Digital dosh is still lurking

WIRED:FORGET THE jet-cars and food-in-a-pill - whatever happened to the promise of digital cash? When the internet first reared its global head in the early 1990s, the area where it was expected to have the most dramatic impact was the world of money. Not making it or sending it or even saving it: but the very idea of money itself.

Specifically, the most idealistic voices claimed that a widespread distributed information network, together with then recent advances in mathematics, would lead to the effective end of currencies like the dollar and the yen.

After currencies would come taxes - and after taxes, all the governments of the world.

Now, 20 years later, taxes are still around - much of them being collected from commerce on the internet itself - and the nation state doesn't appear to be going away any time soon. Is there still a chance the internet will end with the death of taxes?

First, the mathematics. Back in the early 1990s, a cryptographer called David Chaum developed a way of creating chunks of digital data that had some of the qualities of real world coinage. You could make them, in your mathematical equivalent of a mint, and mark the digital data "coins" as uniquely your own (just as a country's mint does with its coinage).

Others could ensure that these coins weren't "faked" by someone else without having to bother you to check for forgeries. Chaum's mathematics eliminated "double- spending" - you can't have one person make a copy of a digital coin and using it twice in different places.

Chaumian "digicash" and its mathematical brothers, brought currency into the internet world.

However it did more than simply map existing financial systems on to the new digital world. It gave all the attributes of a currency and, instead of reserving them for governments, handed them out to anyone who could run a computer program.

In fact, it gave them even more power than that of a traditional government. This digicash really was unforgeable. It was anonymous, too, and could be sent from one side of the planet to the other as quickly as an e-mail.

What does that mean? Well, in theory, it meant that groups or individuals could produce their own "currency" in competition with euros and dollars, which could be used to pay for transactions online.

A private currency frees its users from having the prices of their goods tied up with the economic health of a nation state. It also makes collecting taxes on income a lot harder for a government. If you're not getting paid in euros or dollars and you keep your wealth in the hard-drive equivalent of under your bed, how does a government charge you?

So why didn't it happen? Some would paranoically say that the threat to governments was exactly why it didn't happen: no state was going to sign away its own tax incomes in the interests of a more competitive financial system.

Many observers, however, point to the more contingent problems of Chaum's company, Digicash. Digicash owned the patents to anonymous digital currency, but never seemed to be able to close a deal, even when courted by Microsoft and others.

It may also have been that, despite the idealism of the libertarian e-money advocates, there actually isn't much of a market for a digital upgrade from paper money.

Most people seem happy with replacing ordinary cash with the defiantly un-anonymous credit and debit card system, even if it allows all their financial transactions to be tracked and taxed.

We may yet see. The Chaum patents expired a few years ago and there are signs that his mathematical money might be making a reappearance.

It may be that we're about to enter a world full of electronic cash: it will just be that, even though we benefit, we will never actually see it.