| E Law - Murdoch University Electronic Journal of Law, Vol 6,
No 3 (September, 1999)
A Consumer's Analysis Of The Electronic Currency
System And The Legal Ramifications For A Transaction Gone Awry
Mark
Ishman and Quincy
Maquet
John Marshall Law School
Contents
- Imagine, instead of walking into a book store to browse and
purchase the latest novel, one may simply log onto the World Wide
Web (Web), browse through thousands of abstracts and purchase
the novel - all in the convenience of your own home. Imagine no
more. Today's technology enables yesterday's dreams. Due to the
new development of electronic currency, an online purchase is
just a few clicks away.
- This Comment argues that the utilization of digital signatures
in electronic currency provides a secure means of conducting transactions
in electronic commerce. Additionally, this comment analyzes and
argues that both federal and state laws provide more than adequate
remedies for an injured party in an electronic currency transaction.
Part II of this Comment explains the purpose, the significance
and the traditional role of the notary. Part II also provides
the basics of the digital signature process as it relates to each
participant. The players in the digital signature process consist
of the sender, the recipient and the certification authority.
Furthermore, Part II explains the development, application and
major participants in electronic currency. Part III analyzes and
argues why the use of electronic currency is the securest means
of conducting transactions in electronic commerce. Part III also
argues that since electronic currency transactions use digital
signatures, parties to such transactions will enter into legally
binding contracts. Finally, Part III argues that both federal
and state laws provide more than adequate remedies to damaged
parties in an electronic currency transaction. Party IV of this
Comment concludes that electronic currency transactions will not
only facilitate electronic commerce, but also transform the way
we will conduct our daily lives.
- For over 350 years, notaries have been present on the North
American continent.[1]
Presently, all fifty states and the District of Columbia have
statutes governing the actions of notaries.[2]
Contained in these statutes are several requirements that most
states include in their application procedures. First, most states
require that the applicant be at least eighteen years of age.[3]
Second, most states require that the applicant obtain a bond.[4]
However, most states do not have a minimum residency requirement
in their respective notary statutes.[5]
Additionally, only a few states mandate testing of notary applicants
before receiving their commissions or licenses.[6]
According to many scholars, an increase in testing by states would
considerably improve the notary's performance.[7]
- The official duties of today's notary are ministerial or clerical
in nature.[8]
Even though a notary is described as a "public officer,"[9]
notary responsibilities do not encompass an element of judicial
discretion.[10]
A notary public's authorization extends to "notarial acts" which
include: (1) taking an acknowledgment; (2) witnessing or attesting
a signature; and (3) administering an oath or affirmation, e.g.,
given to witnesses, and to public officials when sworn into office.[11]
However, the primary duty of today's notary pertains to authenticating
a written instrument by attaching his official certificate.[12]
- When attaching his official certificate, all states require
notaries to positively identify the party seeking the notarization.[13]
Specifically, the notary "must determine, either from personal
knowledge or from satisfactory evidence, that the person appearing
before the notary and making the acknowledgment is the person
whose true signature is on the instrument."[14]
Due to this requirement, courts have found that the individual
seeking a notarization must appear personally before the notary.[15]
- However, many notaries have accepted the non-appearance of
an individual, when the individual telephones and acknowledges
the signature and terms of the agreement.[16]
Yet, the fact remains that with just a voice and no physical body
present to observe, the notary cannot be sure of the speaker's
identity. Even if the voice on the other end of the line is familiar
to the notary, it is possible that, unknown to the notary, someone
is threatening the individual. Therefore, courts have been reluctant
to waive the physical presence requirement for a telephone acknowledgment.[17]
- As technology increases, the requirements of a notary must
change with it because the physical presence requirement is not
possible for transactions over the Internet. Therefore, many states
are implementing digital signature laws that govern notaries in
cyberspace. Specifically, these statutes have identified certification
authorities (CA), or cybernotaries, which serve the function of
a notary, but in cyberspace. A certification authority is a trusted
third person or entity that determines the identity of a subscriber
and certifies that the public key used to create a digital signature
that belongs to that person.[18]
- Certification authorities are an essential part of the digital
communications process. The reason for this is that the cryptographic
system needs an impartial third party, i.e., a CA, to establish
the authenticity of electronic transactions.[19]
Like notaries, statutes will need to be enacted to create, authorize
and regulate certification authorities.[20]
Additionally, states will license and commission CAs in a similar
manner that presently governs notaries.[21]
Thus, CAs will be considered public officers, subject to the obligation
to uphold the public trust that is bestowed upon them.[22]
Unlike notaries, whom must be human beings, CAs can be entities,
such as accounting firms, banks and real estate enterprises.[23]
- CAs will be employed to confirm credentials in electronic commerce.[24]
Naturally, parties to a contract should desire to verify the other's
signature.[25]
The CAs role is to verify the authenticity of the message sent
to the recipient, therefore binding the parties to the transaction.[26]
If this process is successful, the CA certifies the digital signature
and "allows the deal to proceed under an umbrella of trust."[27]
In essence, CAs will guarantee transactions.[28]
Therefore, the CAs function is critical to the success of the
electronic transactions throughout the United States.
- The certification process generally works in the following
way. First, the subscriber must generate both a public and private
key.[29]
A private key encrypts the text of the document into a digital
signature and is kept in sole possession of the signer of the
electronic document.[30]
The public key, which can be freely distributed, allows the recipient
to decrypt the sender's electronic document.[31]
Next, the subscriber proceeds to contact the CA and produces proof
of identity, such as a driver's license, passport or any other
proof required by the CA.[32]
Lastly, the subscriber demonstrates, without disclosing the private
key, that he holds the private key that corresponds to the public
key.[33]
- Once the CA verifies that the identified person and a public
key are associated, the CA then issues a certificate.[34]
A certificate is "a computer-based record that attests to the
connection of a public key to an identified person or entity."[35]
If the subscriber discovers that the certificate is accurate,
he may publish the certificate or direct the CA to do so in a
repository.[36]
By doing this, the certificate will be available to third parties
wishing to communicate with the subscriber.[37]
- The certification process is accomplished by the use of digital
signatures. Therefore, to fully understand the certification process,
we must first comprehend how digital signatures operate.
- Digital signature technology has been in existence for nearly
twenty years and is universally recognized as the most efficient
and secure system for electronic commerce (E-commerce).[38]
A "digital signature" is a term of art used within the technical
community since the landmark publication regarding public key
cryptography and its implementation in its most popular form,
the RSA algorithm, by Whitfield Diffie and Martin Hellman in 1976.[39]
- A digital signature is not a digitized version of a person's
handwritten signature, but a transformation of an electronic document's
text that is attached to the document itself.[40]
The ABA Guidelines has defined a digital signature as:
a transformation of a message using an asymmetric
cryptosystem and a hash function such that a person having the
initial message and the signer's public key can accurately determine
(1) whether the transformation was created using the private
key that corresponds to the signer's public key, and
(2) whether the initial message has been altered since the transformation
was made.[41]
- To digitally sign a document, the sender creates a unique message
digest (hash value) of the document by running a computer program.[42]
Next, the program encrypts this message digest using the sender's
private key.[43]
This encrypted message digest is the digital signature.[44]
Finally, the sender attaches the digital signature to the electronic
communication and sends it to the intended recipient.[45]
- A digitally signed communication looks like this:
July 30, 1999
Dear order department:
We commit to the purchase of 10,000 gadgets at your price of
$500 per hundred. Ship to:
Gadget Products Co.
1010 Purchase Street
Chicago, Illinois 65504
Sincerely,
Purchasing Department,
Gadget Products Co.
--------BEGIN SIGNATURE-------
OWHTwx1Sduuspo+dfdt=22ysbhadhcezamdDGGD5DDiASusffasdfasdUSSasdfdfFDD4dtofsdffusIipPsemrdbsa/
ajw3rlBdR/AnbfoL/ Eed5+adfdsf34343553j3ndsS4DDGcIlsqud3Dffsddrsncnzg34aSDMN2334/
sdfe34se3ls97n/Tt33d3dNmysge34uyDuqt8msvereWe --------END
SIGNATURE----------
A digital signature, as described above, is done using a process
of public-key cryptography.
