There are several aspects to security when dealing with E-cash. The first issue is the security of the transaction. How does one know that the E-cash is valid? Encryption and special serial numbers are suppose to allow the issuing bank to verify (quickly) the authenticity of E-cash. These methods are suseptible to hackers, just as paper currency can be counterfeited. However, promoters of E-cash point out that the encryption methods used for electronic money are the same as those used to protect nuclear weapon systems. The encryption security has to also extend to the smartcard chips to insure that they are tamper resistant. While it is feasible that a system wide breach could occur, it is highly unlikely. Just as the Federal Government keeps a step ahead of the counterfeiters, cryptography stays a step ahead of hackers.
Physical security of the E-cash is also a concern. If a hard drive crashes, or a smartcard is lost, the E-cash is lost. It is just as if one lost a paper currency filled wallet. The industry is still developing rules/mechanisms for dealing with such losses, but for the most part, E-cash is being treated as paper cash in terms of physical security. Companies are making some exceptions when it comes to a software/hardware failure, but these are supposed to be rare. To help customers get used to this concept, most companies are limiting E-cash wallets to $500, reflecting the primary use of E-cash for low value transactions. There is a benefit to E-cash in the area of theft, however. A mugger or pickpocket would not be able to make use of another's smartcard without the appropriate password. Merchants should also lose less cash to employee theft, since the electronic cash will be inaccessible (or, at a minimum, traceable).
The ultimate area of security is faith in the currency. This, however, would still be the responsibility of the Federal Government on a systemic basis. Essentially, the E-cash is merely a representation of hard currency on deposit at banks. Thus, faith in the system should not falter.