C2: Electronic Money

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Digital Cash and Monetary Freedom

Matonis, Jon W. ( 74774.3663@compuserve.com)

Abstract

Much has been published recently about the awesome promises of electronic commerce and trade on the Internet if only a reliable, secure mechanism for value exchange could be developed. This paper describes the differences between mere encrypted credit card schemes and true digital cash, which presents a revolutionary opportunity to transform payments. The nine key elements of an electronic, digital cash are outlined and a tenth element is proposed which would embody digital cash with a non-political unit of value.

It is this final element of true digital cash which represents monetary freedom - the freedom to establish and trade negotiable instruments. For the first time ever, each individual has the power to create a new value standard with an immediate worldwide audience.

Why monetary freedom is important

If all that digital cash permits is the ability to trade and store dollars, francs, and other governmental units of account, then we have not come very far. Even the major card associations, such as Visa and MasterCard, are limited to clearing settling governmental units of account. For in an age of inflation and government ineptness, the value of what is being transacted and saved can be seriously devalued. Who wants a hard drive full of worthless "cash"? True, this can happen in a privately-managed digital cash system, but at least then it is determined by the market and individuals have choices between multiple providers.

Key elements of a private digital cash system

This section compares and contrasts true digital cash to paper cash as we know it today. Each of the following key elements will be defined and explored within the bounds of electronic commerce:

• Secure
• Anonymous
• Portable (physical independence)
• Infinite duration (until destroyed)
• Two-way (unrestricted)
• Off-line capable
• Divisible (fungible)
• Wide acceptability (trust)
• User-friendly (simple)
• Unit-of-value freedom

Achieving the non-political unit of value

The transition to a privately-operated digital cash system will require a period of brand-name recognition and long-term trust. Some firms may at first have an advantage over lesser-known name-brands, but that will soon be overcome if the early leaders fall victim to monetary instability. It may be that the smaller firms can devise a unit of value that will enjoy wide acceptance and stability (or appreciation).

Epilogue

True digital cash as an enabling mechanism for electronic commerce depends upon the marriage of economics and cryptography. Independent academic advancement in either discipline alone will not facilitate what is needed for electronic commerce to flourish. There must be a synergy between the field of economics which emphasizes that the market will dictate the best monetary unit of value and cryptography which enhances individual privacy and security to the point of choosing between several monetary providers. It is money, the lifeblood of an economy, that ultimately symbolizes what commercial structure we operate within.