- Cryptography
Using cryptography,[46]
a person creates a digital signature.[47]
There are two methods of cryptography: symmetric[48]
and asymmetric[49]
cryptography.[50]
- Using asymmetric cryptography,[51]
a digital signature is attached to an electronic transmission
by the use of an electronic public and private key.[52]
First, private keys are created by and should be known only to
the document's signer.[53]
Using this "secret" key, the signer places a "signature" onto
a document.[54]
The signature itself is actually a "hash"[55]
(a string of letters, numbers, and/or symbols), representing the
document coupled with the unique computer-generated code created
by the document's signer.[56]
To produce the signature, the document's signer types "in a pass[-]phrase
(much like a PIN number for a bank teller machine), and then the
private key generates a long string of numbers and letters which
represents the 'signature.'"[57]
Since the computer-generated signature is unique to each document,
the private key will generate a different sequence of digits,
and thus, a new "signature" for each document.[58]
- To ensure that the public record is verified as accurate, a
third party, i.e., a CA, may be called upon to confirm that the
public key indeed pairs to the private key and is associated with
an identified person or company.[59]
Using its own private key, the CA signs the public key to verify
its accuracy and makes this certificate available to the key holder
or to potential message recipients.[60]
On the other end of the electronic transmission is the document's
recipient, who holds the "public key."[61]
Using the public key, the recipient can decrypt the sender's document
and signature using a computer program.[62]
The program matches the private and public keys to ensure that
the document and the signature have not been modified prior to
or during transmission.[63]
Collectively, this process is known as "public key cryptography."[64]
"Put simply, if a private key other than one identified
with the subscriber. . . is used to encrypt the document, or
if the document is changed in any way between execution and
verification, the hashes will differ from each other and the
signature will fail verification."[65]
- In July 1997, Germany[66]
and Italy enacted digital signature legislation, while the English,
Swedish and Dutch governments were addressing the creation of
their own digital signature legislation.[67]
Likewise, many U.S. states have recently enacted digital signature
statutes that permit the use of digital signatures.[68]
- American Bar Association Digital Signature Guidelines
In order to assist legislatures in drafting digital signature
legislation, the American Bar Association (ABA) created the ABA
Digital Signature Guidelines (Guidelines).[69]
These Guidelines are general statements of principle concerning
the development of public key infrastructures,[70]
with the intent to develop more exact rules within the federal
and state legal systems.[71]
Ultimately, the Guideline's substantive rules establish the legal
duties of CAs, parties using CAs and any person using digital
signature certificates.[72]
Additionally, the Guidelines have also formed the basis for digital
signature legislation in a number of U.S. states, namely Utah.
- The Utah Digital Signature Act
With the assistance of the ABA Information Security Committee,
Utah, aiming to promote E-commerce, developed its own digital
signature legislation.[73]
The Utah approach has four basic parts: (1) CAs must have trustworthy
systems; (2) CAs have limited liability when they meet the legislative
standards; (3) digital signatures produced by such CAs are legally
presumed valid; and (4) giving the executive branch flexibility
in regulation.[74]
- The Utah Act also delineates three primary players in the certification
process: (1) the subscriber; (2) the recipient; and (3) the CA.[75]
The Utah Act details the CAs responsibilities[76]
and limits who can qualify as a CA.[77]
Additionally, a licensed CA must post a bond or letter of credit.[78]
The Act also sets forth record keeping procedures, requires a
regular audit of CAs,[79]
and sets out procedures for a CA to follow when they cease to
act as a CA or when they issue, revoke or suspend a certificate.[80]
Moreover, the Utah Act specifies the information that must be
included in the certificate.[81]
Finally, licensing under the Utah Act is voluntary.
- Following Utah's lead, all states have either enacted or proposed
digital signature legislation to promote E-commerce.[82]
These statutes will not only allow for secure transactions, but
also for new technology to prosper in E-commerce.
- As Jerry L. Jordan, the president and CEO of the Federal Reserve
Bank of Cleveland, explains, "[m]oney in the 21st century will
surely prove to be as different from the money of the current
century as our money is from that of the previous century. Just
as fiat money replaced specie-backed paper currencies, electronically
initiated debits and credits will become the dominant payment
modes, creating the potential for private money to compete with
government-issued currencies."[83]
- With each passing day, new developments in electronic currency
are emerging. As a result, novel buzzwords such as smartcards,
online banking and electronic currency are being used to discuss
money. However, what are these new forms of money? Who will use
them? And how do they work?
- Today, cash is known in various forms as a means of exchange
and of storing value.[84]
Mussels, gold and silver as well as standardized products such
as cigarettes are only a few examples.[85]
Although the coins and banknotes that are now abundant in their
basic form have existed for thousands of years, the first bank
note of the Swiss Federal State, surprisingly did not appear until
1907.[86]
In 1918, the Federal Reserve Banks first began to move currency,
i.e., manipulated book-entries to clear payment balances among
themselves, via a telegraph.[87]
- However, the widespread use of electronic currency did not
begin until the automated clearinghouse was set up by the US Federal
Reserve in 1972 to provide the US Treasury and commercial banks
with an electronic alternative to check processing.[88]
Similar systems also emerged in Europe around the same time. Thus,
electronic currency has been widely used throughout the world
on an institutional level for more than two decades.[89]
- Today, nearly all of the deposit currencies in the world's
banking systems are handled electronically through a series of
interbank computer networks.[90]
The Clearing House Interbank Payments System (CHIPS), owned and
operated by the New York Clearing House, is one of the largest
financial computer networks.[91]
It is used for large-value funds transfers.[92]
In 19[94]
CHIPS and Fedwire combined to handle 117.5 million transactions
for a total value of US$506.6 trillion.[93]
- Although banks have been able to move currency electronically
for decades, only recently has the average consumer had the capability
to use electronic transfers in any meaningful way.94 The increasing
power and decreasing cost of computers, coupled with advancements
in communication technology have made global interaction available
at vastly reduced costs. Together, these factors make the digital
transfer of funds a reality for millions of individuals around
the world.[95]
As a result, we are now witnessing the development of a digital
economy.[96]
- Now, less than a hundred years after the first bank note was
issued, technological progress has undoubtedly created a new direction
in the means of payment.[97]
The Internet and E-commerce have become an increasingly commercial
area, where daily payments are rendered for goods, information
and services.[98]
As a result, electronic payments are becoming the central part
to online business between customer and seller.[99]
Traditional applications of rendering payment include credit cards,[100]
private label credit/debit cards[101]
and charge cards.[102]
- However, these traditional forms of rendering payment online
have posed problems to both the consumer and the seller. Not all
merchants are equipped to accept credit card transactions. Some
merchants even prefer not to accept credit card transactions because
credit card companies charge merchants a two to six percent service
fee for each transaction.[103]
Since smaller sales are a significant part of business transacted
online, many online merchants do not accept credit card transactions
due to their small profit gains.[104]
- Additionally, consumers have become concerned with "hackers"
intercepting and obtaining their credit card number stored on
the Internet,[105]
as well as the possibility of becoming a victim of fraud on the
Internet since the customer and the merchant never physically
meet.[106]
Furthermore, as the data collection industry continues to grow,
credit card companies are invading consumer's privacy by collecting
their spending habits and reselling the data to third parties.
Consumers are gradually realizing that providing their numbers
to online merchants is no more hazardous than reciting it to a
clerk over a telephone line.[107]
- As a result of recent proliferation of computers, modems and
telecommunications links, modern methods of rendering payment,
i.e., electronic currency (a/k/a digital cash, virtual cash, electronic
(e-) cash, digicash, electronic (e-) money, digital money, Internet
currency, cybercash or cyberbucks), are receiving a great deal
of attention from both consumers and merchants.[108]
- Electronic currency is essentially a system that allows a person
to pay for goods or services by transmitting a number from one
computer to another.[109]
These transactions are carried out electronically, transferring
funds from one party to another, by either a debit or credit.[110]
These funds are instantly cleared and secured by using strong
encryption, thus eliminating the payment risk to the consumer.[111]
It is only a matter of time before electronic currency will replace
the present monetary systems. Thus, electronic currency is the
digital representation of money, or more accurately, the digital
representation of currency.[112]
- As E-commerce is rapidly increasing, so are the systems available
to the consumer. Anything that makes it possible for a consumer
to spend money online can be construed as an electronic payment
system.[113]
As of this Comment, there are many different companies offering
various ways of transferring money across the Internet.[114]
As a result, the Basle Committee (BC)[115]
was formed to examine these new electronic payment systems.
