BALTIMORE -- For the last six years, Robert Hettinga has been agitating, begging and pleading for the world to listen to his ambitious plans for digital money.
Like any savvy techno-evangelist, Hettinga coined a name for his idea -- digital bearer certificates -- and envisions a day when Internet users can withdraw electronic cash by simply typing in an ATM card number and their PIN.
To bolster his campaign, Hettinga launched the Digital Commerce Society of Boston, co-founded the Financial Cryptography conference, and has become a fixture on mailing lists devoted to cryptography and security. DCSB has even birthed offspring: On Tuesday, Hettinga came to Baltimore to speak at the inaugural meeting of a new sister chapter.
But six years, five Financial Cryptography conferences and thousands of e-mail missives later, Hettinga has been almost entirely unsuccessful in attracting serious interest in his ideas.
His two-year-old Internet Bearer Underwriting Corporation missed the ready capital of the online boom. It has attracted only $160,000 in funding, and has done about $100,000 of consulting work so far.
"Quite frankly, the dot-com money has gone away," says Hettinga, 42. "We're also running over ground that CyberCash, DigiCash and a lot of other people have burned."
Incinerated would be closer to the truth. The electronic cash landscape is littered with the looted corpses of companies that tried and failed to compete with credit cards for online purchases.
True digital cash that's as anonymous, as privacy-protected and as cheap as the humble greenback seems to be one of those technologies that pundits laud and technologists adore, but markets stubbornly fail to adopt.
DigiCash, a pioneering firm in the area, declared bankruptcy in 1998 and sold its 16 patents and its domain name to eCash Technologies. Now eCash is having its own troubles: The company laid off 25 of its 65 employees in March.
Ambitious dreams of minting cyberbucks that could be used for micropayments propelled CyberCash through a successful initial public offering in 1996, two years after the company was founded.
But hard times drove CyberCash to scale back its vision to far more mundane "CashRegister" backend software, and the company voluntarily delisted itself from the Nasdaq exchange and filed for bankruptcy in March.
Now its founder, Bill Melton, is embroiled in a bizarre spat over whether CyberCash made money from porn sites -- in fact, they were its best customers -- and whether that made it appropriate for Melton to donate money to a Virginia gubernatorial candidate.
Some second-generation companies are having more success.
Founded in October 1998, Billpoint is a credit-card-based payment system bought by eBay in May 1999. Last year, Wells Fargo bought a 35 percent interest in the venture and partnered with eBay. Nearly 300 websites, including Yahoo and Bank of America, use CheckFree for electronic billing, although the company has yet to turn a profit.
Offbeat schemes like beenz, flooz, e-gold and Idollars are busily minting their own virtual currencies, although none has found a wildly profitable market niche.
PayPal, probably the most popular system of the sort, is trying to lure Internet shoppers away from credit cards with surprising luck so far: The company has raised $225 million in financing and claims to have 8 million customers.
Since online sales account for a mere 2 percent of all credit card transactions, Visa and Mastercard have been slow to respond to PayPal's threat.
An additional incentive is PayPal's relatively low 2.2 percent transaction fee plus 30 cents. Visa, by contrast, charges up to approximately 2.5 percent in transaction fees. And because of the possibility of fraud, a Visa transaction does not complete -- meaning the seller doesn't get paid -- for up to 90 days.
But not one of those systems offers all three advantages that true digital cash provides: lower transaction costs, immediate transaction processing and far better privacy.
Hettinga says he can complete transactions for a minuscule amount. "What we can do is put money on the Net for 80/100ths of 1 percent. Transactions after that are pretty much free," he says. "You pull a dollar bill out of an ATM and that costs money. You don't pay for transactions after that."
But to turn hard drives into the virtual equivalent of wallets or purses where digital coins reside in a file, Hettinga's IBUC firm will have to persuade notoriously conservative bankers to participate. "As an underwriter, we'll be an Internet-based business running these protocols, and the money will be held in a custodial bank on State Street, Hong Kong, Shanghai, or any of the major centers," Hettinga says.
To succeed, Hettinga needs both money -- he says $8 million would be enough to complete work on the system and pay the related lawyer bills -- and a license to one of the three sets of patents that offer ways to mint anonymous digital cash.
ECash Technologies, which bought the bankrupt DigiCash, owns the set of patents awarded to DigiCash founder David Chaum starting in July 1985. The first patent, awarded for a "cryptographic identification, financial transaction, and credential device," will expire in July 2002.
The more important patent for digital cash, titled "Blind signature systems," was granted in July 1988 and expires in July 2005.
