As can be seen from the historical summary, the potential applications for smart cards are extremely diverse. With the steadily increasing storage and processing capacities of available integrated circuits, the range of potential applications is constantly being expanded. Since it is impossible to describe all of these applications in detail within the confines of this book, a few typical examples must serve to illustrate the basic properties of smart cards. This introductory chapter is only meant to provide an initial overview of the functional versatility of these cards. To make this overvieweasier to follow, it is helpful to divide smart cards into two categories: memory cards and microprocessor cards.

Memory cards
The first smart cards used in large quantities were memory cards for telephone applications. These cards are prepaid, with the value stored electronically in the chip being decreased by the amount of the call charge each time the card is used. Naturally, it is necessary to prevent the user from subsequently increasing the stored value, which could easily be done with a magnetic-stripe card. With such a card, all the user would have to do is record the data stored at the time of purchase and rewrite them to the magnetic stripe after using the card. The card would then have its original value and could be reused. This type of manipulation, known as ‘buffering’, is prevented in smart phone cards by security logic in the chip that makes it impossible to erase a memory cell once it has been written. The reduction of the card balance by the number of charge units used is thus irreversible.

This type of smart card can naturally be used not only for telephone calls, but also whenever goods or services are to be sold against prior payment without the use of cash. Examples of possible uses include local public transport, vending machines of all types, cafeterias, swimming pools, car parks and so on. The advantage of this type of card lies in its simple technology (the surface area of the chip is typically only a few square millimeters), and hence its low cost. The disadvantage is that the card cannot be reused once it is empty, but must be discarded as waste – unless it ends up in a card collection.

Another typical application of memory cards is the German health insurance card, which has been issued since 1994 to all persons enrolled in the national health insurance plan. The information previously written on the patient’s card is now stored in the chip and printed or laser-engraved on the card. Using a chip for data storage makes the cards machine-readable using simple equipment.

In summary, memory-type smart cards have limited functionality. Their integrated security logic makes it possible to protect stored data against manipulation. They are suitable for use as prepaid cards or identification cards in systems where low cost is a primary consideration.

Microprocessor cards
As already noted, microprocessor cards were first used in the form of bank cards in France. Their ability to securely store private keys and execute modern cryptographic algorithms made it possible to implement highly secure offline payment systems. Since the microprocessor built into the card is freely programmable, the functionality of microprocessor cards is restricted only by the available storage space and the capacity of the processor. The only limits to the designer’s imagination when implementing smart card systems are thus technological, and they are extended enormously with each new generation of integrated circuits.

Following a drastic reduction in the cost of smart cards in the early 1990s due to mass production, new applications have been introduced year after year. The use of smart cards
with mobile telephones has been especially important for their international proliferation. After being successfully tested in the German national C-Netz (analog mobile telephone network) for use in mobile telephones, smart cards were prescribed as the access medium for the European digital mobile telephone system (GSM). In part, this was because smart cards allowed a high degree of security to be achieved for accessing the mobile telephone network. At the same time, they provided new possibilities and thus major advantages in marketing mobile telephones, since they made it possible for network operators and service providers to sell telephones and services separately. Without the smart card, mobile telephones would certainly not have spread so quickly across Europe or developed into a worldwide industry standard.

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Figure 1.1 Typical smart card application areas, showing the required storage capacity and arithmetic processing capacity

Possible applications for microprocessor cards include identification, access control systems for restricted areas and computers, secure data storage, electronic signatures and electronic purses, as well as multifunctional cards incorporating several applications in a single card. Modern smart-card operating systems also allow new applications to be loaded into a card after it has already been issued to the user, without compromising the security of the various applications. This new flexibility opens up completely new application areas. For example, personal security modules are indispensable if Internet commerce and payments are to be made trustworthy. Such security modules could securely store personal keys and execute high-performance cryptographic algorithms. These tasks can be performed in an elegant manner by a microprocessor with a cryptographic coprocessor. Specifications for secure Internet applications using smart cards are currently being developed throughout the world. Within a few years, we can expect to see every PC equipped with a smart-card interface.

In summary, the essential advantages of microprocessor cards are large storage capacity, the ability to securely store confidential data and the ability to execute cryptographic algorithms. These advantages make a wide range of new applications possible, in addition to the traditional bank card application. The potential of smart cards is by no means yet exhausted, and furthermore, it is constantly being expanded by progress in semiconductor technology.

Contactless cards
Contactless cards, in which energy and data are transferred without any electrical contact between the card and the terminal, have achieved the status of commercial products in the last few years. Presently, both memory cards and microprocessor cards are available as contactless cards. Although contactless microprocessor cards can usually work at a distance of only a few centimeters from the terminal, contactless memory cards can be used up to a meter away from the terminal. This means that such cards do not necessarily have to be held in the user’s hand during use, but can remain in the user’s purse or wallet. Contactless cards are thus particularly suitable for applications in which persons or objects should be quickly identified. Sample applications are:
–access control,
–local public transportation,
–ski passes,
–airline tickets,
–baggage identification.
However, there are also applications where operation over a long distance could cause problems and should thus be prevented. A typical example is an electronic purse. A declaration of intent on the part of the cardholder is normally required to complete a financial transaction. This confirms the amount of the payment and the cardholder’s agreement to pay.With a contactless card, this declaration takes the form of inserting the card in the terminal and confirming the indicated amount using the keypad. If contactless payments over relatively long distances were possible, a ‘con artist’ could remove money from the electronic purse without the knowledge of the cardholder. Dual-interface cards (sometimes called ‘combicards’) offer a possible solution to this problem. These cards combine contact and contactless interfaces in a single card. Such a card can communicate with the terminal via either its contact interface or its contactless interface, according to what is desired. There is great interest in contactless cards in the field of local public transportation. If the smart cards presently used in payment systems, which are generally contact-type cards, can have their functionality extended to include acting as electronic tickets with contactless interfaces, transportation operators could use the existing infrastructure and cards of the credit card industry.