- The Basle Committee consists of banking supervisory authorities
from twelve different countries. The BC examined stored-value
payment products, and as a result, identified two models of electronic
coin payment systems: (1) the single-issuer model; and (2) the
multiple-issuer model.
- In the single-issuer model, the issuer creates and distributes
electronic coins to banks.[116]
The bank then issues the electronic coins to their customers by
loading them onto stored value cards or computer hard drives.[117]
When the customers use the coins to purchase goods and services,
the merchant then deposits them with their banks.[118]
These banks then claim the monetary value from the issuer or system
operator.[119]
Using this model, consumers can also transfer electronic coins
between themselves using electronic wallets.[120]
- The role of the system operator differs in the multiple-issuer
model. In this system, consumers are able to receive electronic
coins from a number of different issuers. A merchant is the party
in the electronic transaction that receives coins as payment,
deposits them with other issuers and then contacts the system
operator.[121]
The system operator then consolidates these claims and transmits
this information to the issuers.[122]
- The Mondex[123]
smart card is an electronic wallet that holds five different currencies[124]
and is used to transmit electronic cash over the Internet. Using
this system, a consumer can browse any online service that accepts
Mondex.[125]
In order to purchase, a consumer inserts his Mondex card into
the card reader attached to his personal computer.[126]
Once the consumer confirms that another valid Mondex device is
present on the other end of the transaction, the customer's card
transfers value to the vendor's card.[127]
- For security purposes, Mondex relies on a unique "digital signature"
generated by a chip on the consumer's card, which is recognizable
by the Mondex card on the other end of the transaction.[128]
This "digital signature" guarantees that no one can tamper with
the Mondex signals, as well as the authenticity of the Mondex
cards involved.[129]
This process also identifies the intended recipient of the cash,
in order to prevent a third party from intercepting the funds
without detection.[130]
- The Mondex card has a security code that prevents the misusage
of electronic cash stored on the computer chip. In addition to
a regular transaction, a consumer can also make a payment by inserting
his Mondex card into the merchant's Mondex terminal or into another
individual's electronic purse.[131]
Thus, users can transfer electronic cash among themselves without
using an intermediary, i.e., without the issuer or other financial
institution being involved in the transaction.[132]
- Each individual Mondex card contains a "rolling" audit trail
that includes sixteen-digit card reference numbers, retailer names,
dates of transaction and amount.[133]
This audit trail provides users with secure transactions and allows
third parties to resolve disputed or "failed" transactions.[134]
Currently, the consumer's card stores the details of its last
ten transactions. However, the retailer terminal is able to hold
details of the last three hundred transactions - equivalent to
a day's business for most cash registers.[135]
A typical transaction report from the Mondex system provides the
amount of the transaction, as well as a history that identifies
whether the transaction was person to person or person to merchant.[136]
Yet, the report will not identify the person or merchant involved
in the transaction.[137]
- The electronic currency system at Mark Twain involves two separate
bank accounts.[138]
A customer first must open a World Currency Access (WCA) account.
The WCA is a money market deposit account that bears interest
and is available to customers independent of the electronic currency
program.[139]
To convert WCA value to electronic currency, a customer must transfer
funds by telephone, facsimile, mail or e-mail, from the WCA to
an individual "electronic currency mint" non-interest-bearing
account.[140]
Once a user has completed this step, electronic currency value
is downloaded from the electronic currency mint to the user's
computer via the Internet.[141]
At this point, Mark Twain transfers funds from the customer's
individual mint account into a pooled account at Mark Twain. This
provides merchants and other payees who receive electronic currency
the means to redeem these funds and convert them into traditional
forms of value.[142]
- Once a customer downloads electronic currency "coins" onto
his computer, these coins can then be spent with merchants or
other participants in the electronic currency program. Additionally,
unspent coins can be returned to the mint account (and from there
to the WCA if desirable).[143]
When a consumer spends electronic currency, except for transfers
between consumers under a "wild card option,"[144]
the mint automatically receives the electronic currency. This
allows the bank to verify that the user has not previously spent
the electronic "coins." If the coins are valid, the mint automatically
deposits the value into the payee's mint account, where the payee
can either leave the electronic currency or download it to a computer.[145]
Today, these systems generate billions of dollars in revenues
each year.
- North America alone is expected to exceed $36 billion in online
revenues by the end of 1999, which more than doubled the $14.9
billion in 1998.[146]
Many believe that E-commerce can be facilitated by the appropriate
legal framework that includes the use of digital signatures.[147]
Unarguably, E-commerce is altering the operation of business and
thus transforming the global economy.[148]
Moreover, both merchants and consumers are using digital signatures
in order to process E-commerce transactions.[149]
- Parties to these transactions need a reliable and trustworthy
means for transmitting electronic value across the Internet. Thus,
many argue that the use of digital signatures will provide the
means for entering into a legally binding contract.[150]
However, like any transaction, potential problems exist, including
illegal activity.
- This Comment analyzes and argues why the use of digital signatures
in E-commerce is an effective tool for electronic currency transactions.
Next, this Comment argues that the use of digital signatures in
electronic currency transactions will ensure that the transactions
are legally enforceable. Finally, this Comment provides remedies
to damaged parties in an electronic currency transaction.
- Using electronic currency is like using a virtual ATM.[151]
A user simply connects to the Internet and verifies ownership
of the account.[152]
The user may then withdraw the desired amount of the electronic
currency.[153]
At this point, the bank issues a very large, unique random number
in an electronic coin format (the "serial number" of the coin)
to the user, which the bank signs with their private key.[154]
Instead of putting paper cash in your wallet,[155]
the user's software stores these electronic coins[156]
on the hard drive of the computer.[157]
- Once receiving the coins, the computer stores these notes until
the user desires to make a purchase.[158]
When the user finds the desired product online, the computer collects
the notes needed to pay for the item.[159]
These notes are then sent to the seller, who sends them to the
digital bank.[160]
- Upon receiving the coins, the bank verifies the coin's serial
number against its list of spent coins.[161]
If the user has not spent the coin previously, the bank credits
the account of the vendor and the vendor ships the product to
the user.[162]
In many ways, this system is similar to using food stamps or coupons.[163]
However, these methods are slow, and electronic currency will
change that considerably.[164]
- Since the issuer's digital signature authenticates the serial
number on each electronic coin,[165]
the coin's redemption links its original holder to the transaction.[166]
However, consumers can avoid this by using blinded coins.[167]
Using the "blinding" technique,[168]
the bank can validate the coins without knowing the payer's identity.
Therefore, this prevents the bank from recognizing the coins as
having come from the payer's account.[169]
- Using public key cryptography,[170]
the electronic currency system provides each bank, customer (payer)
and merchant (payee) with their own public and private keys.[171]
- To create a blinded coin, a bank customer must first make a
request for electronic currency. The bank will then withdraw this
pre-set denomination from the customer's account in the form of
digital coins.[172]
The customer's software then generates a 100-digit random serial
number for each coin.[173]
Since the length of the randomly generated serial number is large,
it guarantees with high probability that the serial numbers of
any two coins will not be the same.[174]
The coins are then "blinded" by multiplying them by a random factor.[175]
The customer then signs the blinded coins with his private key,
encrypts the coins with the public key of the bank and then sends
them to the bank.[176]
- When the bank receives the coins, the bank removes the signature,
signs the coins with its own private key and registers its worth
-- thereby "stamping" a value on the certificate.[177]
The bank then encrypts the coins with the customer's public key
and sends them to the customer.[178]
The customer then decrypts the coins with his private key and
"unblinds" them by dividing out the random factor.[179]
By using the blinding/unblinding process, the customer prevents
the bank from associating subsequently spent coins with withdrawals
from his bank account.[180]
Therefore, the bank is unable to know when or where you shopped,
or what you bought.[181]
- The various payment methods which already exist or are in the
trial phase, targets the retail or wholesale markets, small-scale
nickel and dime transactions and fund transfers (home banking
or large-scale transactions). However, these payment methods have
both advantages and disadvantages.
