Electronic currency

"The money screamed across the wires, its provenance fading in a maze of electronic transfers, which shifted it, hid it, broke it up into manageable wads which would be withdrawn and redeposit elsewhere, obliterating the trail." by Linda Davies, Nest of Vipers, a banking thriller.
Electronic currency refers to money or scrip which is exchanged only electronically. Typically, this involves use of computer networks, the internet and digital stored value systems. Electronic Funds Transfer (EFT) and direct deposit are examples of electronic money.

Public-key cryptography and digital signatures (both blind and non-blind signatures) make electronic currency possible. It would take too long to go into detail how public-key cryptography and digital signatures work. But the basic gist is that banks and customers would have public-key encryption keys. Public-key encryption keys come in pairs. A private key known only to the owner, and a public key, made available to everyone. Whatever the private key encrypts, the public key can decrypt, and vice verse.Banks and customers use their keys to encrypt (for security) and sign (for identification) blocks of digital data that represent money orders. A bank "signs" money orders using its private key and customers and merchants verify the signed money orders using the banks widely published public key. Customers sign deposits and withdraw using their private key and the bank uses the customer's public key to verify the signed withdraws and deposits.


Reference:
1. http://projects.exeter.ac.uk/RDavies/arian/emoney.html
2. http://en.wikipedia.org/wiki/Electronic_money