[ElectricalUnion]

Your bank holds the public key of the "a certain credit card".

Your thing in the shape of a credit card is a HSM that holds the private key of the "a certain credit card".

A public key (your bank) can verify if a given digital signature generated by a private key (yor card) is valid or not.

The "CC Terminal" is a device that given the inputs (timestamp+value_of_transaction+password), asks the "CC HSM" to generate the signature of said values. "CC HSM" is smart and will ON PURPOSE refuse to generate valid signatures if you're being funny and inputing wrong passwords. Bank can further check if the signature makes sense or not.

Merchant doesn't need to know the public key, the private key, or your password.

[runeks]

> The "CC Terminal" is a device that given the inputs (timestamp+value_of_transaction+password), asks the "CC HSM" to generate the signature of said values.

Which makes a hacked terminal problematic since it can display $1.00 as the amount and actually request the CC HSM to sign a $500 transaction.

[ElectricalUnion]

In a more safe world, the CC HSM would have it's own display and pin entry, to avoid this exact issue. You really can't validate if the terminal is honest.

Because as you rightly pointed out, who said the evil merchant or MitM thief are either MitM'ing the display system, or even have total control of the display system?

[kbolino]

Importantly, though, the credit card system is based around more than just the cryptography involved. By removing the ability to obtain portable payment credentials, the scammer is forced to perform the transaction right then and there. This allows the network to pinpoint the source of the compromise.

A scummy merchant can be banned, a hacked terminal can be removed and examined, etc. And, unlike say a blockchain, a fraudulent transaction can be reversed.