[fc-discuss] Financial Cryptography Update: On Digital Cash-like Payment Systems

iang@iang.org iang@iang.org
Sat, 8 Oct 2005 18:30:56 +0100 (BST)

(( Financial Cryptography Update: On Digital Cash-like Payment Systems ))

                            October 08, 2005




Just presented at ICETE2005 by Daniel Nagy:


Abstract.  In present paper a novel approach to on-line payment is
presented that tackles some issues of digital cash that have, in the
author s opinion, contributed to the fact that despite the availability
of the technology for more than a decade, it has not achieved even a
fraction of the anticipated popularity. The basic assumptions and
requirements for such a system are revisited, clear (economic)
objectives are formulated and cryptographic techniques to achieve them
are proposed.

Introduction.  Chaum et al. begin their seminal paper (D. Chaum, 1988)
with the observation that the use of credit cards is an act of faith on
the part of all concerned, exposing all parties to fraud. Indeed,
almost two decades later, the credit card business is still plagued by
all these problems and credit card fraud has become a major obstacle to
the normal development of electronic commerce, but digital cash-like
payment systems similar to those proposed (and implemented) by D. Chaum
have never become viable competitors, let alone replacements for credit
cards or paper-based cash.

One of the reasons, in the author s opinion, is that payment systems
based on similar schemes lack some key characteristics of paper-based
cash, rendering them economically infeasible. Let us quickly enumerate
the most important properties of cash:

1.  "Money doesn't smell."  Cash payments are -- potentially --
_anonymous_ and untraceable by third parties (including the issuer).

2. Cash payments are final. After the fact, the paying party has no
means to reverse the payment. We call this property of cash
transactions _irreversibility_.

3. Cash payments are _peer-to-peer_. There is no distinction between
merchants and customers; anyone can pay anyone. In particular, anybody
can receive cash payments without contracts with third parties.

4. Cash allows for "acts of faith" or _naive transactions_. Those who
are not familiar with all the antiforgery measures of a particular
banknote or do not have the necessary equipment to verify them, can
still transact with cash relying on the fact that what they do not
verify is nonetheless verifiable in principle.

5. The amount of cash issued by the issuing authority is public
information that can be verified through an auditing process.

The payment system proposed in (D. Chaum, 1988) focuses on the first
characteristic while partially or totally lacking all the others. The
same holds, to some extent, for all existing cash-like digital payment
systems based on untraceable blind signatures (Brands, 1993a; Brands,
1993b; A. Lysyanskaya, 1998), rendering them unpractical.

[bulk of paper proposes a new system...]

Conclusion.  The proposed digital payment system is more similar to
cash than the existing digital payment solutions. It offers reasonable
measures to protect the privacy of the users and to guarantee the
transparency of the issuer s operations. With an appropriate business
model, where the provider of the technical part of the issuing service
is independent of the financial providers and serves more than one of
the latter, the issuer has sufficient incentives not to exploit the
vulnerability described in 4.3, even if the implementation of the
cryptographic challenge allowed for it. This parallels the case of the
issuing bank and the printing service responsible for printing the

The author believes that an implementation of such a system would stand
a better chance on the market than the existing alternatives, none of
which has lived up to the expectations, precisely because it matches
paper-based cash more closely in its most important properties.

Open-source implementations of the necessary software are being
actively developed as parts of the ePoint project. For details, please
see http://sf.net/projects/epoint

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