Since you cannot literally lay down your cash, sign a check, produce a credit card, or flash an ID in cyberspace, payment methods are being reinvented for this new kind of marketplace. The Internet and similar networks were not initially designed to support commercial transactions nor secure enough for this purpose. Fortunately, data encryption techniques can be used to authenticate the identities of trading partners, to allow secure exchange of sensitive information such as credit card numbers and bid amounts, and to affix digital "signatures" and time stamps to legally binding documents. By the summer of 1994, industry standards for assuring security of Internet transactions were under development, and online shopping services were beginning to offer encryption-protected credit card payment. 10
But credit card payment-no matter how secure and fraud-resistant it can be made-has the disadvantage that it does not provide the anonymity of cash payment; whenever a credit card is used for a purchase, the vendor can keep a record of the number. Furthermore, cross-linking of credit card records can be used to generate detailed purchasing, travel, communication, and medical histories of individuals. So various "electronic cash" schemes have been developed to provide security for network financial transactions while maintaining the privacy of principals.
Electronic cash schemes typically make use of digital signatures in some way; a secret key is used to "sign" messages, then a public key is used to verify them, and only a message signed by the private key can be verified by the public key. 11 Thus a bank might issue "electronic bank notes" in the form of numbered bundles of bits signed with a particular private key. Different denominations would have different private keys. To withdraw a dollar from the bank, you would send a message with your private key, and the bank would debit your account and send back an electronic bank note signed with its private key. To spend that dollar, you would send it back to the bank, which would verify the signature, check the number against the list of notes already spent, then transfer a dollar to the payee's account. 12
While this straightforward approach provides good security, it does not allow anonymous payments; the bank can still keep a record of who spent which notes and where they were spent. So more elaborate schemes, such as that developed by the DigiCash company, provide for "blinding" notes by employing mathematical tricks with random numbers. 13
Though the underlying mechanics of electronic cash may seem complicated, the user interface need not be. Online, users could simply drag icons representing bank notes to graphically depicted payment locations. On the street, users could carry their electronic cash in electronic wallets.
Whatever forms of electronic payment eventually gain wide acceptance, they promise fundamental changes in our daily lives. In traditional cities the transaction of daily business was accomplished literally by handing things over; goods and cash crossed store counters, contracts were physically signed, and perpetrators of illegal transactions were sometimes caught in the act. But in virtual cities, transactions reduce to exchanges of bits.