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Micro-Payment Protocols and Systems Speaker: Jerry Gao Ph.D. San Jose State University URL:

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1 Micro-Payment Protocols and Systems Speaker: Jerry Gao Ph.D. San Jose State University email: jerrygao@email.sjsu.edu URL: http://www.engr.sjsu.edu/gaojerry Sept., 2000

2 Topic: Micro-Payment Protocols and Systems - Overview of Micro-payment protocols and systems - Millicent Protocol - SubScrip Protocol - PayWord - MicroMint - Comparison of micro-payment protocols Jerry Gao Ph.D.5/20000 Presentation Outline All Rights Reserved

3 Jerry Gao Ph.D.5/2000 Classification of payment processing: - Macro payments Macro payments refer to large payment deal 10 - Small payments - Micro payments With micro-payments, efficiency and speed are dominant factors. and security issues can be Overview of Online Payment Protocols and Systems Topic: Micro-Payment Protocols and Systems

4 Jerry Gao Ph.D.5/2000 - Objectives: ---> Micro-payment situations: Although micro-payment systems share the similar requirements of other payment systems, they focus on special markets, where: - Low-value transactions involved less than the value of smallest coin. - Non-tangible and network-deliverable merchandise examples: archived magazines, journals, CD, software,… - Special requirements: - Fast and low cost payment transactions. - Very small amount of value - Reduced the number of involved parties - High scalable The issues of other payment systems: - Account-based systems have high transaction costs. - Transaction speed in electronic checking systems is slow. - Electronic money systems involve more parties, have low transaction speed, and cause poor scalability. Micro-Payment Protocols Topic: Micro-Payment Protocols and Systems

5 Jerry Gao Ph.D.5/2000 - Objectives: ---> Micro-payment situations: Although micro-payment systems share the similar requirements of other payment systems, they focus on special markets, where: - Low-value transactions involved less than the value of smallest coin. - Non-tangible and network-deliverable merchandise examples: archived magazines, journals, CD, software,… - Special requirements: - Fast and low cost payment transactions. - Very small amount of value - Reduced the number of involved parties - High scalable The issues of other payment systems: - Account-based systems have high transaction costs. - Transaction speed in electronic checking systems is slow. - Electronic money systems involve more parties, have low transaction speed, and cause poor scalability. Micro-Payment Protocols Topic: Micro-Payment Protocols and Systems

6 Jerry Gao Ph.D.5/2000 Micro-payment Protocols: - Millicent, developed by Digital Equipment Corp. in 1995. - SubScrip, developed at the University of Newcastle, Australia. - PayWord, developed by Ron Rivest (MIT) and Adi Shamir. - MicroMint, developed by Ron Rivest and Adi Shamir. - iKP micropayment protocol Micro-payment systems do not available in conventional commerce. They open many new areas of business. Examples: - Millicent payment system - Micro Payment Transfer Protocol (MPTP) based on PayWord. Micro-Payment Protocols and Systems Topic: Micro-Payment Protocols and Systems

7 Jerry Gao Ph.D.5/2000 Topic: Micro-Payment Protocols and Systems - Important features of Micro-payment protocols and systems: - Simplified verification - Simple security mechanisms - Very low cost transactions - Very fast speed - Simplified architecture - Major factors on transaction costs: - Payment methods - Complexity of security mechanisms - The number of involved parties - Transaction model (on-line/off-line) Micro-Payment Protocols and Systems

8 Jerry Gao Ph.D.5/2000 Overview of Millicent: Millicent payment protocol is designed for low-amount transactions over the Internet. It is developed by Digital - Support low-cost, secured transactions (less than one cent) - Use non-expensive symmetric crytographic algorithms - Use scrip as digital cash for customers to make purchases from vendors - Provide decentralized validation of electronic cash at the vendor’s server - Provide no additional communications, off-line processing. Business market: electronic publishing, software and game industries. Performance: 14,000 pieces of Scrip can be produced per second. 8,000 payments can be validated per second, with change Scrip being produced. A public trial of the Millicent system was scheduled for the summer of 1997. Micro-Payment Protocol: Millicent Topic: Micro-Payment Protocols and Systems

9 Jerry Gao Ph.D.5/2000 MilliCent model: MilliCent protocols use a form of electronic currency called Scrip to connect three involved parties: - vendors, customers, and brokers. Scrip is vendor specific. A Millicent broker: --> medicate between vendors and customers to simplify the tasks they perform. --> aggregate micro-payments --> sell vendor Scrip to customers --> handle the real money in the Millicent system. --> maintain customer accounts and vendors (subScripion services) --> buy and produce large chunks of vendor Scrips (for licensed vendors) Vendors: --> are merchants selling low-value services or information to customers Customers: --> buy broker Scrip with real money from selected brokers. --> use the vendor Scrips to make purchases. Micro-Payment Protocol: MilliCent Topic: Micro-Payment Protocols and Systems

10 3 1. Customer sends broker-scripts. 2. Customer gets dealer-script. 3. Customer send dealer-scripts. Broker Customer Dealer Jerry Gao Ph.D.5/2000 Micro-Payment Protocol: MilliCent 1 2 Internet Topic: Micro-Payment Protocols and Systems

11 Jerry Gao Ph.D.5/2000 Micro-Payment Protocol: MilliCent Customer Broker Vendor Broker sell vendor Scrip Brokers buy/produce large chunks of “vendor Scrip” for licensed vendors Customer make purchases with vendor Scrips Vendor sell low-value information and services Millicent Trust Model: Topic: Micro-Payment Protocols and Systems

