Financial cryptography
Encyclopedia
Financial cryptography is the use of cryptography
in applications in which financial loss could result from subversion of the message system.
Cryptographers think of the field as originating in the work of Dr David Chaum
who invented the blinded signature
. This special form of a cryptographic signature
permitted a virtual coin to be signed without the signer seeing the actual coin, and permitted a form of digital token money
that offered untraceability. This form is sometimes known as Digital Cash.
A widely-used and previously-developed cryptographic mechanism is the Data Encryption Standard
, which was used primarily for the protection of electronic funds transfers. However, it was the work of David Chaum
that excited the cryptography community about the potential of encrypted messages as actual financial instruments
.
Financial cryptography includes the mechanisms and algorithms necessary for the protection of financial transfers, in addition to the creation of new forms of money. Proof of work and various auction
protocols fall under the umbrella of Financial Cryptography. Hashcash
is being used to limit spam.
Financial cryptography is distinguished from traditional cryptography
in that for most of recorded history, cryptography has been used almost entirely for military and diplomatic purposes.
As part of a business model, FC followed the guide of cryptography and only the simplest ideas were adopted. Account money systems protected by SSL such as PayPal
and e-gold
were relatively successful, but more innovative mechanisms, including blinded token money, were not.
Financial cryptography is frequently seen to have a very broad scope of application. Ian Grigg sees financial cryptography in seven layers http://iang.org/papers/fc7.html, being the combination of seven distinct disciplines: cryptography, software engineering
, rights, accounting, governance
, value
, and financial applications. Business failures can often be traced to the absence of one or more of these disciplines, or to poor application of them. This views FC as an appropriately crossdiscipline subject. Indeed, inevitably so, given that finance
and cryptography
are each built upon multiple disciplines.
Financial cryptography is to some extent organized around the annual meeting of the International Financial Cryptography Association Financial Cryptography, which is held each year in a different location.
Cryptography
Cryptography is the practice and study of techniques for secure communication in the presence of third parties...
in applications in which financial loss could result from subversion of the message system.
Cryptographers think of the field as originating in the work of Dr David Chaum
David Chaum
David Chaum is the inventor of many cryptographic protocols, including blind signature schemes, commitment schemes, and digital cash. In 1982, Chaum founded the International Association for Cryptologic Research , which currently organizes academic conferences in cryptography research...
who invented the blinded signature
Blind signature
In cryptography a blind signature as introduced by David Chaum is a form of digital signature in which the content of a message is disguised before it is signed. The resulting blind signature can be publicly verified against the original, unblinded message in the manner of a regular digital...
. This special form of a cryptographic signature
Digital signature
A digital signature or digital signature scheme is a mathematical scheme for demonstrating the authenticity of a digital message or document. A valid digital signature gives a recipient reason to believe that the message was created by a known sender, and that it was not altered in transit...
permitted a virtual coin to be signed without the signer seeing the actual coin, and permitted a form of digital token money
Token money
Token money is money made from tokens of some form, as opposed to account money. Coins are token money, as are paper notes.Token money has a strong privacy feature in that it works as money without the intervention of any other party in each transaction between two parties. Privacy makes money...
that offered untraceability. This form is sometimes known as Digital Cash.
A widely-used and previously-developed cryptographic mechanism is the Data Encryption Standard
Data Encryption Standard
The Data Encryption Standard is a block cipher that uses shared secret encryption. It was selected by the National Bureau of Standards as an official Federal Information Processing Standard for the United States in 1976 and which has subsequently enjoyed widespread use internationally. It is...
, which was used primarily for the protection of electronic funds transfers. However, it was the work of David Chaum
David Chaum
David Chaum is the inventor of many cryptographic protocols, including blind signature schemes, commitment schemes, and digital cash. In 1982, Chaum founded the International Association for Cryptologic Research , which currently organizes academic conferences in cryptography research...
that excited the cryptography community about the potential of encrypted messages as actual financial instruments
Financial instruments
A financial instrument is a tradable asset of any kind, either cash; evidence of an ownership interest in an entity; or a contractual right to receive, or deliver, cash or another financial instrument....
.
Financial cryptography includes the mechanisms and algorithms necessary for the protection of financial transfers, in addition to the creation of new forms of money. Proof of work and various auction
Auction
An auction is a process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the highest bidder...
protocols fall under the umbrella of Financial Cryptography. Hashcash
Hashcash
Hashcash is a proof-of-work system designed to limit email spam and denial-of-service attacks. It was proposed in March 1997 by Adam Back.-How it works:...
is being used to limit spam.
