Professional Documents
Culture Documents
Emoney
Emoney
Emoney
I. What is money?
“Money is in reality a symbolic representation of value,
rather than true value itself
[It is] an institution for a transparent exchange of goods
and services based upon a convenient unit of
transaction ... universally accepted within a given
societal group
Today not all money is tangible: increasingly,
information about money is becoming more important
than money itself”
Srivastava, L. and Mansell. R. (1998). Electronic Cash and the
Innovation Process: A User Paradigm
Money is
A unit of measurement (more)
We can compare costs, income, and profit across time
It is a foundation of the accounting system and allows
us to plan and make economic decisions
A means of storing purchasing power for future use
As a reserve, money allows us to accumulate savings
over time and to lend those savings to someone else
It makes it much simpler for us to make contracts
We use it to promise to do something now for payment
in the future
The Bank of Canada (2002). What is money?
http://www.bankofcanada.ca/en/backgrounders/bg-m1.htm
Blind signatures
You create your own emoney “coins” which are tagged
with ID numbers randomly generated by your emoney
software
The coins are “blinded” by a random number used to
multiply the ID numbers (but not the value of the coins)
They are sent to the bank, each in its own digital
“envelope”
The bank encodes the blinded numbers with its private
key, debits your account, and sends them back to you
Your emoney software removes the “blinding”
You now have a valid emoney and since your software has
removed the “envelope,” the bank can’t track the your use
of the money
Types of emoney
Online Offline
User-friendliness
Users should not have to understand the cryptographic
techniques involved in the exchange
The workings of the protocol should be transparent to
them
Digital cash should be simple to use
It should be easy to spending perspective and to
accept as a form of payment
Complicated systems are difficult to administer and
raise the failure rate due to errors of the user
Simplicity leads to a critical mass of users and this
leads to wide acceptability
Portability
People should be able to easily carry their digital cash
and exchange it within alternative delivery systems
Non-computer-network delivery channels should be
able to handle digital money
The security and use of digital cash should not be
dependent on any physical location
The cash can be transferred through computer
networks and off the computer network into other
storage devices
Digital wealth should not be restricted to a unique,
proprietary computer network
Transferability
Digital cash should be transferable to other users
If I pay the bill for three friends, they should be able to
easily transfer their share of the bill to me
Peer-to-peer payments should be possible without a third
party
Neither party should be required to have registered
merchant status
Neither party should have to be online to do this
Digital money can then be used for gifts, charity, or tips
Other person-to-person payments become possible, like
payments to children, friends, colleagues or neighbors
Anonymity
Anonymous digital cash allows personal financial
privacy
It is untraceable
A digital cash withdrawal cannot be associated with its
subsequent deposit
Transactions made with it are unlinkable.
It is impossible to associate two different digital cash
transactions made by the same person with each other
Grabbe, J.O. (nd). Digital Cash and the Future of Money
http://www.aci.net/kalliste/dcfutmo.htm
http://filebox.vt.edu/users/
licai/ch2.htm
School of Library and Information Science
Electronic Commerce
http://www.cs.newcastle.edu.au/.../ ecash/ecash.html
School of Library and Information Science
Electronic Commerce
Immediate/Delayed Settlement
Here there is a time lag between the clearing of the
payment and its settlement
There is a time lag between the payer and the
intermediary (the bank)
When you pay off your credit card
There is also a lag between the receiver and the
intermediary
When the merchant gets paid
The purchaser benefits from the “float”
The bank charges interest to cover the costs of
assuming risk for completing the transaction
Gross/Net
This is a relationship between clearing and
settlement
Gross payment is a one-to-one relation
Each transaction has its own settlement
Net payment is many-to-one
Transactions are “batched”
Net payment systems have lower operational
costs (fewer settlements) but higher risks
Anonymous/Identified
To what extent must the parties be identified in
the transactions and settlements?
Anonymous work well for small transactions but
are riskier
There is more need for authentication with large
transactions
Fixed/Fraction
What is the fee structure of the transaction?
Fixed fees cover the fixed costs of the transaction
Fractional fees more efficient for risk fees and
short term credit (microtransactions)
Bill Payment
Becoming one of the most frequently performed
activities on home computers
Drivers include: need for more time, decreasing
costs of software and hardware, bank promotion
Generally a replacement for writing a check to
pay a bill
This is being extended to mortgage and loan
payments as well
Purchases
Focus of most discussions about Internet and other
electronic commerce
Payments for purchases tend to be made by
Credit card
Debit card
Stored value card
Electronic money
Stored-Value Cards
Value is actually stored in computer chips
embedded in a card
SVCs are considered more secure than credit or
other bank cards
Requires specialized hardware at the vendor’s point
of sale
Mondex (recently purchased by MasterCard) is one
of the largest manufacturers
Credit Cards
Consumer is issued credit card by issuer (generally a
bank or its agent)
Merchant has an account with an “acquiring”
institution (which allows it to accept credit cards)
Acquiring Institutions: Citicorp, NaBanco, First Data,
Bank One, GE Capital, First USA, EDS, Discover,
American Express
The processing agent actually generates the
authorization and processes the charges:
First Data, Global Payment Systems, VisaNet/Vital,
Wells-CES , Nova, Checkfree
Security X Peer-to-peer -
Low fees - Untraceability -
School of Library and Information Science
Electronic Commerce
Security X Peer-to-peer X
If the bank confirms that the digital cash is real, the bank
credits the merchant's bank account by that amount
It can also issue the merchant a sum of digital cash in
the same amount
Only the bank can confirm that this data - or, digital
cash - is legitimate and actually issued by the bank
Only the bank can verify that this that this data has not
been used elsewhere, or double-spent
The bank cannot know who used the digital cash, as
long as customers of the bank do not use it twice
http://www.byte.com/art/9706/img/067csd2.htm
School of Library and Information Science
Electronic Commerce
Microtransactions
Concept has generated much interest on the Internet
Micropayments are financial transactions for less than $1.00
They are prevalent offline and typically executed using
cash
Online they are rare, because payment methods are too
costly for merchants to process small transaction
amounts
The costs of processing the transaction must be lower
than the cost of the goods and services
Peppercoin
http://www.peppercoin.com
It uses mathematical probability to efficiently and
profitably process small transactions
Does not use transaction aggregation
Using mathematical probability requires far less
overhead than traditional transaction-aggregation
techniques
It reduces merchant transaction costs to a few pennies
per transaction
They can increase revenue through the sale of low-
priced content
Consumers have a single Peppercoin account across
multiple merchants
PepperCoins are:
Cryptographically secure: it uses RSA digital
signatures
Universal and easy-to-use: any consumer can pay any
merchant using PepperCoins
No subscriptions are needed
Sealed and tamper-proof: it functions like pocket
change and cannot be altered
They can be sent across any channel, including e-
mail and text messages
Connectivity independent: merchants do not have to
check with the bank or payment service provider when
receiving a Peppercoin
How it works
Install Payflow Pro API client software on server
It establishes SSL connection between storefront and
VeriSign’s payment processing servers
Customer makes a purchase on storefront
Storefront passes transaction data to Payflow Pro client
The client passes the information to VeriSign
Payflow payment processing cycle begins
VeriSign securely routes customer information to a
network of banks, processors and other financial
institutions