Behind the World's Digital Cash Curve

U.S. businesses want to be players, but Europe is working the rules

n the disembodied cyber-marketplace, greenbacks are useless and traditional credit cards aren't far behind. Enter the new monetary dark horse: Digital cash.

An impressive array of top U.S. computer, telecom and software companies are pumping resources into digital-payment research, each hoping to create -- or become part of -- the system that becomes the world-wide standard.

But so far the Europeans have the edge in digital money. The father of anonymous, highly secure digital cash is David Chaum, managing director of DigiCash bv, based in Amsterdam.

In the next few weeks, DigiCash will run the first trials of its money called "ecash" with 15 vendors and several hundred users in Europe. After that, Chaum says he will license the system out for others to run.

The basic premise behind digital cash is simple: Person X withdraws a specific amount of money out of her account at a bank formed in a string of a digital code. She can then "spend" subdivisions of the money electronically at vendors who check with the bank for validity.

Chaum's scheme is software-based and depends on advanced mathematics to protect the identity of the user from the vendor, and the user from the bank that authorizes specific amounts of digital money. Keeping it all secure adds more complexity -- all of which Chaum has patented.

He has written code for a flashier version of ecash which runs anonymously and off-line without the need for point-of-sale bank authorization, unless the same digital money is spent twice. But these safeguards only kick in after a sale has been made -- a sticking point so far with vendors.

"We're just not talking about it now because it clouded the issues," said Chaum.

Anonymity is a goal for most of the high-end digital payment systems. Few users want their buying or financial patterns recorded and potentially sold to marketers, or even used against them in some other way.

Other Europeans are also on the digital payment fast track. A consortium of seven countries will participate next year in a project called CAFE, which will distribute and use what it "electronic ECUs" for payment.

U.S. companies are playing catch-up. A group called the Cross-Industry Working Team -- including American Express, Apple, AT&T, McCaw Cellular, Citicorp and NYNEX, among other heavy hitters -- recently released a white paper outlining the need for digital payment, as well as some of the critical challenges facing what amounts to a brand-new currency.

Security, anonymity, reliability and double-spending are the main concerns, but more fundamental questions beg answers, like: Who exactly backs digital cash, and who is responsible when it disappears accidentally in the network?

Most players aren't waiting for all the problems to be solved before they forge ahead. "There is no lack of people announcing" new systems, said Dan Schutzer, vice president of Citicorp's Technology Office.

Citicorp is working on an electronic checkbook that would rely on digital signatures much like the ones on today's personal checks. Schutzer is also very interested in so-called "smart" cards, which carry a processor.

"It would be like a Metro card, but a little more sophisticated," said Schutzer. Cards like these could be charged at an automatic teller and run down like a debit card at other locations -- even plugged into personal computers to supply digital payment over the Net.

Visa International and Mastercard are jointly working on specifications for a global smart debit card, but company officials say it won't be in use until 1996 -- maybe.

AT&T Bell Laboratories is developing an anonymous credit card that would encrypt and split transaction information into numerous pieces, held by different parties. AT&T's David Kristol said the research is in its infancy.

A small Germantown, Md., company, Software Agents Inc., is already online with its own digital money called NetCash. Rather than try to compete with larger and more complex systems yet to come, NetCash is designed for small-scale "pocket change" use: 25 cents to $100.

To get NetCash, users dial a "pay-per-call" 900 number. Each call bills $10 to the user's phone bill while an equivalent number of NetCash coupons are sent via E-mail to his computer. In turn, the user can send the coupon to on-line stores who validate it with a central computer at Software Agents. The company then cancels the spent coupon and issues a new one to the merchant.

The coupons are redeemable for cash, but there is a hefty 20 percent service charge -- mainly to pay for the 900 number. "A lot of people keep NetCash in circulation," said Bob Houston, founder of Software Agents. About $10,000 in his digital money is out on the network.

Houston's scheme is not tightly secure, nor anonymous -- that would be costly to install. In fact, his company isn't making much money providing the service.

It's still not clear where the profit margins lie in the digital cash business.

Upscale online systems will require heavy computational power and personnel for verification. But experts warn that the technology will have to be cheap and easy to use in order to work.

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