Be Careful What You Wish For...

By Carl G. Kline, MBA

Ever wish you had something other than cash as a means of purchasing services and products, getting paid, etc? Now we have electronic money or digital cash. Digital payment schemes are being pushed at us from many directions.


CyberCash (,
E-Cash (,
NetChex (,
Net-Bill ( and
Digi-Cash (,

many overseas telephone companies, universities, Internet ventures and even city-transit systems are trying to wean us off of cash. Why? Who benefits? Is it us, the consumer, or do the benefits flow to the digital-payment schemers?

The advocates of digital-payments, mostly the promoters, make the points that cash is expensive and digital money is perfect. It costs large sums of money to pay to produce, handle, protect and count our currency. But, would this expense disappear if we change to their product or scheme and used digital cash? Who do you think will pay for the production of the smart cards or the hard disks necessary for digital cash?

Every scheme involving digital cash has a way of producing profit. Often, each transaction is taxed by the scheme, so every product or service you purchase costs a little more. Even the more common use of ATM cards, a form of electronic transfer, costs the user directly or indirectly. Credit cards collect from both the buyer and the seller. Electronic transfer of money from your bank account to your hand or to a merchant is a very advantageous and money saving technique for your bank. Unfortunately, your bank does not pass these savings on to you. Often they even add charges.

What makes us think the use of digital money will be any different?

Digital money, in all its forms, increases costs to you and produces profits for its sponsors. The physical use of cash is funded by the taxpayers and its use makes a profit for many companies and lending institutions. Why should we add another form called digital money and create another erosion of the purchasing power of our money?

What about privacy? With cash, this is not a problem. With most forms of digital money, a great deal of information can be gathered and used for marketing research as well as other things. Just as the credit card purchase information is used by marketing companies to target and classify you, most digital cash schemes are even more effective for this purpose.

Many criminals are brought to ground because they used a credit card to rent a Ryder truck or a phone card to purchase dynamite. The elimination of money as we know it would make tax fraud, extortion, kidnapping and bribery more difficult to conceal, according to the advocates of Cyber-dollars. While we all agree this is a desirable result, there are pitfalls in the use by police, tax authorities and governments, as well as legitimate and not-so-legitimate enterprises, of information compiled from digital money transactions.

In the hands of a not-so-benevolent law enforcement agency, police force, government or tax authority, the misuse of this electronically gained information can be disastrous. Considering the many documented misuses of authority, ranging from police brutality to events that necessitate the President's apology for medical experiments on unsuspecting minorities, it is not hard to image the misuse of private information gained by the use of electronic money schemes. In a totalitarian state, the abuse would be even greater.

DigiCash, a scheme thought up by an American cryptographic expert, David Chaum, advocates a digital money form that could preserve anonymity. (Some of the papers and articles published by David Chaum, the father of DigiCash can be found at:

This would be accomplished by the use of advanced encoding techniques. We have to assume that many of us who have trouble keeping our checkbook balanced would be shielded from the encoding. Life would be much easier for law breakers if DigiCash or another scheme such as this becomes the standard or is commonly used.

Think how much easier it would be for drug smugglers to use than having to handle real cash. The use of tiny chips to transfer millions of dollars rather than bags or suitcases of real cash would aid the criminal.

The counterfeiter will have a field day with digital cash. Modification of legitimate smart cards and forging of electronic funds transfers could become a high art. It's taken only a few hackers to foul the nest of the on-line world. Imagine how electronic forgers and counterfeiters can take advantage of this new medium for the transfer of wealth.

Most of the cyber dollar schemes are leaning toward a less anonymous approach than that advocated by Chaum. This will exacerbate the problems of electronic money even more. Before we opt for the convenience of digital money, we need to think through the issues and consequences of the tradeoffs in privacy and security.

None of the currently promoted schemes deals satisfactorily and up-front with these issues. When they attempt to do so, as with various encryption devices, the government wants a key or a legislative permit for digital eavesdropping by law enforcement.

Web commerce can surely benefit from the ease of electronic money transfers, but we need to be aware of the costs in non-monetary terms as well. So, be careful what you wish for...

For additional information on the subject of Cyber-Dollars:

1) A collection of papers, articles, reports, and links to Internet resources related to Network Payment Mechanisms and Digital Cash:

2) A collection of proposed network payment and/or digital cash systems:

Questions, Comments and Objections can be emailed to Carl Kline at ( at

This resource and thousands of others to help you make the best possible business decisions can be found on the World Wide Web at the Smart Business Supersite:

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