- Confidentiality/Privacy
Current electronic currency systems vary in their effects on privacy
from total anonymity, in which personally identifiable records
are not created (blinded coins), to audited systems that collect
and store every aspect of each transaction.[182]
One of the most attractive features of electronic currency is
that, unlike real cash, it is anonymous.[183]
That is, when a electronic currency amount is sent from a customer
to a merchant, there is no way to obtain information about the
customer.[184]
This is one significant difference between electronic currency
and credit card systems.[185]
Unlike credit card companies that collect a customer's spending
habits and sell this data to third parties, the bank will have
no record of the customer involved in the electronic currency
transaction. Thus, by using electronic currency, the bank is unable
to obtain personal information about the consumer. Therefore,
this adequately protects the privacy rights of the customer.
- Additionally, banks must adhere to federal laws regarding financial
privacy, including the Electronic Funds Transfer Act (EFTA)[186]
and the Electronic Communications Privacy Act of 1986 (ECPA).[187]
However, it is unclear whether these acts directly apply to electronic
currency.[188]
In turn, consumers will have to wait for future legislation, as
well as judicial precedent to determine whether these laws apply
to electronic currency transactions.
- Security
As previously mentioned, the security of electronic currency is
provided by the use of encryption. Some experts are weary about
the security of online transactions. However, the use of RSA cryptography
makes it almost impossible to break the code of a digital signature.[189]
Many commentators point out that the manufacturers of cryptographic
technology will eliminate all risks of code breaking by developing
longer keys.[190]
Additionally, the enacted digital signature statutes require a
certification authority to use a trustworthy system. Therefore,
even though there is speculation about the security of the Internet,
electronic currency consumers are probably more secure in their
transactions than the more traditional ways of doing business.
- Fraud
A major disadvantage to electronic currency is fraud. If a consumer
somehow misplaces his private key and a perpetrator uses it to
withdraw funds, the bank would never know and the consumer would
be liable. Credit cards on the other hand, limit the consumer's
liability for unauthorized activity to US$50.[191]
Additionally, if the security code is broken and the message is
intercepted, the hacker will be able to perpetrate fraud on the
recipient of the message.[192]
- However, if either of these scenarios occur, the consumer is
protected by the Computer Fraud and Abuse Act.[193]
Additionally, due to the advanced technology discussed above,
the likelihood that these scenarios would occur is far less than
the unauthorized use of a credit card. Thus, although fraud is
a potential drawback of electronic currency, this risk is no greater
than the traditional forms of payment.
- Peer-to-peer double spending
Double spending of digital coins is another potential disadvantage
of electronic currency. However, this is only a potential drawback
if the consumer chooses a peer-to-peer transaction. In all other
transactions in the electronic currency system, the bank is able
to check the serial number of each coin in a transaction against
its database of spent coins, and if the coin has been spent, the
transaction will be denied.
- Therefore, the consumer has a choice of whether to include an
intermediary (bank) in the transaction. If the consumer chooses
not to include an intermediary, and then the coins are intercepted
or sent to the wrong recipient, the consumer has no recourse.
However, if the consumer included the intermediary, the bank checks
the coins for double spending thereby protecting the consumer.
Thus, the potential for the double spending of coins is only a
drawback if the consumer chooses to bear the risk of the transaction.
- After evaluating the risks and benefits of electronic currency,
this system has a great opportunity to transform today's economic
world. The electronic currency systems presently in operation
provide greater privacy and security than most present forms of
payment. Additionally, the risks involved with these transactions
are risks that the consumer chooses to bear. The remedies for
potential fraud and double spending have already been accounted
for in the systems presently in operation. Therefore, combined
with speed of transaction and the availability to the consumer,
the privacy and security aspects of electronic currency far outweigh
the potential risks.
- When a consumer purchases an item using electronic currency,
this purchase forms a legally binding contract.[194]
One of the problems regarding these contracts may be the statute
of frauds. However, as early as 1869, a New Hampshire court held
that a telegraphed contract was a sufficient writing under the
statute of frauds.[195]
Additionally, telexes, Western Union Mailgrams, and even tape
recordings have been held to be acceptable under the statute of
frauds.[196]
- The signature[197]
on these contracts may also pose problems under the statute of
frauds. However, the courts have found many different symbols
to be signatures under the statute of frauds. These include names
on telegrams,[198]
typewritten names,[199]
names on telexes,[200]
names on Western Union Mailgrams,[201]
letterhead names[202]
and even faxed signatures (under non-statute of frauds cases).[203]
Thus, any symbol or code contained in an electronic transmission
should also meet the statute of frauds requirement.[204]
Therefore, using the process of digital signatures, a consumer
will be able to create a legally binding document and signature.
In turn, the consumer will have various remedies available to
him if the other party breaches the contract.
- The days of smuggling a million dollars in a suitcase may soon
be over because electronic currency will allow criminals the same
opportunity but with less visibility. The Mondex card will allow
a criminal to store millions of dollars in his wallet, while others
will be transferring money from the comfort of their own home
to an offshore banking account in a matter of seconds. There is
no doubt that criminals will prefer electronic cash for the obvious
reasons: it is anonymous, portable and easy to hide.
- Since electronic currency lacks records that identifies who
spends, transfer or takes money, money laundering and tax evasion
are two potential problems that will be associated with this latest
form of currency. First, laundering money via the Internet can
easily be accomplished because electronic currency transactions
can be undetectable and untraceable. Illegal markets will utilize
this technology in order to facilitate their criminal activities.
Examples of illegal markets include gambling, bribery or payoffs,
contract crimes, fencing or purchasing of illegal goods, illegal
online escorts and illegal games. Second, electronic currency
also becomes a legal concern when used for tax avoidance. Under
this problematic area, criminals may violate laws by conducting
offshore funds transfers in an illegal market and practice income
hiding to avoid paying income taxes. Again, this is all possible
because the spending of electronic currency is hard to detect.
- Although the Internet is a logical or virtual concept, it is
manifested in the form of communications lines connecting computers.
Thus, fraudulent Internet schemes that involve electronic currency
fall under the Federal Wire Fraud Act.[205]
For the government to convict a defendant of wire fraud, the government
must show: (1) a scheme to defraud by means of false pretenses;
(2) defendant's knowing and willful participation in the scheme
with intent to defraud; and (3) use of interstate wire communications
in furtherance of the scheme.[206]
Even if the fraudulent scheme is not successful, an individual
may be subject to criminal liability.[207]
Even where the defendant did not cause the communication to be
transmitted or transmit the communication himself, liability may
be attached if the use of interstate wires in the transaction
is reasonably foreseeable.[208]
Moreover, each separate use of a wire communication constitutes
a separate offense, even if the defendant engaged in only a single
scheme to defraud.[209]
However, prosecuting wire fraud committed on the Internet can
be difficult because the communication must cross state lines.[210]
- Additionally, if the scheme perpetrated through the Internet
contemplates the use of U.S. Mails (e.g., victims mailing money
to defendant), then the defendant faces additional liability under
the Federal Mail Fraud Statute.[211]
Penalties for violations of these two acts include up to five
years imprisonment and fines of $1000, unless the scheme involves
a financial institution, in which case the penalties increase
to a maximum of $1,000,000 and 30 years imprisonment.
- Thus, a person will violate the Wire Fraud Act if they commit
or attempt to commit a scheme of fraud using electronic currency.
For example, in United States v. Butler & Thornton, a Virginia
federal district court held that the defendants violated the Wire
Fraud Act when they used interstate communications to misrepresent
the quality of their loans by falsifying credit applications.[212]
- However, experienced criminals are not the only ones who commit
mail fraud. For example, a 15 year-old Utah boy was recently arrested
for defrauding Internet users out of as much as $10,000.[213]
The boy set up a mailbox using a false identity and then advertised
computer parts over the Internet.[214]
Customers were asked to pay by c.o.d. or certified check. When
the customer opened the box that supposedly contained the computer
parts, it would be empty.[215]
Consequently, the customers were unable to stop payment on the
cashier's check and the money would be gone.[216]
- Conventional fraudulent schemes have also found new life on
the Internet. Federal law enforcement officers estimate that over
$10 billion worth of data is stolen in the United States each
year. Moreover, computer crimes rose forty-three percent from
1997 to 1998.[217]
For example, credit card fraud schemes are possible by convincing
victims to e-mail their credit card numbers for a free weekend,
or some other bogus prize.
- For example, Louis Rex Curtis advertised the "Computer Matching
Institute" on the Internet. Respondents to the advertisements
would receive by mail, an application to "psychologically" match
them with the perfect partner. After mailing in the application
and a fee, the applicants would never hear from Curtis again.
