As more and more businesses rush to join the World Wide Web and capture the websurfer's attention (and cash), the need for a secure electronic transaction system has become more and more apparent. Businesses envision a world-wide clientele, with markets open to all, regardless of company size. Users envision a diverse selection of products and services, available from the convenience of their homes. The meeting of the two in the electronic marketplace depends upon a certain amount of confidence between the merchant and the customer that the merchant will get the money promised them, and the customer will get the goods promised them, without any other parties being privy to the transaction. Credit card transactions, while being well-supported on the consumer and merchant ends of the exchange, are also easily interceptable and forgible. Magic Money attempts to bridge this gap between consumers and merchants, offering a more secure electronic transaction system.
Magic Money was invented by an individual who uses the handle "Pr0duct Cypher". Pr0duct Cypher is well known on the Internet for development of applications using PGP, and provides the source code and documentation for these applications at various sites. No one knows exactly who this person is, or where they are, other than that they have claimed that they are in Europe, and thus are not constrained by the US. cryptographic legalities. In addition to writing Magic Money, Pr0duct Cypher has also developed a set of tools called "PGP Tools", allowing easier integration of PGP encryption into GUI applications.
We have been speaking of a client module and a server module, but there is no reason not to have multiple client modules and multiple servers.
Using this AutoClient capability, it should be possible to set it up as a secondary program to a main network application, perhaps something along the lines of a stock exchange game. The main application would call the AutoClient and receive all responses, with no user intervention required.
The problems specific to Magic Money are rooted in its implementation. Magic Money depends heavily on the use of Chaum's blind signature protocols and RSA's encryption protocols. These are both patented concepts, and are thus not available (without some sort of royalties) to be used in a commercial system. Since Pr0duct Cypher is freely posting his source code for anyone to use, trying to get a handle on who is using what and whether proper royalties (should they ever be decided upon) have been paid, would be an impossible task. Chaum himself has no incentive to even offer a royalty payment schedule, as Magic Money would be in direct competition with his DigiCash system.
The problems specific to Magic Money are most likely not its worst difficulties, however. There are difficulties inherent in any digital cash system, as yet, that have not been overcome in theory, much less in practice. Without some sort of backing, the digital dollar is worthless. Money of any sort is only worth what it can buy, and without some sort of guarantee of worth, digital cash is merely a string of bits, too easily created, and not easily enough controlled. One does not need to look far into US history to see examples of currencies gone bad: the Confederate dollar, the greenback, and the Silver standard come to mind as currencies not well regulated or supported by something of real value.
Ignoring the backing question, one still needs to determine who gets to issue and regulate these lovely strings of bits. Currently the Nexus avoids this question by trading Nexus bucks for bartered services. This, however, does tend to limit the purchasing power of the digital cash, and causes problems with such simple things as making change.
For the moment, Magic Money is merely a neat toy to play with, something perhaps to model economic systems with, but definitely not something to use as handily as one would a credit card or an ATM account.