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\hfill Fall Term, 1996}  }
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\hbox to 5.75in { {\Large \hfill Lecture #1 : #2 \hfill} }
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\lecture{21}{November 19, 1996}{Ron Rivest}{Flora Sun} 
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\underline{2 Handouts}  \newline
\hspace*{.25in}Handout 31:  Readings for Lecture 21 \newline
\hspace*{.25in}Handout 32:  Midterm Quiz Solution   

\underline{News Flash} \newline
\hspace*{.25in}On Nov. 18, HP announced a government approved encryption framework,
International Cryptography Framework (IFC), which removes a
significant barrier to transmitting secured Internet-based business
and communication transaction worldwide.  ICF allows users to select
encryption algorithms and levels of security according to personal
needs and government regulations.  For more info, see 
http://www.dmo.hp.com/gsy/security/icf

\underline{New Book} \newline
\hspace*{.25in} {\it Digital Cash} by Peter Wagner (Academic Press, 1996) is
recommended for further reading on today's topic.  It describes how
cash has evolved over time.  First, it lists different currencies such
as black shells, gold, and tobacco leaves.  Then, the book suggests
that paper money evolved in the U.S. because it helped defeat the
English, since it had no value back in England.  Some problems with
the currency were raised such as how to convert paper to gold, and the
ability of forging by dying while shells black. 

\underline{Topics covered in today's lecture on Electronic Cash} \newline
\begin{itemize}
\item Properties of electronic cash system
\item Types of Transactions
\item Blinded Signature
\item Double Spending
\item Off-line Cash System
\end{itemize} 

\section{ Digital Cash: The Electronic Equivalent of Paper Cash}


\subsection{Properties of Electonic Cash System}

As the name suggests, electronic cash is an attempt to construct an
electronic payment system modeled after our paper/coin cash system.
We start the discuss by generating a list of properties that we would
like our electronic cash system to have.  The list is by no means of
being complete, and some properties might even contradict with others.
Anyhow, this is our wish list for a electronic cash system.

For the electronic cash, we want it to be:
\begin{itemize}
\item Stateless - It does not carry the history of where its being.  It is untraceable.
\item No Double Spending - Accountiability exists such that no one can just copy the bit streams token and spend the same money more than once.  
\item Hard to Forge
\item Transferable - When Alice transfers some money to Bob, Bob needs not to contact the Bank before he is able to use it.  Transferability is useful for off-line cash system because it requires less interaction with the Bank.  Some current electronic cash system do not have this property.
\item Divisible - It is convient if the owner can split a ten dollar bill to 2 five dollar bills. \$10,00 to 2 x \$5.00.  It should have the ability to make changes.  This allows exact off-line payments to be made without the need to restore a supply of electronic coins of different denominations.
\item Convertable - It can be easily converted to ``regular'' cash and other currency.
\item Unversal - It is widely used and accepted.
\item No Loss
\item Recognizable/Verificable - Verifiable digital signatures are easy to recognize.  Money has to be recognizable in a way that is not destructive.
\item Uniform Size Value
\item Easy to use - For example, it is easy to carry.
\item Durability - It does not lose value over time.

\end{itemize}
For the cash system, we want it to have:

\begin{itemize}
\item Scalablility - The system is able to handle large volume of transactions. 
\item Secure Backup- The system has reliable storage mechanism to prevent loss of money due to hardware failure.
\item Universality - The system is used widely with minimum dependency on hardware.
\item Open System  
\item Mint Ability - The system can create recognizeable easily.   
\item User Authenticity - The system provides user identification and protects against impersonation.
\item Message integrity - The system protects against tampering or substitution of messages in transmission.
\item Privacy - The system protects against eavesdropping.
\item Nonrepudiation - The system prevents a later denial of an already performed transaction.
\item Reasonable Record-keeping - The system is able to detect violations such as double spending.
\item Anonymity - $Payer anonymity$ during payment and $payment untraceability$ so that the Bank cannot tell whose money is used in a particular payment.
\item Traceable - This enable the law enforcement agents to be able to track down criminals.
\item Transactions can be done off-line.
\item Availability - The system is up and running all day.
\end{itemize}

\subsection{Types of Transactions}
Three types of transactions involves in an electronic cash payment is as followes:
\begin{itemize}
\item Withdrawal, Alice takes off some money form her Bank account.
\item Transfer, Alice pays some money to Bob.
\item Deposit, Bob transfer some money to his Bank account.
\end{itemize}

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\caption{Three types of electronic cash transaction}
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\end{figure}

These transactions can be implemented in two ways:
\begin{itemize}
\item One-line Transaction: Bob verifies the validity of Alice's token before accepting her payment.  This is similiar to many of today's credit card payment.
\item Off-line Transaction: Bob verifies the validity of Alice's token after he accepts the payment from her.  This is similiar to today's personal check. 
\end{itemize}

\subsection{Blinded Signature}
In order to achieve anonymity, we can start implementing the
electronic cash system with the blinded signatures scheme that was
introduced in Electronic Voting (see Lecture 18).  The user can ask
for signatures of certain sums from the bank and use it as cash token.

The message $m$ (= ``I am \$10,00'', serial number) can be blinded by
multiplying it with $r^{e}$, where r is chosen at random, where e is
bank's public key and the bank doesn't see $m$.  The message is then
signed with d, where $m^{b}$ is $S_{B}(m)$.  This cash transfer is
anonymous and verfiable, but the tokens are easily duplicated.

\subsection{Double Spending}
The dangers of money laundering and counterfeiting are potentially far
more serious with electronic cash than with paper cash.  Among the
existing problems, the most noticeable is double spending causing by
duplication or multiple use of a electronic cash token.  It is, in
general, much harder to prevent double spending than detecting it.
This is especially true for off-line system.  One possibility is solve
this problem in off-line transaction is to use temper-proofed smart
cards.  This way, the users can not access the bits to duplicate the
cash token.  For on-line system, a database of the wealth of each user
is maintained at the banks.  The bank accepts transactions
sequentially, and it denies all invalid transfers.

Detection is also complicate, especially that we do not have a clear
idea of who should do the detection and who should take the risk when
a user double-spends.  We concluded that although anonymity is an
important aspect of the system, it is necessary to disable it in the
case of multiple spending.  Thus, if a user double spends, his or her
identity should be made known.

\subsection{Off-line Cash System}

We also discuss whether an off-line electronic cash system is
necessary.  Off-line system is suggested so to ensure the scalability
and availability.  The more things we can do off-line, the less
interaction there is with the servers. Two reasons that we believe
that off-line is not necessary.
\begin{itemize}

\item There are other means to ensure scalability; for example, create more the servers in the financial network.
\item Increase in computing power is faster than increase in population.  Thus, it is safe to assume that the electronic cash network will be able to handle larger volumn of transactions in the future.


\end{itemize}
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