardware to handle electronic cash is nearly zero.
• Electronic cash does not require that one party have any special authorization.

Disadvantages of Electronic Cash

• Electronic cash provides no audit trail.
• Because true electronic cash is not traceable, money laundering is a problem.
• Electronic cash is susceptible to forgery.
• So far, electronic cash is a commercial flop.

 How Electronic Cash Works

• To establish electronic cash, a consumer goes in person to open an account with a bank.
• The consumer uses a digital certificate to access the bank through the Internet to make a purchase.
• Consumers can spend their electronic cash at sites that accept electronic cash for payment.
• Electronic cash must be protected from both theft and alteration.

                            OR,

How does Digital Cash work? 

• Digital cash schemes operate in the following manner: – A user installs a "cyber wallet" onto the computer. – Money can be put in the wallet by deciding how much is needed and then sending an encrypted message to the bank asking for this amount to be deducted from the user's account. 

• The bank then generates "serial numbers", encrypts the message, signs it with its digital signature and returns it. 

• The user is now entitled to use the message (coin or token) to spend it at merchant sites. 

• Merchants receive e-cash during a transaction and see that it has been authorized by a bank.

Providing Security for Electronic Cash

• To prevent double spending, the main security feature is the threat of prosecution.

• A complicated two-part lock provides anonymous security that also signals when someone is attempting to double spend cash.

• One way to trace electronic cash is to attach a serial number to each electronic cash transaction.

                                      

Functions of E-Cash

The functions of e-cash are quite similar to electronic fund transfers that take place between banks.

1. The user first must have a cash software program and a bank account.

 

2. From this account, he can withdraw or deposit e-cash.

3. The user can withdraw the e-cash from the account with the help of computer.

4. The recipients of the ecash send the money to their bank account like depositing “real” cash.