Chaum's method preserved anonymity through a statistical technique. It can be thought of this way: A customer of a virtual bank would create a $1 coin by sending, say, 100 coins with random serial numbers first stuffed into electronic envelopes.
The bank randomly would open 99 of the 100 envelopes to verify that the denominations were in fact $1 and the customer wasn't trying to commit fraud. After the bank owner was satisfied that the last remaining envelope was likely to be a $1 denomination too, the bank would sign the envelope -- marking it as digital cash -- and return it unopened.
DigiCash was criticized for not licensing its patents readily enough, and eCash CEO John Filby says his company won't make that mistake.
"We'd license them, and we're in the course of talking to interested groups about licensing them," Filby says. "What we would charge depends on a whole bunch of things."
For Hettinga, another possibility is Zero Knowledge Systems of Montreal. Stefan Brands, a DigiCash alum, has licensed his competing patent suite to Zero-Knowledge Systems, where he now works.
For its part, ZKS says it's happy to license the Brands patents to anyone who can afford the fees.
"There are two different approaches. We have a toolkit we're licensing in the RSA BSAFE model," says Austin Hill, ZKS co-founder and chief strategist. "There's a base fee depending on what you're doing, from $50,000 to $250,000 a year. On top of that there's also a negotiated ongoing royalty or license fee."
"We kind of view it very much as the original RSA algorithms in the early 1980s," Hill says. "It's not going to be overnight that this stuff instantaneously hits. There's going to be a lot of experimenting." (RSA's BSAFE toolkit allows programmers to use the company's once-patented encryption routines in their products. The RSA patent expired in September 2000.)
Complicating matters is a wildcard: The father of digital cash, Chaum, recently applied for a new set of patents that he says takes a different approach than the ones owned by ZKS and eCash.
"These patents avoid the other patents -- that's the good thing about them," Chaum says. "They're better. They have better privacy and the size of the coins can be smaller. They have other user convenience benefits and I can't exactly say what they are."
In fact, Chaum says that ZKS' patents -- granted to his former employee Brands -- infringe upon the eCash suite. Says Chaum: "The only guys you can go to is(sic) eCash or me. The Brands patents arguably depend on the eCash patents."
ZKS' Hill replies: "While I have a lot of respect for some of David's contributions to this space in the early 80s, unfortunately these claims about Dr. Brands' work depending on his patents have no basis in reality."
Chaum is staying mum about what his patents cover and when he applied for them, except to say that the rights are owned by a company he created, Chaum LC.
But do consumers even care?
Pat Farrell, former director of protocols at CyberCash and now a consultant, says that his former employer inadvisedly relied on focus groups in 1995 that indicated customers were willing to pay small sums for news and other content online.
"At the time the Web hadn't come out yet," says Farrell. "They released their product, CyberCoin, and it hit the market with a resounding thud."
Farrell says he's doubtful that the ambitious plan outlined by IBUC and Hettinga will find backers.
"I don't see any future in saying this is an intrinsically better solution than putting transactions through (automated clearinghouse) or credit card transactions," he says. "Sure, the fees are high, but if you spent $20 million on building a competing system, Citicorp could turn around tomorrow and lower fees and put you out of business."
In addition to the hurdles of marketing and licensing -- nobody sees any real technical problems -- looming regulatory obstacles could thwart the deployment of truly anonymous digital cash.
Given law enforcement and Treasury Department concerns about money laundering, offshore banking and tax havens, it should be no surprise that federal agencies have been closely monitoring developments.
ECash's Filby stresses that "everything that we've done so far has been in consultation with the regulatory authorities" and says he would probably only license the company's patents in a way that preserved the ability to trace for law enforcement purposes. Chaum and Brands have said that they hold similar views.
"What we've found in the U.S. is that when we talk to our target audience -- financial institutions and service providers -- people back away from the absolute privacy and anonymity issue," says Angela Randall, eCash's marketing director.
Randall adds: "And there are regulatory issues we need to work around."
"Federal regulators say that they are not trying to stifle their development of these technologies," says Brad Jansen, an analyst at the conservative Free Congress Foundation, who previously handled financial policy for a member of the House banking committee.
Jansen says that "overriding concerns of law enforcement and micromanaging of regulation threaten to eviscerate some of the benefits that electronic money might have, such as anonymity and privacy."
Adds Farrell, the CyberCash alum: "Anonymity is not a strong selling structure and it terrifies the banks and the regulators."
IBUC's Hettinga says he's undaunted: "You don't need a nation-state to do finance. All you need is financial cryptography."
