Cyberbanking and Digital Cash
© Copyright 1994-2002, Rishab Aiyer Ghosh. All rights reserved.
Electric Dreams #6

Intro: The currency of cyberspace will be electronic tokens that cannot be forged.

If information wants to be free, will we still need money? Definitely. More than ever, in fact. The reason we use money at all, rather than barter, is because money has definite value. Perhaps with no real value whatsoever, currency fills the role of a reference, against which the value of goods can be measured. In the information age, when knowledge may be the most valuable commodity to be traded, there will be a real need for a reference of the relative value of varying pieces of data. Note the use of the future tense; so far, on the Internet, information has by and large succeeded in being free. Though much of it will hopefully remain so, with the Net's increasing commercialization, large amounts of material are bound to become major sources of income for data vendors.

For future-aware businesses, from small digital entrepreneurs marketing their unique expertise to colossal database tycoons, information is the key to high-growth industries of the next millennium. However great the Internet era has been, with free access to services and information, it is already becoming something for nostalgia -- not for long will the Net remain hugely subsidized by industrial-age economies, and information will inevitably be entrapped once more. If activists for freedom in cyberspace are successful, this time information will not be caged by authority in the form of governments; but by the power of money and corporations.

When information is distributed as a valuable commodity, the process is quite different from goods as we traditionally think of them. Information does not need to be manufactured for each customer. Once created, it can be transferred with ease in an instant. The power of information is when it is accurate and up- to-date. It must be communicated on demand, at the time of demand. This means that any method of payment must be instant, and secure. Unlike mail order and other time-delayed forms of shopping of the present, where there is no urgency to process and verify cheques or credit card balances, the information market is like the corner drugstore. You get instant service, and you pay in instant (and presumably secure) cash. Cyberspace needs a means of transferring cash across the world in an instant -- in exchange for the data that comes electronically at the speed of light.

There are various experiments underway in corners of the Net populated by concerned cybercitizens to create this means; to create digicash. To be communicated at the speed of information, cash must be able to travel at that speed. This leads us to an interesting conclusion. Digital money is not just electronic banking records, or smart debit cards; digicash must be information. Initially backed by real money, convertible to paper, digicash is distributed, like paper cash, in units that can be combined, unlike cheques, where a total value is filled into a form. These tokens of information are unique (enumerating each digital 'banknote'), and are generated using techniques similar to those used in public-key cryptography. The mathematically generated tokens can be matched with their issuing bank, ensuring through digital signatures that they are genuine. Unlike conventional signatures or watermarks, new notes cannot be forged -- it would take a roomful of supercomputers several centuries to break through the complex mathematics involved in ensuring the uniqueness of signed tokens.

Being information, though, these tokens of cash can be simply copied. Note that with paper money, all banknotes are (excepting the serial number) virtually identical. The protection against forgery is that it is difficult to duplicate a single note. With digicash, a single note can easily be duplicated; but all notes are significantly different. The signatures can be authenticated, ensuring that a note is definitely from the signing bank. This implies that invalid notes cannot be created; a forged digital banknote has to be an exact copy of a real one. The protection against this elementary type of forgery is that transactions are in real-time; between customer and seller, and between seller and bank. The bank ensures in that the cash is genuine, and will only honour one copy of any token. As all digicash transactions are done this way, there will only be one copy of any token in use at any time. For the sake of privacy, these transactions, whether through smartcards, on-line access or e-mail, will be anonymous. Digicash will be like real cash. The methods of anonymity planned so far do include exceptions whereby double-spending, attempting to use a token more than once, will greatly reduce anonymity, making forgery more difficult.

Digicash systems are currently in experimental use. They work. The only problems are the authorities and the law, who are, as usual, well behind the times.

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