This concise and informative briefing on electronic payment systems shows that good things come in small packages. The authors establish eight criteria for evaluating electronic payment systems: high security, low transaction costs, traceability, online verification, acceptability, transferability (satisfied by no technology today), divisibility, and whether the system is implemented by software alone or by hardware and software. The authors regard privacy--that is, the untraceability of payments--as a desirable feature of electronic payment systems. They also approve of lower levels of traceability, which they see as supporting liberty and freedom from the prying eyes of big government, big corporations, or just nosy neighbors.

The authors then cross-reference these criteria and apply them to the three types of payment systems now available. Traditional account-based systems most closely resemble credit or debit cards, without the plastic. Everyone gets a public/private key pair, authenticated by a certification authority (a bank or credit card issuer), and then can start making verifiable, authentic, nonrepudiable monetary commitments. The process is rather like using a credit card. Token-based systems come closest to being electronic cash implemented in software. Here is where bank notes are issued and double-blinded using one-way hashing functions based on public/private–key cryptosystems. Finally, smart cards apply hardware to the problem. The money is issued and tracked on a stored value card. Problems of securing the terminal at which to issue, read, and update the stored value add complexity to the system. It has many merits, however, especially when dealing with amounts of money commensurate with buying a pair of gym shoes--not a trivial sum for a working person, but not enough to get the Federal Reserve Bank too concerned, either.

The allegation that anonymous electronic payments make money laundering possible is called into question by the authors’ incisive analysis of the facts. Even with the concept of blind signatures, patented by David Chaum and his company, only the payer is anonymous. It is impossible to anonymously receive money in this system, which would require the recipient of laundered funds to take responsibility. This is not a likely prospect. As for the problem of tax evasion, employing offshore locations as bases for the delivery of goods and services works quite well even without the use of electronic cash. One can avoid local sales taxes by mailing checks offshore. The global information economy makes this problem more visible and acute. The authors argue, however, that both any alleged digital tax avoidance and conventional tax avoidance are symptoms of the globalization of commerce and trade, not respectively cause and effect. Governmental tax authorities, ever vigilant about ways of raising revenue, may need to shift from sales tax to income tax or other less regressive forms of taxation.

The authors do a fine job of showing the tradeoffs between different criteria for electronic payments. Most payment systems are really digital credit cards or debit cards, not digital money. The transaction costs of credit card–like processing make them prohibitively expensive for micro-transactions, such as paying for one or two chunks of data from a special-purpose database of articles or for an interesting piece of clip art. These systems, in turn, feature high levels of traceability. Individual buying habits are relatively easy to profile or trace. True anonymous computer money suffers from a lack of acceptability. The infrastructure is not in place. Merchants are not hooked up to redeem their tokens, nor can they read smart cards, which form the basis of the hardware-based solution. So the technology best suited to the libertarian, Jeffersonian vision of democracy is the least widely distributed and accepted, and the technology most at odds with individual freedom--traceable credit card transactions--has the infrastructure (namely, interbank reconciliation) in place to succeed.

At barely 92 pages (excluding an appendix on cryptographic techniques, an index, and references), this slim volume belies its size, containing a wealth of distinctions essential to understanding the digital economy and the extension of commerce onto the Internet. The book is nicely typeset with wide margins, a few attractive gray-scale illustrations and screen shots, and bullets in the margins to help readers to get the point. The audience includes business and information technology professionals who need a concise briefing on electronic payment systems.