While many different companies are rushing to offer digital money products, currently e-cash is cash is represented by two models. One is the on-line form of e-cash (introduced by DigiCash) which allows for the completion of all types of internet transactions. The other form is off-line; essentially a digitially encoded card that could be used for many of the same transactions as cash. This off-line version (which also has on-line capabilities) is being tested by Mondex in partnership with various banks.
The primary function of e-cash is to facilitate transactions on the Internet. Many of these transactions may be small in size and would not be cost efficient through other payment mediums such as credit cards. Thus, WWW sites in the future may charge $0.10 a visit, or $0.25 to download a graphics file. These types of payments, turning the Internet into a transaction oriented forum, require mediums that are easy, cheap (from a merchants perspective), private (see Privacy), and secure (see Security). Electronic Cash is the natural solution, and the companies that are pioneering these services claim that the products will meet the stated criteria. By providing this type of payment mechnism, the incentives to provide worthwhile services and products via the Internet should increase. Another prospective beneficiary from these developments would be Shareware providers, since currently they rarely receive payments. To complete the digital money revolution an offline product is also required for the pocket money/change that most people must carry for small transactions (e.g. buying a newspaper, buying a cup of coffee, etc...).
The concept of electronic money is at least a decade old. [Hewitt 1994] demonstrates that check writing is a pre-cursor to E-cash. When one person writes a check on his bank account and gives the check to another person with an account at a different bank, the banks do not transfer currency. The banks use electronic fund transfer. Electronic money, removes the middleman. Instead of requesting the banks to transfer the funds through the mechnism of a check, the E-cash user simply transfers the money from his bank account to the account of the receiver.
The reality of E-cash is only slightly more complicated, and these complications make the transactions both secure and private. The user downloads electronic money from his bank account using special software and stores the E-cash on his local hard drive. To pay a WWW merchant electronically, the E-cash user goes through the software to pay the desired amount from the E-cash "wallet" to the merchants local hard drive ("wallet") after passing the transaction through an E-cash bank for authenticity verification. The merchant can then pay its bills/payroll with this E-cash or upload it to the merchant's hard currency bank account. The E-cash company makes money on each transaction from the merchant (this fee is very small, however) and from royalties paid by banks which provide customers with E-cash software/hardware for a small monthly fee. Transactions between individuals would not be subject to a fee.
E-cash truly globalizes the economy, since the user can download money into his cyber-wallet in any currency desired. A merchant can accept any currency and convert it to local currency when the cybercash is uploaded to the bank account.
To the extent a user wants E-cash off-line, all that is necessary is smart card technology. The money is loaded onto the smartcard, and special electronic wallets are used to offload the money onto other smartcards or directly to an on-line system. Smartcards have been used successful in other countries for such transactions as phone calls for a number of years. The money could also be removed from a smartcard and returned to a bank account. Visa is developing a related product, the stored value card. This card comes in a variety of denominations, but functions more like a debit card than E-cash.In essence, E-cash combines the benefits of other transaction mediums. Thus, it is similar to debit/credit cards, but E-cash allows individuals to conduct transactions with each other. It is similar to personal checks, but it is feasible for very small transactions. While it appears superior to other forms, E-cash will not completely replace paper currency. Use of E-cash will require special hardware, and while most people will have access, not all will. However, E-cash presents special challenges for the existing "middlemen" of the current paper currency society. More and more, banks and other financial intermediaries will serve simply as storehouses for money, lenders, and processing/verifying electronic transactions. Personal interaction with a teller, or even visits to a bank ATM will become obsolete. All one will have to do is turn on his computer.