- In terms of dollars, Jim Lay of North Carolina may have committed
the largest fraudulent act. The scam reportedly cost six telephone
companies $28 million. Using the computer name, "Knight Shadow,"
Lay, an MCI Telecommunications, Inc. employee, sold between 50,000
and 100,00 stolen telephone calling-card numbers world-wide. However,
Lay is now in Federal prison.
- The Federal Trade Commission expects consumer fraud to increase
on the Internet. Already the FTC investigated and halted several
fraudulent schemes over the Internet, including a pyramid scheme
that cheated investors out of $6 million. An example of a possible
electronic currency fraudulent scheme would be a situation where
the purchaser transfers electronic currency to a trader, but never
receives the bargained good or service. If the wire communication
crossed state lines, the damaged purchaser would be able to bring
a cause of action under the wire fraud act.
- Moreover, if a defendant's activities are found to violate
the Federal Wire Fraud Act, such activities may also violate the
Racketeer Influenced and Corrupt Organization Act (RICO). The
Wire Fraud Act contains the essential elements of RICO, with the
additional requirement that the government must prove: (1) that
the alleged defendants participated directly or indirectly in
an enterprise (two or more people); and (2) through a pattern
that constitutes racketeering activity whereby the plaintiff's
business or property was injured by such conduct.[218]
- Therefore, an individual who interferes with an electronic currency
transaction may not only be subject to one of the above mentioned
Acts but all three.
- Despite the strong security for an electronic currency transaction,
there is always the possibility that a criminal may intercept
the transaction. If this slim possibility does occur, a remedy
may be found in federal law. The Computer Fraud and Abuse Act
(CFA) prohibits any person from intentionally accessing a computer
or electronic communication without authorization and obtaining
financial, medical, or other proprietary information.[219]
The CFA also prohibits any person from using a computer or electronic
communication to commit: (1) fraud; (2) to "trespass" on a protected
computer; (3) to transmit programs, information, calls, or commands
that intentionally cause damage to a protected computer; and (4)
to traffic in unauthorized passwords.[220]
"Protected computers" are defined as computers being used in interstate
commerce or communications.[221]
Therefore, a protected computer is one used for private or commercial
business purposes which transverse interstate lines for communication
or commerce. Punishment for the foregoing acts include both monetary
fines and prison terms up to twenty years. Moreover, the CFA provides
civil claims for compensatory economic damages and injunctive
or other equitable relief.
- To understand how the CFA will impact electronic currency transaction,
lets first look at some recent cases that have interpreted the
CFA. First, in Organization JD Ltda. v. United States Department
of Justice, the Second Circuit found that the CFA precisely identified
plaintiffs who could bring a cause of action under the CFA to
include "originator[s], addressee[s], or intended recipient[s],"
and any other "party" to an electronic communication that was
damaged due to an intentional and unauthorized access by a party.[222]
- Second, courts have interpreted "interstate communication"
under the CFA to include illegal Internet activity if such activity
crossed state lines. For example, a message from Cincinnati to
Cleveland may leave the State of Ohio and be routed through Maryland.
If so, the communication is interstate communication. However,
if the communication does not across state lines, then the statute
is not satisfied. In America Online, Inc. v. LCGM, Inc., a Virginia
federal district court held that LCGM's use of the Internet to
send unauthorized and unsolicited bulk e-mail advertisements (i.e.,
"spamming") to AOL's customers in numerous states violated the
CFA.[223]
The court reasoned that the practice of spamming (which also violated
LCGM's user agreement with AOL) was considered an interstate communication
and thus fell within the scope of the CFA.[224]
- The Courts have also interpreted "information" under the CFA
to include proprietary information. In American Online, Inc. v.
LCGM, Inc., LCGM obtained e-mail address of AOL members by intentionally
breaking into AOL's network.[225]
The court held that the e-mail addresses were protected "information"
under the CFA because they were proprietary in nature.[226]
- Although there are no CFA cases that involve electronic currency,
the rational in these cases can be analogized to electronic currency.
Like the e-mails in LCGM, the Internet enables electronic currency
to exist. If the unauthorized conduct on the Internet interfered
with an electronic currency transaction that crossed state lines,
such conduct would clearly fall within the meaning of "interstate
communication" under the CFA. Moreover, since electronic currency
is clearly proprietary in nature, i.e., the manifestation of money,
a damaged plaintiff must show that the defendant intended to defraud
and wrongfully obtain proprietary information via the Internet.
Therefore, any person or party who impairs an electronic currency
transaction by "intentionally access[ing] a protected computer
without authorization, and as a result of such conduct, causes
damages"[227]
would violate the CFA.
- It would also seem likely that the National Stolen Property
Act (NSPA) could be applied to the unlawful transmission of information
across state lines via the Internet. The NSPA provides criminal
penalties for the interstate transport of any stolen goods, including
non-governmental property.[228]
The NSPA requires that "goods, wares, merchandise, securities
or money" be the illicitly obtained items, which are transferred
across state lines.[229]
In Dowling v. United States, the United States Supreme Court held
that the NSPA applied to physical goods themselves that have been
stolen, converted, or taken by fraud.[230]
Also, in United States v. Riggs, a Federal district court upheld
the indictment of Robert J. Riggs and Craig Neidorff under the
Wire Fraud Act and the NSPA for their theft of a Bell South Text
file containing 911 codes.[231]
The court reasoned that the defendants had transferred "confidential,
proprietary business information."[232]
- However, in United States v. Brown et al., the Tenth Circuit
rejected the governments argument and refused to allow the United
States to indict the defendants under the NSPA for retaining a
hard disk containing misappropriated source code.[233]
The court reasoned that source code contained on a hard disk did
not constitute "goods" under the NSPA.[234]
- Although the Brown court reasoned that the source code did not
constitute "goods" under the NSPA, electronic currency is distinguishable
from source code. Electronic currency is a manifestation of money,
which can easily be converted into physical money. Moreover, electronic
currency arguably could constitute "money" under the NSPA because
it is a manifestations of money and therefore proprietary information.
With electronic currency, a damaged plaintiff could argue that
the defendant(s) stole, transferred, converted or took electronic
coins by fraud. Since an electronic coin's value is equal to its
physical coin value, interstate transmission of illegal money
is prohibited under the NSPA. If a hacker or party to an electronic
currency transaction illegally obtains electronic currency and
transports it across state lines, such illegal conduct would clearly
fall within the scope of the NSPA.
- A damaged party may not only have a cause of action under federal
statutes, but may also have a cause of action under common law
claims. For example, a party who has been damaged from an electronic
currency transaction may seek a cause of action under the theories
of breach of contract, tortious interference with contract, trespass,
nuisance, conversion, negligence, fraud and misrepresentation
as well as numerous state computer crime statutes.
- For example, in America Online, Inc. v. IMS, the court found
in favor of AOL on its claims of false designation of origin,
dilution and trespass to chattels when the defendant spammed AOL
customers.[235]
Also, in Hotmail Corporation v. Van$ Money Pie Inc., the court
denied the defendant's motion for summary judgment and found that
the plaintiff's fraud and misrepresentation claims were likely
to succeed.[236]
The court reasoned that the defendant falsely obtained several
of the plaintiff's accounts knowing that they would not abide
by the user agreements and that the defendants falsified their
spam to make it appear that plaintiff had authorized their messages.[237]
- As you can see, both federal and state law adequately protects
a consumer that uses an electronic currency system. Even if an
electronic currency transaction goes awry, the damaged consumer
will have adequate remedies under both federal and state law.
- Presently, electronic currency is at the early stages of implementation.
As we progress into the twenty-first century, a consumer's wallet
will hold less paper cash, coins and magnetic strip cards. Instead,
smart cards, e.g., Mondex, will contain electronic currency and
other financial information that will automatically execute a
transaction. In the physical world, consumers will gain immediate
access to public transportation, concerts and movie theaters using
smart cards. Additionally, a cyberspace mall will allow all entrepreneurs
and retailers the ability to instantly reach the global market.
This will allow numerous storefronts to be just a click away from
a potential sale. Yet, the major issues will continue to be trust
and security in ensuring consumers that the chance of a fraudulent
transaction or misuse of personal information is slim or non-existent.
However, once the electronic currency industry is able to ensure
consumers that these transactions are secure and trustworthy,
it will change the way we conduct our daily lives.
