Double Spending Protection for E-Cash Based on Risk Management

Abstract

Electronic cash is an attempt to replace and reproduce paper cash in electronic transactions that faces competing challenges when used either online or offline. In effect, while effective protection against double spending for e-cash can be achieved in online payment environments through real-time detection, this comes at the expense of efficiency, the bank representing in such case a performance bottleneck and single point of failure. In contrast, in offline payment environments, while efficiency is improved, double spending can be detected only after the fact, which can be very costly. We propose in this paper a risk management approach for double spending protection which allows suitable tradeoffs between efficiency and effectiveness. This involves using the service of a trader, who is a trusted third party that will cover the risk involved in offline payment transactions, against some remuneration. The main goal is to provide full coverage to users against losses related to invalid coins while avoiding or minimizing interactions with the bank. Since the trader will incur some risk by guaranteeing coins while she cannot communicate with the bank, a winning strategy is devised for the trader to mitigate such risk.