Information technology is forcing rapid change in the notions of 'cash' and 'money'. Individuals, organisations and communities have adapted to financial applications of low-tech magnetic stripe cards, particularly the form of revolving line-of-credit associated with 'credit cards', and more recently as direct-charge-to-bank-account 'debit cards'. Chip-cards provide opportunities for far more sophisticated financial services. Australia has not been an early mover in this area, but a set of current and imminent pilot projects shows that we are set to reap the benefits of maturing technologies.
This brief presentation provides background to the way in which chip-card technology can be applied to provide not only credit-card and debit-card functionality, but also anonymous stored-value or 'electronic purse' capability. Value-transfer is also becoming practicable on the Internet. Moreover, parties to value transfers no longer need to include a bank, as was the case with closed systems such as SWIFT. An overview is provided of several different approaches currently being adopted and developed.
The proliferation of card-based and network-based money, particularly in anonymous form, has potentially significant implications for the traceability of money flows, and hence for some important aspects of law enforcement. Some policy questions are canvassed, including the appropriate circumstances in which transactions need to be identified, anonymous, or pseudonymous; and the objects of regulation in the new and emergent contexts.
Walters M. 'An Argument for 'Smart' Financial Transaction Cards in the Australian Payments System' in Clarke & Cameron 'Managing Information Technology's Organisational Impact, II' Elsevier, 1992
Shopping on the World Wide Web, a consumer is just three easy - and free - steps away from making a secure and sure credit card payment once desired merchandise has been selected. A consumer simply clicks on the CyberCash icon when ready to pay, selects among already set-up credit cards and then clicks on the "Pay" button.
Password protected information is automatically encrypted, then passed safely across the Internet to the merchant, whose computer adds data and forwards the transaction over the Internet to CyberCash.
The merchant cannot see the consumer's credit card number unless the bank elects this option and CyberCash retains no information related to the merchandise being ordered. It only sees the information necessary to process the payment request. These features underscore the CyberCash commitment to protect the privacy of the individual as well as the security of the transaction.
CyberCash performs error checking and forwards all the information to the normal, trusted credit card authorization and settlement networks.
To complete the transaction, CyberCash returns an electronic receipt with credit card authorization data to the merchant who then finalizes the transaction with the consumer. The complete process takes less than a minute from the time the consumer clicks on "Pay".
The user's equipment generates a random number, which serves as the 'note'. His equipment then 'blinds' the note using a random factor and transmits it to a bank. In exchange for money debited from the user's account or otherwise supplied, the bank uses its private key to digitally sign the blinded note, and transmits the result back to the user. The user's equipment unblinds the note, which it later pays with. The payee checks that the note's digital signature is authentic and later sends the note on to the bank, who in turn checks the signature and credits the payee accordingly.
Neither the user nor the payee can counterfeit the bank's signature. But either can verify that the payment is valid, since each has the bank's public key; and the user can prove that he made the payment, since he can make available the blinding factor. But because the user's original note number was blinded when it was signed, the bank can't connect the signing with the payment. The bank is protected against forgery, the payee against the bank's refusal to honor a legitimate note, and the user against false accusations and invasion of privacy.
To prevent users from spending the same note twice, the payee's equipment issues an unpredictable challenge to which the user's equipment must respond with some information about the note number. For enhanced practical protection, smart cards can also be programmed to prevent double spending at the moment it is tried.
The stages in carrying out a Mondex transaction over the Internet are [to be]:
We often get the remark: "All this anonymous payment stuff only serves to keep the criminals anonymous", often with references to money laundering and tax evasion.
But ecash is not at all well suited for black markets, extortion, bribes and tax evasion. The reason is that only the payer is anonymous, the recipient of the money has no anonymity at all.
Furthermore, all money that the payee receives must be given to the bank. It is not possible to hide from the bank the fact that you received money (and thereby hide it from the authorities). So tax-evasion is definitely out. For people who operate black markets the same story holds. First of all, their income is visible.
The second reason is far better: if any of the customers ever wants to, he can prove that a certain payment was made by him. This means that a criminal accepting ecash can be identified with the retroactive help one of his customers.
In general ecash's electronic form allows both very effective regulations concerning transactions and control of the cash float, without compromising the privacy of individuals.
Because of all this, paper cash will remain the criminals favorite.
Go to Roger's Home Page.
Go to the contents-page for this segment.
Last Amended: 14 October 1995
 | These community service pages are a joint offering of the Australian National University (which provides the infrastructure), and Roger Clarke (who provides the content). |  |
| The Australian National University Visiting Fellow, Faculty of Engineering and Information Technology, Information Sciences Building Room 211 | Xamax Consultancy Pty
Ltd, ACN: 002 360 456 78 Sidaway St Chapman ACT 2611 AUSTRALIA Tel: +61 6 288 6916 Fax: +61 6 288 1472 |