[1] See
Notaries Public in American History, NOTARY BULL., Apr. 1997, at
3.
[2] On
the state level, all fifty states have some form of unified set
of laws regulating notaries. See ALA. CODE §§ 36-20-1
to -11 (1998); ALASKA STAT. §§ 44.50.010-.190 (Michie
1999); ARIZ. REV. STAT. ANN. §§ 41-311 to -326 (West 1999);
ARK. CODE ANN. §§ 21-14-101 to -111 (Michie 1999); CAL.
GOV'T CODE §§ 8200-8230 (West 1999); COLO. REV. STAT.
§§ 12-55-101 TO -123 and 12-55-201 to -211 (1999); CONN.
GEN. STAT. ANN. §§ 3-91 to -99a and 7-33a (West 1999);
DEL. CODE ANN. tit. 29, §§ 4301-4328 (1998); D.C. CODE
ANN. §§ 1-801 to -817 (1999); FLA. STAT. ANN. §§
117.01 to .10 (West 1999); GA. CODE ANN. §§ 45-17-1 to
-34 (Harrison 1999); HAW. REV. STAT. §§ 456-1 to -18 (1998);
IDAHO CODE §§ 51-101 to -123 (1998); ILL. ANN. STAT. ch.
10
[2] ¶¶
201-101 to 203-106 (Smith-Hurd 1999); IND. CODE ANN. §§
33-16-1-1 to 16-2-9 (West 1999); IOWA CODE ANN. § 586.1 (West
1999); KAN. STAT. ANN. §§ 53-101 to -401 (1998); KY. REV.
STAT. ANN. §§ 423.010 -.990 (Banks-Baldwin 1999); LA.
REV. STAT. ANN. §§ 35:1 -:17 (West 1999); ME. REV. STAT.
ANN. tit. 4, §§ 951-958 (West 1999); MD. CODE ANN. art.
68, §§ 1-13 (1998); MASS. GEN. LAWS ANN. ch. 222, §§
1-11 (West 1999); MICH. COMP. LAWS ANN. §§ 55-101 to -107
(West 1999); MINN. STAT. ANN. §§ 359-01 to -1
[2] (West
1999); MISS. CODE ANN. §§ 25-33-1 to -23 (1998); MO. ANN.
STAT. §§ 486-200 to -405 (West 1999); MONT. CODE ANN.
§§ 1-5-401 to -420 (1998); NEB. REV. STAT. §§
64-101 to -215 (1998); NEV. REV. STAT. ANN. §§ 240.010
-.160 (Michie 1999); N.H. REV. STAT. ANN. §§ 455:1 to
:14 (1998); N.J. STAT. ANN. §§ 52:7-10 to -21 (West 1999);
N.M. STAT. ANN. §§ 14-12-1 to -20 (Michie 1999); N.Y.
EXEC. LAW §§ 6-130 to -139 (McKinney 1999); N.C. GEN.
STAT. §§ 10A-1 to -16 (1998); N.D. CENT. CODE §§
44-06-01 to -14 (1998); OHIO REV. CODE ANN. §§ 147.01
-.14 (Anderson 1999); OKLA. STAT. ANN. tit. 49, §§ 1-10
(West 1999); OR. REV. STAT. §§ 194-005 to -990 (1998);
57 PA. CONS. STAT. ANN. §§ 1 to -169 (West 1999); R.I.
GEN. LAWS §§ 42-30-1 to -14 (1998); S.C. CODE ANN. §§
26-1-10 to 26-3-90 (Law.Co-op 1999); S.D. CODIFIED LAWS ANN. §§
18-1-1 to -14 (Michie 1999); TENN. CODE ANN. §§ 8-16-101
to 309 (1998); TEX. GOV'T CODE ANN. §§ 406.001 -.024 (West
1999); UTAH CODE ANN. §§ 46-1-1 to -17 (1998); VT. STAT.
ANN. tit. 24, §§ 441-446 (1998); VA. CODE ANN. §§
47.1-1 to -33 (Michie 1999); WASH. REV. CODE ANN. §§ 42.44.010
-.903 (West 1999); W.VA. CODE §§ 29-4-1 to -16 (1998);
WIS. STAT. ANN § 137.01 (West 1999); WYO. STAT. §§
32-1-101 to -113 (Michie 1999).
[3] Only
two states require that notary applicants be older than eighteen
years of age. See ALASKA STAT. §§ 44.50.010-.190 (Michie
1999) (requiring applicant to be 19 years of age); NEB.REV.STAT.
§§ 64-101 to -215 (1998) (requiring applicant to be 19
years of age);
[4] See
WESLY GILMER, JR., ANDERSON'S MANUAL FOR NOTARIES PUBLIC §
2.5 (5th ed. 1976). Thirty-one states require a notary bond that
varies from $20,000 to $500 to "assure the faithful performance
of duties, and to compensate any person who may suffer a loss because
of the notary's misconduct." Id. See ALA. CODE §§ 36-20-1
to -11 (1998) ($10,000); ALASKA STAT. §§ 44.50.010-.190
(Michie 1999) ($1,000); ARIZ. REV. STAT. ANN. §§ 41-311
to -326 (West 1999) ($5,000); ARK. CODE ANN. §§ 21-14-101
to -111 (Michie 1999) ($4,000); CAL. GOV'T CODE §§ 8200-8230
(West 1999) ($15,000); D.C. CODE ANN. §§ 1-801 to -817
(1999) ($2,000); FLA. STAT. ANN. §§ 117.01 to .10 (West
1999) ($7,500); HAW. REV. STAT. §§ 456-1 to -18 (1998)
($1,000); IDAHO CODE §§ 51-101 to -123 (1998) ($10,000);
ILL. ANN. STAT. ch. 102 ¶¶ 201-101 to 203-106 (Smith-Hurd
1999) ($5,000); IND. CODE ANN. §§ 33-16-1-1 to 16-2-9
(West 1999) ($5,000); KAN. STAT. ANN. §§ 53-101 to -401
(1998) ($7,500); KY. REV. STAT. ANN. §§ 423.010 -.990
(Banks-Balwin 1999) (Varies per county); LA. REV. STAT. ANN. §§
35:1 -:17 (West 1999) ($5,000-attorneys exempt); MICH. COMP. LAWS
ANN. §§ 55-101 to -107 (West 1999) ($10,000); MISS. CODE
ANN. §§ 25-33-1 to -23 (1998) ($5,000); MO. ANN. STAT.
§§ 486-200 to -405 (West 1999) ($10,000); MONT. CODE ANN.
§§ 1-5-401 to -420 (1998) ($5,000); NEB. REV. STAT. §§
64-101 to -215 (1998) ($10,000); NEV. REV. STAT. ANN. §§
240.010 -.160 (Michie 1999) ($10,000); N.M. STAT. ANN. §§
14-12-1 to -20 (Michie 1999) ($500); N.D. CENT. CODE §§
44-06-01 to -1
[4] (1998)
($7,500); OKLA. STAT. ANN. tit. 49, §§ 1-10 (West 1999)
($1,000); 57 PA. CONS. STAT. ANN. §§ 1 to -169 (West 1999)
($3,000); S.D. CODIFIED LAWS ANN. §§ 18-1-1 to -1
[4] (Michie
1999) ($5,000); TENN. CODE ANN. §§ 8-16-101 to 309 (1998)
($10,000); TEX. GOV'T CODE ANN. §§ 406.001 -.02
[4] (West
1999) ($10,000); UTAH CODE ANN. §§ 46-1-1 to -17 (1998)
($5,000); WASH. REV. CODE ANN. §§ 42.44.010 -.903 (West
1999) ($10,000); WIS. STAT. ANN § 137.01 (West 1999) ($500);
WYO. STAT. §§ 32-1-101 to -113 (Michie 1999) ($500). In
the three states where the bond is $500, the statutes were enacted
between 1849 and 1876 and were never amended to reflect the modern
cost of living. See Michael L. Closen, Why Notaries Get Little Respect,
NAT'L L.J. Oct. 9, at A23 (1995). Additionally, some states have
not changed their notary bond requirements in over one hundred and
twenty years. See Michael L. Closen & R. Jason Richards, Notaries
Public-Lost in Cyberspace, or Key Business Professionals of the
Future?, 15 J. MARSHALL J. COMPUTER & INFO. L. 703, 749-750
(1997).
