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Digital Cash

MONEY AND GLOBE (c) Alinoubigh | Dreamstime.comE-cash or electronic cash is digital money that is used for online purchasing. Users need specific software on their PC to enable them to download money from their bank account into their cash wallet on their PC. When buying, consumers exchange the downloaded money with the merchant for the product they want to buy. The merchant then redeems this money at a bank that accepts e-cash deposits. defines 'digital cash' as:

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 pound notes, the digital cash numbers are unique. Each one is issued by a bank and represents a specified sum of money. Like real cash it is anonymous and reusable ie when digital cash is sent from a buyer to a vendor there is no way to obtain information about the buyer. Digital cash transactions are becoming more common however, there is a number of competing protocols and it is unclear which ones will become dominant. Most digital cash systems start with a participating bank that issues cash numbers or other unique identifiers that carry a given value, such as 5. To obtain such a certificate, you must have an account at the bank; when you purchase digital cash certificates the money is withdrawn from your account.

There are 2 different types of digital cash:

  1. Identified Digital Cash identifies the individual whose money it is. Therefore this money can be tracked, much like a credit card payment.
  1. Anonymous Digital Cash works just like real money. Once it has been withdrawn, it can be spent and not traced.

Digital cash is possible through what is called 'public key encryption'. The general idea is that banks and consumers have public encryption keys. These public encryption keys come in pairs - a private key for the consumer and a public key available for everyone. Anything the private key encrypts, the public key can decrypt and vice versa. So, for example a consumer may deposit and withdraw using their private key, and these are verified by the bank using the consumer's corresponding public key.

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