Digital Cash - A History Of Digital Cash

A HISTORY OF DIGITAL CASH

In a sense, digital cash has been around for years in the form of the automated clearinghouse (ACH), automated teller machines (ATMs), point-of-sale debit cards, and credit card networks. Even coded subway and phone cards function as a type of electronic cash. In 1996, the U.S. government initiated a campaign to create a universal, all-electronic payment system to decrease the nearly 70 billion paper checks Americans write each year. The effort was instigated by the Financial Services Technology Consortium (FSTC), which was composed of members of the banking and information technology industries. In 1998, the U.S. Treasury Department sponsored a pilot program to test the workability of paying participating federal contractors with e-checks. More than $2.5 million was paid out during the test period. By 2000, the program was transferred to CommerceNet, a consortium of 500 e-commerce developers and users, which intended to launch it worldwide.

A 1999 study by Deloitte Consulting projected that Internet revenues would top $1.1 trillion by 2002. Businesses could save about $18.3 billion annually, or roughly 72 percent of associated costs, by developing efficient and secure online billing and payment strategies. But many of the first versions of emoney—including CyberCoins and CyberCash, which appeared in the early 1990s—eventually folded. They often worked like online gift certificates, whereby consumers bought a certain amount of digital cash and then redeemed it at participating online vendors. These versions failed to win consumer acceptance because of doubts about their validity, the limited venues where the cash could be spent, and the need to install special software just to use the products.

The second generation of e-cash appeared in the late 1990s. Related to technologies such as electronic checks (e-checks) and embedded-chip smart cards, digital cash systems transferred monetary amounts over the Internet on open networks and utilized public-key cryptography to protect the content of the messages being relayed over the system. Later developments in digital cash permitted users to transfer cash via e-mail once they established an online account with a provider permitting payment at online vendor sites. Customers therefore avoided usage fees and merchants avoided the one-to two-percent transaction costs associated with credit-card transactions. This e-cash didn't require software downloads, and some versions also allowed cash withdrawals at ATMs.