[5] Only
fourteen states have some type of minimum residence requirement
incorporated into their respective notary statutes. See ALA. CODE
§§ 36-20-1 to -11 (1998) (requiring 1 day); ALASKA STAT.
§§ 44.50.010-.190 (Michie 1999) (requiring 30 days); ARIZ.
REV. STAT. ANN. §§ 41-311 to -326 (West 1999) (Varies);
COLO. REV. STAT. §§ 12-55-101 TO -123 and 12-55-201 to
-211 (1999) (requiring 29 days); ILL. ANN. STAT. ch. 102 ¶¶
201-101 to 203-106 (Smith-Hurd 1999) (requiring 30 days); MO. ANN.
STAT. §§ 486-200 to -40
[5] (West
1999) (requiring 30 days); MONT. CODE ANN. §§ 1-5-401
to -420 (1998) (requiring 1 year); NEV. REV. STAT. ANN. §§
240.010 -.160 (Michie 1999) (requiring 30 days); N.D. CENT. CODE
§§ 44-06-01 to -14 (1998) (requiring 30 days); OHIO REV.
CODE ANN. §§ 147.01 -.14 (Anderson 1999) (requiring 30
days); 57 PA. CONS. STAT. ANN. §§ 1 to -169 (West 1999)
(requiring 1 year); R.I. GEN. LAWS §§ 42-30-1 to -14 (1998)
(requiring 1 month); UTAH CODE ANN. §§ 46-1-1 to -17 (1998)
(requiring 30 days); W.VA. CODE §§ 29-4-1 to -16 (1998)
(requiring 30 days).
[6] Only
thirteen states administer an exam before certifying a notary. See
ALASKA STAT. §§ 44.50.010-.190 (Michie 1999); CAL. GOV'T
CODE §§ 8200-8230 (West 1999); CONN. GEN. STAT. ANN. §§
3-91 to -99a and 7-33a (West 1999); D.C. CODE ANN. §§
1-801 to -817 (1999); HAW. REV. STAT. §§ 456-1 to -18
(1998); LA. REV. STAT. ANN. §§ 35:1 -:17 (West 1999);
ME. REV. STAT. ANN. tit. 4, §§ 951-958 (West 1999); N.Y.
EXEC. LAW §§ 6-130 to -139 (McKinney 1999); N.C. GEN.
STAT. §§ 10A-1 to -1
[6] (1998);
OHIO REV. CODE ANN. §§ 147.01 -.14 (Anderson 1999); OR.
REV. STAT. §§ 194-005 to -990 (1998); UTAH CODE ANN. §§
46-1-1 to -17 (1998); WYO. STAT. §§ 32-1-101 to -113 (Michie
1999). Additionally, only the state of North Carolina requires notaries
to undergo classroom training at community colleges. See N.C. GEN.
STAT § 10A-4(b)(1998).
[7] See
generally, Closen, supra note 4, at A23 (stating that states can
improve notary performance through training and testing); Vincent
Gnoffo, Comment, Notary Law and Practice for the 21st Century: Suggested
Modifications for the Model Notary Act, 30 J. MARSHALL L. REV. 1063,
1064-65 (1997) (contending that continuous education and testing
would solve many notarial problems); Closen & Richards, supra
note 4 (suggesting that states should raise standards and requirements
to improve the service of notaries).
[8] The
United States Supreme Court has stated that "a notary's duties...
are essentially clerical and ministerial." Bernal v. Fainter, 467
U.S. 216, 216-217 (1984).
[9] See
58 Am. Jur. 2d Notaries Public, § 1 (1989) (explaining that
"[a] notary pubic is defined as a public, civil or ministerial officer...");
Ashcraft v. Chapman, 38 Conn. 230 (1871) (asserting that a notary
is a public officer); Britton v. Niccolls, 104 U.S. 757, 765 (1881)
(declaring that a notary is a public officer); May v. Jones, 14
S.E. 552, 553 (Ga. 1891) (stating "the notary...is a public officer,
sworn to discharge his duties properly"); State v. Clark, 31 P.
545, 546 (Nev. 1892) (noting that "it has been frequently held that
a notary is a public officer"); Stork v. Am. Surety Co., 33 So.
742, 743 (La. 1903) (stating that a notary is a public officer);
State v. Hodges, 107 Ark. 272 (1913) (stating that a notary is a
public officer); Pitsch v. Continental & Comm. Nat'l Bank, 137
N.E. 198, 200 (Ill. 1922) (identifying a notary as a public officer);
Comm. Union Ins. Co. v. Burt Thomas-Atiken Constr. Co., 230 A.2d
498, 499 (N.J. 1967) (declaring that "a notary public is a public
officer"); Werner v. Werner, 526 P.2d 370, 376 (Wash. 1974) (identifying
"the notary, as a public officer, ..."); But see Transamerica Ins.
Co. v. Valley Nat'l Bank, 462 P.2d 814, 817 (Ariz. Ct. App. 1969)
(stating that "at best, a notary holds a position that is quasi-public
in nature because a notary may hold other offices, does not receive
compensation from the state and is allowed to charge the public
a fee for his services, and he is not elected nor appointed by state").
[10]
See Michael L. Closen & G. Grant Dixon III, Notaries Public
From the Time of the Roman Empire to the United States Today, and
Tomorrow, 68 N.D.L. REV. 873 (1992). A notary public is a public
official with the unusual powers for a non-judicial officer. Id.
[11]
See Closen & Richards, supra note 4, at 723.
[12]
Gerald Haberkorn & Julie Z. Wulf, The Legal Standard of Care
for Notaries and Their Employers, 31 J. MARSHALL L. REV. 735, 737
(1998).
[13]
Id. at 737-738.
[14]
See 5 ILCS 312/6-102 (1998). In Illinois, satisfactory evidence
that a person is the person whose true signature is on a document
if that person: (1) is personally known to the notary; (2) is identified
upon the oath or affirmation of a credible witness personally known
to the notary; or (3) is identified on the basis of identification
documents. 5 ILCS 312/6-102.
[15]
The person seeking notarization must appear personally and provide
evidence that he/she is who he/she claims to be. See In re Scott,
464 P.2d 318 (Or. 1970) (declaring that a notary may be reprimanded
for notarizing without appearance); Ardis v. State, 380 So.2d 301
(Ala. Crim. App. 1979) (stating that a notary must be provided evidence
of the identity of the person whose signature they are notarizing);
Bernd v. Fong Eu, 161 Cal. Rptr. 58 (Ct. App.1979) (noting that
a notary is negligent when he fails to ascertain the identity of
person for acknowledgment); City Consumer Serv., Inc. v. Metcalf,
775 P.2d 1065 (Ariz. 1989) (en banc) (acknowledging that a notary
is negligent when he failed to ask for identification).
[16]
See Charles N. Faerber, Being There: The Importance of Physical
Presence to the Notary, 31 J. MARSHALL L. REV. 749 (1998) (discussing
telephone acknowledgments of signature and terms of agreement not
acceptable).
[17]
Courts have refused to accept telephone acknowledgements. For example,
in voiding a deed of trust bearing a signature acknowledged over
the phone, a Texas court declared: A notary can no more perform
by telephone those notarial acts which require a personal appearance
than a dentist can pull a tooth by telephone. If a telephone conversation
is a personal appearance, we may suppose that a letter or telegram
to a notary would also be as good or maybe even better. Charlton
v. Richard Gill Co., 285 S.W.2d 801, 803 (Tex. App. 1955).
[18]
See Thomas J. Smedinghoff, Digital Signatures: The Key to Secure
Commerce, OIL GLASS-CLE 201, 222 (1998).
[19]
See Closen & Richards, supra note 4, at 739.
[20]
See UTAH CODE ANN. §§ 46-3-101 to -502 (1998).
[21]
See UTAH CODE ANN. §§ 46-3-101 to -502.
[22]
See Closen & Richards, supra note 4, at 739.
[23]
Id. In theory, any one can be a certification authority. This includes
governmental entities, as well as private persons or entities acting
as certification authorities for commercial purposes. See Smedinghoff,
supra note 18, at 224. Already, a number of private commercial certification
authorities are in operation. Id. These include Verisign, Inc. which
issues certificates and offers services to both corporations and
individuals who digitally sign documents for any purpose. Id. at
225.
