Electronic cash: How it works

To establish electronic cash, a consumer goes in person to open an account with a bank and shows some identification to establish identity. Whenever the consumer wants to withdraw electronic cash to make a purchase, he or she accesses the bank via the Internet and presents a proof of identity. The bank now deducts that much amount from the consumers account. The consumer can then spend the acquired cash wherever he sees that e cash is accepted. The merchant would then after the delivery present the cash he has to the bank and gets his own account. credited. Simple, isn't it! Well, the actual process is a bit more complicated which we will see as we proceed.

The working of e cash is based on the concept of encryption. The concept of encryption has been well dealt in previous chapters and has been briefly stated here just to refresh you and help you relate it with electronic cash. This method involves a pair of numeric keys, which are basically nothing but very large integers or numbers, that work in tandem: one for encrypting or encoding and the other for decrypting or decoding. The concept is simple: messages coded with one key can be decoded only with the other key. No other key can be used, not even the first key itself. The encoding key is kept private and the decoding key is made public. There can be only one public key for a private key and vice versa. Although a public key can be distributed to large number of different users as we will se in the following example.

By supplying all its customers with its public key, a bank enables customers to decode any message encoded with the banks private key. If decoding by a customer yields a recognizable message, the customer can be fairly confident that only the bank could have encoded it. Also if a customer sends back any message to the bank encoding it with his public key, only the bank can decode it with its private key. Now even if somebody manages to tap a message from the network, he would be in no position to encode it without the respective keys. These digital signatures are extremely secure and have in fact proven out to be more resistant to forgery than handwritten signatures. But as we have mentioned earlier, before you start using e cash, you would have to procure it from the bank server.

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