SEMINAR ON

DIGITAL CASH

Prepared By :
 CONTENTS
 Introduction.
 Overview of Electronic Payment Systems.
 Consequences of digital cash.
 Increased efficiency of transactions.
 Problems.
 Conclusion.
INTRODUCTION
 INTRODUCTION
A system that allows a person to
pay for goods or services by
transmitting a number from one
computer to another. Like the
serial numbers on real dollar bills,
the digital cash numbers are
unique. Each one is issued by a
bank and represents a specified
sum of real money.
 OVERVIEW OF ELECTRONIC
PAYMENY SYSTEM
 There are over a dozen proposals for
electronic payment systems on the
internet. To briefly understand the
internet with a credit card, in comparison
with cash of the real world. There is some
difficulties when transmitting credit card
number over the internet.
 Credit card number can be viewed by
unauthorized system.
 ->Credit card cannot be used for peer-to-peer
payment. That means in small business or
individuals cannot encourage this system, they
believe in cash payment.
 ->Credit card cannot use for micro payments
but a cash payment is used for smallest financial
transactions.
 ->User’s expenditure can be traced by credit
and while cash payments are untraceable.
CLASSIFICATION OF DIGITAL CASH
 There are 3categories to classify digital
cash.
 1-Credit Card Based System
 2-Cash Type
 3-Check Type
 CREDIT CARD BASED TYPE
 To minimize security risks
and the loss of credit Bank and Credit
Card
card numbers in transit, Company

First Virtual Holding

2
began a payment system 3 Ask for
Outside The
in which users transmits Internet
Confirm
Paymen
t
password instead of Inside The
credit card number when Internet

purchasing an item. The E-Mail

fig. illustrates the actual Custome
Order
1
communication between r Shop

the consumer.
 CHECK TYPE
 Checks are chosen transactionally to cash them to credit
cards, because peer-to-peer transfers are possible. As
figure shows, a customer opens an account in a bank on
the internet & issues an electronic check to pay a bill.
The recipient of this digital check sends it to the internet
bank to confirm & cash it.
Bank

2
1 Ask for

FIGURE-> Inform
Paymen
t

Electronic
Check
Person A 1 Person
B
 CASH TYPE
 Cash transaction are untraceable . To achieve
untraceability on the internet, encryption has to be fully
employed to prevent untraceable money from being
easily copied & spent twice, which is known as double-
spending.
 This type is very similar to electronic check system, but
it prevent banking institutions from linking purchasers to
specific goods & services.
 First, an internet user opens an account with real money
at an internet based bank.The customer asks the bank
to issue a certain amount of digital cash for use on the
internet.The bank issues this digital cash using
encryption & deducts the funds from the established
account
 HOW DOES THIS WORK ?
 This digital cash is a combination of two huge integers
which have special mathematical relation. No other person
or institution, but the bank, can imitate this relation. Any
calculation that would attempt to duplicate this relation
would take an almost infinite amount time in the absence
of the bank's secret key.
 When an individual uses digital cash, this unique data that
defines the actual electronic currency is given to the
merchant. The merchant in turn sends this data to the
bank to confirm it. If the bank confirms it, the bank credits
the merchant's bank account by that amount, or
alternatively issues the merchant a sum of digital cash in
the same amount. Only the bank can
 Secret Splitting

A method that splits the user ID in to n parts

 Each part on its own is useless but when

combined will reveal the user ID
 Each user ID is XOR with a one time Pad,
R
 E.g. User ID = 2510, R = 1500:
 2510 XOR 1500 = 3090
 The user ID can now be split into 2 parts,
I.e. 1500 and 3090
 On their own they are useless but when
XOR will reveal the user ID
 I.e 1500 XOR 3090 = 2510
 A Typical Coin
 Serial number
 Transaction Item – pairs of user ID’s

 User ID:
1500 3090
4545 6159
5878 7992
 A Typical Coin
 Serial number
 Transaction Item – pairs of user ID’s

 User ID:
1500 XOR 3090 = 2510
4545 XOR 6159 = 2510
5878 XOR 7992 = 2510
 Blanking
 randomly blank one side of each identity
pair
 User ID: R
0 3090
4545 6159
5878 7992
 Blanking
Randomly blank one side of each identity
pair
 User ID:
0 3090
4545 0
5878 7992
You can no longer tell who owns the coin

 User ID:
0 3090
4545 0
5878 0

•Merchant would now deposit this coin into the

bank
 The coin is copied and spent at
another merchant
• Before the user spent the coin the first
time, the user made a copy of it
 User ID:
1500 0
4545 0
0 7992

•Merchant would now deposit this coin into the

bank
 How can catch the user?
This is what is in the bank

 Original Coin  Duplicate Coin

 User ID:  User ID:
0 3090 1500 0
4545 0
4545 0
5878 0
0 7992
 How can catch the user?
This is what is in the bank

 Original Coin  Duplicate Coin

 User ID:  User ID:
0 3090 1500 0
4545 0
4545 0
5878 0
0 7992

3090 XOR 1500 = 2510

User ID
5878 XOR 7992 = 2510
 This payment system deserves the name
of “cash on the internet” because it is
almost equal to a cash payment in terms
of security, fee, peer-to-peer payment &
untraceability.
 BENEFITS
 Digital cash will make transaction less expensive
because the cost of transferring digital cash via
the internet is cheaper than through banking
system.
 The internet recognizes no political borders,
digital cash is also borderless. Thus, the cost of
transfer within a state is almost equal to the cost
of transfer across different states.
 Digital cash payments potentially can be used by
anyone with access to the internet & an internet
based bank.
PROBLEMS
 1-Taxation & Money Laundering
 Digital cash may cause problems in part because
it permits transactions across national borders.
Should sales taxes be imposed on internet
transaction? Suppose a Chinese software
developer uses a server in the United states to
sell his software, then which sale tax rate should
be applied?
 The untraceability of digital cash may encourage
criminal activities such as money laundering.
Sending real money as digital cash means
transport across national boundaries without any
real evidence of transfer.
 MACRO-ECONOMIC EFFECT
 Since digital cash is a proxy for real currency,
there has to be an exchange rate applied to it.
In the real world, only selected people are
involved in foreign exchange market. but in
cyberspace ,the general people participate in
foreign exchange.
 For example, dollar-term digital cash can be
exchanged for rupee-term digital cash using
exchange rate as base.
WHAT WILL INCREASE USE OF
DIGITAL CASH ?
 CONCLUSION
 Digital cash will provide benefits and problems in the
near future. It is the very transnational character of
digital cash that will open new business opportunities
around the world but also bring vexing problems for
governments. The solutions to these problems may very
well lead to a more controlled cyberspace with parallel
structures and regulations governing the use of funds.
The economic consequences of the large-scale use of
digital cash clearly indicate that some form of control will
occur. Only time will tell if the history of virtual
commerce will be peaceful, successful, and tightly
coupled with current operational features of the
international financial community.
THANK YOU….