[24]
See CLE Liaison Committee, Notaries Public, 43 R.I.B.J. 13 (1994).
[25]
See Chuck Appleby, Encryption Making Security a Reality, 508 INFO.
WK. 38 (1995).
[26]
See Closen & Richards, supra note 4, at 740.
[27]
See Appleby, supra note 25, at 38. Ken Gilpatric, a Justice Department
lawyer working on the National Performance Review Team, has stated
that a digital notary is necessary "to make electronic commerce
easy and trustworthy." Glen-Peter Ahlers, Sr., The Impact of Technology
on the Notary Process, 31 J. MARSHALL L. REV. 911, 912 (1998).
[28]
See Elizabeth Wasserman, Signing on with Digital Signatures-New
Laws May Allow Computer Validation, PHOENIX GAZ., Aug. 29, 1995,
at A1.
[29]
See Smedinghoff, supra note 18, at 222
[30]
See R.R. Jueneman & R.J. Robertson, Biometrics and Digital Signatures
in Electronic Commerce, 38 JURIMETRICS J. 427, 438 (1998).
[31]
See Jane Kaufman Winn, Open Systems, Free Markets, and Regulation
of Internet Commerce, 72 TUL. L. REV 1177, 1200-1201 (1998).
[32]
See Smedinghoff, supra note 18, at 222.
[33]
Id.
[34]
Id.
[35]
Id. Certification authorities issue a variety of different certificates
including: (1) identifying certificates that connect a name to a
public key and could be stored on devices such as smart cards to
facilitate financial transaction as well as a variety of public
functions such as driver license registration, voter registration,
and eligibility for various benefits; (2) authorizing certificates
that attest to such data as the subscriber's residence, age, membership
in a particular organization, or the holding of a license such as
that of attorney or physician. See Philip S. Corwin, Administration
Entangles Digital Signatures with Encryption Policy, 16 No. 8 BANKING
POL'Y REP. 1, 13 (1997). A financial organization might issue: (1)
an authorizing certificate linking a public key to a particular
account; (2) transactional certificates that attest to some fact
about a transaction, such as its witnessing by a cybernotary; and
(3) digital time stamps that are unforgeable digital proof that
a document was in existence at a particular time. Id.
[36]
See Smedinghoff, supra note 18, at 223. A repository is an electronic
database of certificates, similar to digital yellow pages. The repository
is generally available online and may be maintained by a CA or anyone
else providing repository services. Id.
[37]
Id.
[38]
See Richard L. Field, Digital Signatures: Verifying Internet Business
Transactions, 471 PLI/PAT 721, 732 (1997); see also Brian W. Smith
& Timothy E. Keehan, Digital Signatures: The State of the Art
and the Law, 114 BANKING L.J. 506 (1997). The digital signature,
an electronic encoded message containing a unique alphanumerical
notation, is a necessary component of electronic commerce. See Sanu
K. Thomas, The Protection and Promotion of E-commerce: Should There
be a Global Regulatory Scheme for Digital Signatures?, 22 FORDHAM
INT'L L.J. 1002, 1012 (1999). It guarantees the level of validity,
authenticity, and security needed for electronic transactions. Id.
[39]
See Jueneman & Robertson, supra note 30, at 437. The most commonly
used method of public key encryption is called "RSA." See Lonnie
Eldridge, Internet Commerce and the Meltdown of Certification Authorities:
Is the Washington State Solution a Good Model?, 45 UCLA L. REV.
1805, 1812 (1998). RSA has been incorporated into such technological
applications as, Internet browsers, secure phones, and drop-in computer
cards. Id. Although RSA public key encryption is useful, it is slow
compared to single key encryption schemes like DES. Id. at 1816.
[40]
See Thomas, supra note 38, at 1012.
[41]
AMERICAN BAR ASSOCIATION, DIGITAL SIGNATURE GUIDELINES: LEGAL INFRASTRUCTURE
FOR CERTIFICATION AUTHORITIES AND SECURE ELECTRONIC COMMERCE 6 (1996)
[hereinafter ABA GUIDELINES]. According to the ABA Signature Guidelines,
digital signatures "should indicate who singed a document, message,
or record, and should be difficult for another person to produce
without authorization." Id. California's statute defines "digital
signature" in a technologically neutral manner, saying it "means
an electronic identifier, created by a computer, intended by the
party using it to have the same force and effect as the use of a
manual signature." CAL. GOV'T CODE § 16.5 (West 1999). Additionally,
Utah law defines "digital signature" as "a transformation of a message
using an asymmetric cryptosystem." UTAH CODE ANN. § 46-3-103
(1998).
[42]
See Smedinghoff, supra note 18, at 220.
[43]
Id.
[44]
Id.
[45]
Id.
[46]
When a person uses encryption, documents traveling through an electronic
medium are scrambled and unscrambled using mathematical formulas,
or algorithms. See Michael D. Wims, Law and the Electronic Highway,
Are Computer Signatures Legal?, 10 CRIM. JUST. 31, 3 (1995).
[47]
See Smith & Keehan, supra note 38, at 507.
[48]
Symmetric cryptography uses a single, secret key to either encrypt/transform
or decrypt/restore a message to its original form. See Thomas, supra
note 38, at 1009. The U.S. military used symmetric cryptography
during the cold war for communication purposes. Id. In 1875, IBM
and the U.S. government developed the Data Encryption Standard (DES),
the most widely used symmetric cryptosystem. See Eldridge, supra
note 39, at 1810. Some experts estimate that an eavesdropper who
intercepts a message encoded in DES can crack the encryption in
about 3.5 hours with a one-million dollar computer. Id.
[49]
Asymmetric cryptography uses two different, but related keys to
encrypt/decrypt messages. See Thomas, supra note 38, at 1010. Asymmetric
cryptosystem is widely used to create and verify digital signatures.
See Smith & Keehan, supra note 38, at 506.
[50]
See Winn, supra note 31, at 1199.
[51]
Statutes in both Utah and Washington require the use of "asymmetric
cryptosystem." See UTAH CODE ANN. § 46-3-103 (1998); WASH.
REV. CODE ANN. § 19.34 et. seq. (West 1999)
[52]
See Closen & Richards, supra note 4, at 735. A private key and
a public key are produced at the same time, and are mathematically
linked to each other, along with your secret password. See Gary
W. Fresen, What Lawyers Should Know About Digital Signatures, 85
ILL. B.J. 170, 172 (1997).
[53]
See Closen & Richards, supra note 4, at 735.
[54]
Id.
[55]
The sender may run this message through a hash function, which performs
a series of mathematical operations on the message. See Daniel J.
Greenwood & Ray A. Campbell, Electronic Commerce Legislation:
From Written on Paper and Signed in Ink to Electronic Records and
Online Authentication, 53 BUS. LAW. 307, 314 (1997). The hash function
operates by performing a calculation of all of the binary numbers
of each letter or symbol in the document. See Fresen, supra note
52, at 171-172. By using a hash function, an individual can create
a number that is called a message digest, which prevents a third
party changing the message. See Greenwood & Campbell, supra
note 55, at 314. In order to create an encrypted message, the sender
then encodes this message digest with the recipient's public key.
See Eldridge, supra note 39, at 1811. This operation forms the digital
signature for the sender's message. Next, the sender sends the message
to the recipient. See Greenwood & Campbell, supra note 55, at
314. Since the typical "message digest" or "hash results" that are
compared are 160 bits in length, it would "require an attacker to
generate and search through approximately 280 pairs of messages
in order to have an approximately even chance of finding even a
single pair of messages that would produce the same message digest
but yet not be precisely identical, down to the bit level." Jueneman
& Robertson, supra note 30, at 439-440. That is 1.2x1024, or
approximately a trillion trillion messages that would have to be
examined-a patent impossibility. Id.
[56]
See Closen & Richards, supra note 4, at 735.
[57]
Wims, supra note 46, at 31.
[58]
Id.
[59]
See Field, supra note 38, at 733.
[60]
Id.
[61]
The public key can be freely distributed and used by anyone. See
Winn, supra note 31, at 1200-1201.
[62]
See Wims, supra note 46, at 31. Once the message and signature arrive,
the recipient then uses the software to create two new hash results:
one derived from the message and one derived from the digital signature.
See Smith & Keehan, supra note 38, at 508. The recipient's software
then compare |