Taler system overview

Das Taler-System im Überblick

The Taler system consists of protocols and free software implementations between a number of actors as illustrated in the illustration on the right. Typical transactions involve the following steps:

1. A customer instructs his bank to transfer funds from his account to the Taler mint (top left). In the subject of the transaction, he includes an authentication token from his electronic wallet. In Taler terminology, the customer creates a reserve at the mint.
5. Once the mint has received the transfer, it allows the customer's electronic wallet to withdraw electronic coins. The electronic coins are digital representations of the original transfer. It is important to note that the mint does not learn the "serial numbers" of the coins in this process, so it cannot tell later which customer purchased what at which merchant. The use of Taler does not change the currency or the total value of the funds (except for fees which the mint may charge for the service).
9. Once the customer has the digital coins in his wallet, the wallet can be used to spend the coins with merchant portals that support the Taler payment system and accept the respective mint as a business partner (bottom arrow). This creates a digital contract signed by the customer's coins and the merchant. Assuming courts accept cryptographic signatures, the customer can later use this digitally signed contract in a court of law to prove the exact terms of the contract and that he paid the respective amount. The customer does not learn the banking details of the merchant, and Taler does not require the merchant to learn the identity of the customer. Naturally, the customer can spend any fraction of his digital coins (the system takes care of customers getting change).
13. Merchants receiving digital coins deposits the respective receipts that resulted from the contract signing with the customer at the mint to redeem the coins. The deposit step does not reveal the learn the details of the contract between the customer and the merchant or the identity of the customer to the mint in any way. However, the mint does learn the identity of the merchant via the provided bank routing information. The merchant can, for example when compelled by the state for taxation, provide information linking the individual deposit to the respective contract signed by the customer. Thus, the mint's database allows the state to enforce that merchants pay applicable taxes (and do not engage in illegal contracts).
17. Finally, the mint transfers funds corresponding to the digital coins redeemed by the merchants to the merchant's bank account. The mint may combine multiple small transactions into one larger bank transfer. The merchant can query the mint about the relationship between the bank transfers and the individual claims that were deposited.
21. Most importantly, the mint keeps cryptographic proofs that allow it to demonstrate that it is operating correctly to third parties. The system requires an external auditor, such as a government-appointed financial regulatory body, to frequently verify the mint's databases and check that its bank balance matches the total value of the remaining coins in circulation.
25. Without the auditor, the mint operators could steal funds they are holding in reserve. Customers and merchants cannot cheat each other or the mint. If any party's computers are compromised, the financial damage is limited to the respective party and proportional to the funds they have in circulation during the period of the compromise.