Financial cryptography is distinguished from traditional cryptography
Cryptography
Cryptography is the practice and study of techniques for secure communication in the presence of third parties...
in that for most of recorded history, cryptography has been used almost entirely for military and diplomatic purposes.
As part of a business model, FC followed the guide of cryptography and only the simplest ideas were adopted. Account money systems protected by SSL such as PayPal
PayPal
PayPal is an American-based global e-commerce business allowing payments and money transfers to be made through the Internet. Online money transfers serve as electronic alternatives to paying with traditional paper methods, such as checks and money orders....
and e-gold
E-gold
e-gold is a digital gold currency operated by Gold & Silver Reserve Inc. under e-gold Ltd., and allowed the instant transfer of gold ownership between users until 2009 when transfers were suspended due to legal issues. e-gold Ltd...
were relatively successful, but more innovative mechanisms, including blinded token money, were not.
Financial cryptography is frequently seen to have a very broad scope of application. Ian Grigg sees financial cryptography in seven layers http://iang.org/papers/fc7.html, being the combination of seven distinct disciplines: cryptography, software engineering
Software engineering
Software Engineering is the application of a systematic, disciplined, quantifiable approach to the development, operation, and maintenance of software, and the study of these approaches; that is, the application of engineering to software...
, rights, accounting, governance
Governance
Governance is the act of governing. It relates to decisions that define expectations, grant power, or verify performance. It consists of either a separate process or part of management or leadership processes...
, value
Value (economics)
An economic value is the worth of a good or service as determined by the market.The economic value of a good or service has puzzled economists since the beginning of the discipline. First, economists tried to estimate the value of a good to an individual alone, and extend that definition to goods...
, and financial applications. Business failures can often be traced to the absence of one or more of these disciplines, or to poor application of them. This views FC as an appropriately crossdiscipline subject. Indeed, inevitably so, given that finance
Finance
"Finance" is often defined simply as the management of money or “funds” management Modern finance, however, is a family of business activity that includes the origination, marketing, and management of cash and money surrogates through a variety of capital accounts, instruments, and markets created...
and cryptography
Cryptography
Cryptography is the practice and study of techniques for secure communication in the presence of third parties...
are each built upon multiple disciplines.
Financial cryptography is to some extent organized around the annual meeting of the International Financial Cryptography Association Financial Cryptography, which is held each year in a different location.
See also
- Automated teller machineAutomated teller machineAn automated teller machine or automatic teller machine, also known as a Cashpoint , cash machine or sometimes a hole in the wall in British English, is a computerised telecommunications device that provides the clients of a financial institution with access to financial transactions in a public...
s (ATM) - Point-of-sale (POS)
- Hardware Security ModuleHardware Security ModuleA hardware security module is a type of secure cryptoprocessor targeted at managing digital keys, accelerating cryptoprocesses in terms of digital signings/second and for providing strong authentication to access critical keys for server applications...
s (HSM) - Electronic moneyElectronic moneyElectronic money is money or scrip that is only exchanged electronically. Typically, this involves the use of computer networks, the internet and digital stored value systems...
- Payment systemPayment systemA payment system is a system used for transferring money. What makes it a "system" is that it employs cash-substitutes; traditional payment systems are negotiable instruments such as drafts and documentary credits such as letter of credits. With the advent of computers and electronic...
- Smart contractsSmart contractsSmart contracts are computer protocols that facilitate, verify, or enforce the negotiation or performance of a contract, or that obviate the need for a contractual clause. Smart contracts usually also have a user interface and often emulate the logic of contractual clauses...
- Anonymous internet bankingAnonymous internet bankingAnonymous Internet banking is the proposed use of strong financial cryptography to make electronic bank secrecy possible. The bank issues currency in the form of electronic tokens that can be converted on presentation to the bank to some other currency...
- Economics of securityEconomics of securityThe economics of information security addresses the economic aspects of privacy and computer security. Economics of information security includes models of the strictly rational “homo economicus” as well as behavioral economics...
- Bilateral key exchangeBilateral key exchangeBilateral Key Exchange was an encryption scheme utilized by The Society for Worldwide Interbank Financial Telecommunications .The scheme was retired and has now been replaced by the Relationship Management Application...
External links
- International Financial Cryptography Association
- Fincrypt weblog
- Financial Cryptography weblog
- Contracts with bearer
- Open Transactions Open source, untraceable digital cash software.