The trouble with E-cash

Marketing Computers, Vol. 15 ; No. 4 ; Pg. 25, April 1995

Recently, I browsed a "cybermall" selling smoked Vermont hams and sailboats on the World Wide Web. The smoked ham looked particularly tasty: thick slices surrounded by a bed of parsley. Below beckoned a button marked "order"; I decided to take a brave step into electronic commerce, took a deep breath, and clicked. Up came the order form ... sort of. "The Internet is the world wide network that carries your order form to us," I read, "while it is massive, fast, and convenient, it is not, unfortunately secure. If you were to include credit card information in your order form, it might be read by someone else before it arrives here." The proposed solution? Pick up the phone and order the old-fashioned way--with your voice.

The electronic agora is open, but few are shopping. Many think that's about to change, thanks to the arrival of electronic money, or e-cash. The Internet, still growing at 10% a month, passed a magic point sometime last year, call it the moment when the Net stopped being just a network and became a "market"--a market of 20 million people without a medium of exchange. Over this vacuum looms a format war, except what's at stake here is not CD- ROMs or VCRs, it is the nature of money There's a rush underway to establish the protocols that will define what electronic money, or e-cash, is. The players range from the big--Visa, Microsoft, Citibank--to the obscure-- DigiCash, CyberCash, and First Virtual Holdings, to name a few.

The Wild Frontier

The process, for now, resembles the free-for-all that surrounded the U.S. banking industry in the 19th century, until the creation of the Federal Reserve. Before the Fed, banks circulated their own private currency and bank checks weren't as widely accepted, since you couldn't trust the solvency of the issuer. The same pattern is being repeated in the digital marketplace; government agencies like the Federal Reserve, Department of the Treasury, and the Office of Technology Assessment have no official opinion on how e- cash should be implemented. Without clear ground rules, uncertainty will undermine e-cash's usefulness. What's at stake here? At worst, we'll be left with an inflexible currency that's costly to use, easy for marketers' to trace, and hard to trade between individuals; at best, we'll get the digital equivalent of a dollar bill--the benefit of cash without the cost of paper.

Cash or Credit? That's the central question. Early pioneers, like First Virtual Holdings, which launched a service to handle financial transactions over the Internet last October, basically act as referees authenticating Marketing Computers, April, 1995 credit-card transactions. The process overcomes gaps in Internet security, but it comes at a price. Transactions between individuals cannot take place. And the cost of each transaction is high, as commissions go to both the credit-card agency and First Virtual. Critically, it offers no way to buy things without using credit.

A slightly more advanced option does allow individuals to trade things directly using digital "tokens" that correspond to real money. Last May, a company named