12 Jerry Gao Ph.D.5/2000 Micro-Payment Protocol: MilliCent CustomerBrokerVendor 1. Credit card # (macro- payment protocol) Transaction Sequence 2. $5.00 Broker scrip(Millicent protocol) 1. $0.19 Vendor scrp + request 2. $0.15 Vendor scrip change + article (cost $0.04) Uses current change Start of week Topic: Micro-Payment Protocols and Systems

13 Jerry Gao Ph.D.5/2000 Micro-Payment Protocol: MilliCent CustomerBrokerVendor 1.0 Broker scrip Transaction Sequence 2. $0.20 Vendor scrip $4.80 Broker scrip 3. $0.20 Vendor scrp + request 4. $0.19 Vendor scrip change + purchased ino/service Purchasing from a vendor Topic: Micro-Payment Protocols and Systems

14 Jerry Gao Ph.D.5/2000 Micro-Payment Protocol: MilliCent Customer Broker Vendor Broker sell vendor Scrip Brokers buy/produce large chunks of “vendor Scrip” for licensed vendors Customer make purchases with vendor Scrips Vendor sell low-value information and services Topic: Micro-Payment Protocols and Systems

15 Jerry Gao Ph.D.5/2000 About Scrip: ---> a piece of data used to represent microcurrency within the Millicent systems. Scrip has the following properties: - Scrip is vendor specific, thus has value at one specific vendor only. - Scrip can be spent only once by its owner. - Scrip can be represented any denomination of currency. - Scrip represents a prepaid value. - Scrip make no use of public-key cryptography. - Scrip cannot provide full anonymity. It can be traced and recorded. Scrip like cash has a defined value and can be used to purchase merchandise. Major differences between Scrip and cash: - Scrip can only spent once, and cash can be spent many times. - Scrip is vendor specific, and cash is not. - Scrip can only spent by the customer who obtained it from the broker. - Scrip has an expiration date and a digital signature. Micro-Payment Protocol: MilliCent Topic: Micro-Payment Protocols and Systems

16 Jerry Gao Ph.D.5/2000 Scrip Message Structure Micro-Payment Protocol: MilliCent VendorValueScrip-idcustomer-idexpiration-dateinfocertificate Topic: Micro-Payment Protocols and Systems

17 Jerry Gao Ph.D.5/2000 Millicent Security Checking: ---> Provide three different security levels. All transactions should be protected, and fraud must be detectable and traceable. ----------------------------------------------------------------------------------------------- Millicent ProtocolEfficiency RankingSecure Private Scrip in the clear1NoNo Encrypted connection3YesYes Request signatures2YesNo ________________________________________________________________. Micro-Payment Protocol: MilliCent Topic: Micro-Payment Protocols and Systems

18 Jerry Gao Ph.D.5/2000 Authentication and signature: Millicent protocol uses one-way has functions - such as 128-bit MD5 and HMAC-MD5. - The message is sent in clear, but is protected by the customer_secret in hash function. - Upon receiving the request, the vendor calculates the hash function using a pre-selected message digest function. - The vendor returns, upon receiving this information, the customer can compute the message digest to ensure authenticity. - Signature: a request signature is generated based on the customer_secret by hashing Encryption: No encryption, but maintains a level of security that prevents Scrip being stolen. Micro-Payment Protocol: MilliCent Topic: Micro-Payment Protocols and Systems

19 Jerry Gao Ph.D.5/2000 Micro-Payment Protocol: MilliCent ScripCustomer secretRequest Request Signature Hash eg. MD5 Generating a request signature Topic: Micro-Payment Protocols and Systems

20 Jerry Gao Ph.D.5/2000 Micro-Payment Protocol: MilliCent Customer SecretScripRequest Signature Compare Vendor verifies the request signature Request Hash CustomerVendor 1. Scrip, Request, Request signature 2. Change, Reply, Reply signature Purchase using a request signature Topic: Micro-Payment Protocols and Systems

21 Jerry Gao Ph.D.5/2000 Scrip certificate generation Micro-Payment Protocol: MilliCent VendorValueScrip-idcustomer-idexpiration-dateinfo Master Scrip secret 5 Master Scrip secret 6 Master Scrip secret 7 Master Scrip secret 6 To customer Vendor secret keys “certificate” Hash eg. MD5 Topic: Micro-Payment Protocols and Systems

22 Jerry Gao Ph.D.5/2000 Vendor secret keys Micro-Payment Protocol: MilliCent VendorValueScrip-idcustomer-idexpiration-dateinfo certificate Master Scrip secret 5 Master Scrip secret 6 Master Scrip secret 7 certificate Master Scrip secret 6 From customer compare Scrip validation Topic: Micro-Payment Protocols and Systems

23 Jerry Gao Ph.D.5/2000 Overview of Millicent: Millicent payment protocol is designed for low-amount transactions over the Internet. It is developed by Digital - Support low-cost, secured transactions (less than one cent) - Use non-expensive symmetric crytographic algorithms - Use scrip as digital cash for customers to make purchases from vendors - Provide decentralized validation of electronic cash at the vendor’s server - Provide no additional communications, off-line processing. Business market: electronic publishing, software and game industries. Performance: 14,000 pieces of Scrip can be produced per second. 8,000 payments can be validated per second, with change Scrip being produced. A public trial of the Millicent system was scheduled for the summer of 1997. Micro-Payment Protocol: Millicent Topic: Micro-Payment Protocols and Systems

24 Jerry Gao Ph.D.5/2000 Comparisons of Micro-Payment Protocol Topic: Micro-Payment Protocols and Systems

25 Jerry Gao Ph.D.5/2000 Analysis of Micro-Payment Protocol Topic: Micro-Payment Protocols and Systems

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