As usual, Hal Finney writes an excellent post on digital cash. However, some assumptions need to be addressed.

[triangle model divides the world into banks, shops, and customers] Customers would thus primarily turn real cash into digital cash which they send to vendors; the vendors then turn the digital cash back into real cash.

In its first few years of operation (at least), a digicash currency will be of highly uncertain value and reputation: Currency will: * Be of questionable legality in some jurisdictions. Once they catch on, governments will actively suppress it. * Lack a track record. * Be able to purchase only a limited number of specialized information services -- the customer won't be able to use it to buy groceries, make house or car payments, etc. Thus, as a customer, the *first* thing I will be concerned about is the ability to convert my digital cash into currency that can be used to purchase physical goods & services in my local jurisdiction. Specific application #1 -- an information worker or contractor being payed in digital cash will want to convert that digital cash into local currency, early and often. Specific application #2: customer deposits money into an account to pay for online services. In most cases the customer will be concerned about refunds and return of unspent funds. Specific application #3: on-line casino, with digital cash chips. Casino customers' first priority will be the ability to "cash out" with as little hassle as possible. Now we could stretch things and call the person who wants to cash out the "shop" (especially for case #1), but then the necessity of a user-freindly system would apply just as much to shops as it would to customers. Better to have a symmetric relationship between agents rather than dividing the world into customers and shops. Any of these agents may wish to make payments in either direction. In many cases the amount of payments will be quite assymetric, but in most cases the ability to make secure payments both ways should exist. This gives us the following model: (using FRNs as the local legal cash currency): ------- | | v | FRN bearer acct <--> d-cash acct <-> agents | ^ ^ | | | | v ------- physical cash

[customer] sends another check to the bank and gets another batch of digicash.

Not a good idea, checks are not private! Try cash or money order.