In Search for Chaumโ€™s eCash: A World Before Cryptocurrency

โ€œYou can pay for access to a database, buy software or a newsletter by email, play a computer game over the net, receive $5 owed you by a friend, or just order a pizza. The possibilities are truly unlimited.โ€ โ€” Dr. David Chaum

We are living in a digital world where everyone is moving towards digital and wireless transactions that often involve eCommerce, online shopping and now, cryptocurrency. That is something of a science fiction back in the โ€™90s when the dotcom boom was just getting started. Way back when banks and financial institutions are starting to embrace digital finance while retailers and service providers opening up online stores for the very first time. Itโ€™s way ahead of its time then.

If you happened to watched the classic tech flick โ€œThe Net,โ€ you are basically looking at the mirror into the future. Just imagine at that time when floppy disks and dial-up modems rule, Angela Bennet (Sandra Bullockโ€™s character) can order a pizza by visiting an online portal and type in her order. Nowadays, itโ€™s much easier with a few clicks or swipe from your smartphone. Something new and unknown then is already something familiar now.

Cryptographer Dr. David Chaum started developing a digital payment platform years before Internet founder Tim Berners-Lee gave us the worldwide web. He was already thinking of online privacy even before the Internet was born. In fact, he already created an anonymity-based payment platform that would have served as the blueprint for todayโ€™s cryptocurrency and other digital financial systems that we all know and use. His 1981 research paper โ€œUntraceable Electronic Mail, Return Addresses, and Digital Pseudonymsโ€ has laid the foundation of encrypted communication over the Internet, which would eventually lead to privacy-preserving technologies like Tor.

By 1989, he established DigiCash where his eCash concept is used.

How it Works

A year before he founded eCash, he introduced blind signatures that would ensure user privacy when conducting online transactions. As he was concerned about the open access to online payments and personal information, he eventually proposed a system of cryptographic protocols that would make transactions untraceable.

An eCash software is installed on the userโ€™s local computer where the digital money is stored and cryptographically signed by a bank before sending it to the recipient. With that setup, users could then spend their eCash at any shop that accepts it without having to open an account with the vendor first or transmitting sensitive credit card information. Security is ensured through a public key while the RSA blind signatures ensure the unlinkability between the withdrawal and spend transactions.

Online and offline cash are distinguished depending on the payment transactions so when a third party (i.e. bank or credit card company) is contacted before accepting a payment then it is the former. Chaum eventually teamed up with Israeli computer scientist Moni Naor to unveil the first offline e-cash system based on blind signatures.

Short History

As with any emerging technology, early adopters are the ones who can bring it to the mainstream. There were high hopes for eCash to become the standard currency online.

DigiCash, his electronic money corporation was founded in 1989 with eCash as its trademark. He raised $10 million from venture capitalist David Marquardt and recruited Nicholas Negroponte as chairman in 1997. His platform has fees similar to existing credit card systems where merchants pay for transaction fees. The St. Louis, Missouri-based bank Mark Twain have tested the implementation of eCash. By 1998, it became available in Credit Suisse (Switzerland), Deutsche Bank (Germany), Bank Austria, Posten AB (Sweden), Den Norske Bank (Norway), Nomura Research Institute (Japan), Merita Bank and EUnet (Finland), and St. George Bank and Advance Bank (Australia).

However, only 5,000 customers signed up after a three-year trial and the system was finally dissolved in 1998. Perhaps, it arrived too early before the Internet became an essential part of everyday life.

Exactly 20 years after it declared bankruptcy, Chaum launched a new startup Elixxir where it creates a cryptography network focused on communication anonymity controlled by users to protect their information unlike the current setup, where companies have access to user information where they used to target ads to generate revenue.

Legacy

Where DigiCash and eCash failed, Bitcoin and other cryptocurrencies have succeeded. Although it remains to be seen as to when these forms of digital money will become mainstream. One thing is for sure: Chaumโ€™s Cypherpunk dream of democratizing money has brought it into everyoneโ€™s hands. He laid the foundation that cryptocurrencies have built upon.

This article was originally published on my website.
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