Digital Cash and Credit

1
Digital Cash and Credit

• Vena Vogl
• And
• Brian Neal

2
Overview

• Economic Ideas behind Digital Money
• Mathematics behind Digital Cash
• Digital Credit
• Past, Present and Future
• Conclusion

3
Economic Ideas Behind Digital Money

• Moneys History
• Minimum Requirements for Digital Cash
• Additional Features

4
Moneys history

• Bartering
• Goods spoil or lose value
• Assigned Value to Certain Metals (gold) or
  Minerals
• Not needed for survival but has worth
• Gold was recognized as having value in its own
  right
• Metal coinage used for centuries

5
Moneys History Cont.

• Introduction of paper money
• Gold was heavy and hard to transport
• Paper money was promise of gold
• Paper money was recognized as having value
• Not backed by gold

6
Ecommerce before Digital Cash

• Transactions still based on paper money or credit
  cards
• Couldnt order products via the Internet
• Phone in orders
• Consumers could only visit the stores Web site,
  but still had to go to the store to order
  products.

7
Minimum Requirements for Digital Cash

• Atomicity
• Transactions occur completely or not at all
• Consistency
• All parties must agree on critical factors of
  exchange
• Isolation
• Transactions should not overlap
• Durability
• If computer crashed money should still be there

8
Additional Features

• Secure unable to alter or reproduce
• Anonymous untraceable
• Portable physical independence
• Infinite Duration until destroyed
• Two-way peer to peer transactions are possible
• Off-line capable availability
• Divisible change can be made
• Wide acceptability trust
• User Friendly simple
• Unit-of-value freedom non-political
• (never happen)

9
Stages of development in Digital Cash

• Expansion Stage
• Confusion Stage
• Organization Stage
• Territorial Segmentation by Nation States
• Est. Monetary Authority in Cyberspace

10
Mathematical Ideas Behind Digital Cash

• Digital Signatures
• Schnorr Identification Scheme
• Restrictive Blinding
• Observers

11
Digital Signatures

• Digital Signature Algorithm (DSA) adopted by the
  US government
• Any computer message M is a string of 0s and 1s
• Mx mod p p is prime
• x is the encryption key

12
Why does this work?

• Finding logarithms is very hard
• Given M and x it is easy to find Mx mod p, but
  given Mx and M, it is virtually impossible to
  find x
• Using best super computer, it would take 1
  million years to compute the log of Mx mod p
• 2100 operations

13
How do we identify people at the other end of the
line?
A zero-knowledge proof is one whereby someone
shows she knows something without her having to
reveal to others what she knows
For example, how would you show that some knows
the code to a bank vault that has keypads both
inside and outside the vault, without revealing
what the code is?
Lock them inside alone. If they can get out they
must know the code
14
Schnorr Identification Scheme

• 1. Ann treats her secret key x like a slope of a
  line
• 2. Ann chooses a random intercept w
• 3. Bob sends Ann a challenge c
• 4. Ann responds with a point y on a line that has
  intercept w and slope x y wcx mod q
• 5. Bob will be able to establish that y is indeed
  on the line with the proper slope and intercept

15
Bob will know his challenge c, and Anns response
y. If he knew w also, Bob would learn Anns
secret key. So Alice doesnt send Bob w.
Instead she sends Bob gw mod p. Bob cant
solve for w, because w is a discrete logarithm,
and that is too hard
16
What keeps people from double-spending?
17
Restrictive Blinding

• Blinding is simply disguising coin by
  multiplying it identification number by a number.
• This makes money untraceable like cash.
• Restrictive Blinding is to make the blinding
  conditional.
• If a person double spends the blinding is
  stripped away and the spenders identity is
  revealed.
• Use Schnorrs Identification protocol again
  if Ann is challenged twice she will have to
  reveal 2 points on her line thus revealing her
  identity and her secret key.

18
Observers

• Observers are used to prevent double-spending
  before it occurs
• Each coin has 2 numbers on it.
• Once spent 1 number is eliminated
• A clever thief could crack the observer, but then
  the system would still be able to see who the
  person was when they double spent

19
Two forms of Actual Digital Cash

• Traceable Digital Cash
• Proton Cards
• Smart Credit Cards
• Debit Cards
• Email Money

• Anonymous Digital Cash
• Gift Certificate Cards
• Beer ATM cards
• Reload-able cash cards

20
Traceable Digital Cash

• Proton Cards
• Microprocessor on Card
• First Smart Card was introduced in 1974, first
  Proton Card in 1994
• Cheaper for Customers since all transactions are
  done offline.

21
Traceable Digital Cash

• Proton Cards
• 100x more storage than mag-strip cards
• Supports Java Card programming environment.
• 2 Tiers of Memory
• ROM
• Stores the Card OS and CSM (Card Security Module)
• E2PROM
• Contains application files.

22
Traceable Digital Cash

• Proton Cards
• Receives needed electrical current from terminal.
• Have contact-less terminals and cards.
• 10 cm.

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Possible uses of the Proton Card
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Possible uses of the Proton Card
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Possible uses of the Proton Card
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Possible uses of the Proton Card
27
Traceable Digital Cash

• Physical Gift Cards
• Pre-paid cards
• Gift Certificates (Sam Goody, Blockbuster, )
• Online Gift Cards
• Pretty much the same on the Physical gift cards,
  only they can be used online as well (like a
  credit card gt see Sam Goody above).

28
Traceable Digital Cash

• Visa Buxx
• Reload-able Visa Card
• Accepted _at_ all Merchants that accept Visa credit
  cards, only it is cash and not credit.

• MasterCard
• Doesnt have their own card, they use secondary
  customers
• Specifications

29
Anonymous Digital Cash

• What does it mean?
• Who spent the money? Nobody knows!
• Examples
• Beer Cards (ATM)
• Not Really but it becomes a form of Digital Cash!
• Some Gift Cards are non-traceable
• Kmart, Blockbuster

30
Digital Credit

• Foundation of Ecommerce on the Internet
• Every site should accept credit cards.
• Most sites dont accept cash or checks unless you
  order over the phone or though a catalog
• Digital Credit is older that Digital Cash (oldest
  form was unsecured sending of s)

31
Future of Digital Credit

• Visa Smart Card
• Smart Card Reader
• Bundling of Services

32
Future of Digital Credit

• smart Visa Card
• Issued though authorized institutions
• Banks, financial institutions,
• Faster online transactions
• More storage area for account
• 24 Hour account access

33
Future of Digital Credit

• smart Card Reader
• Device that plugs into your PC
• Insert your card and go
• All account information is stored on card
• Authorize transactions with only a PIN number
• No more long Billing and Shipping forms to fill
  out.
• Upload options from your card to smart Space or
  download options and applications to the card
  through Merchants, Visa, or other locations.
• Readers being built into hardware like keyboards
  and monitors.

34
Compaq Smart Card Reader
35
Bundling of Services

• Bundle frequently used services into one media
  (smart card)
• National bundles
• nationally recognized services
• Large department store chains, Gasoline company
  cards,
• Local bundles
• locally run services
• Local banks, college id cards, membership cards,
  discount stores

36
Bundling of Services
37
Bundling of Services
38
Conclusion

• Money in general
• Digital Money
• How it works
• Digital Cash
• Digital Credit
• Future of Digital Cash and Credit in the realm of
  Ecommerce
• Questions?