In my previous post, I mentioned that the inventor of Bitcoin is a pseudonymous individual who goes by the name of Satoshi Nakamoto. That might suggest that Bitcoin sprang Minerva-like from his pseudonymous (and perhaps metaphoric) head. Although Bitcoin does present several revolutionary innovations (such as the blockchain), it was not the first time anyone dreamt of a peer-to-peer electronic cash system.
That vision dates back to a paper published in 1983 by the American computer scientist and cryptographer David Chaum. His “Blind Signatures for Untraceable Payments” lays the deepest stratum of groundwork for the development of cryptocurrencies. Chaum was writing in response to what he terms the “growth of electronic payment systems” and the resulting paper trails that were replacing the anonymous spending of cash. Perceiving this loss of anonymity in financial transactions to be dangerous, Chaum sought to create a payment system that would offer the best of both worlds: the convenience of electronic payments and the untraceability of cash.
“Blind Signatures for Untraceable Payments” outlines an early version of what was to become the digital signature protocol used by cryptocurrencies today – the mechanism that makes pseudonymous transactions on the blockchain possible. To give an idea of the date of the paper, Chaum presents his concept of blind signatures by asking the reader to imagine an envelope lined with carbon paper. (For anyone under 45 reading this, carbon paper was a means of making a copy of something you were typing. Sandwiched between two sheets of paper, it reproduced onto the bottom sheet any impression made on the top sheet. It also got messy black stuff all over your fingers and anything you subsequently touched.) By using a computer equivalent of a series of such envelopes, an untraceable electronic transaction becomes possible.
Chaum would subsequently refine his ideas on the subject, fold in a lot of math, and come up with a practical version of the scheme, ecash. Through the company he started under the name of Digicash, ecash was briefly in use by one bank in the United States for a few years in the mid-1990s. The experiment – obviously before its time – ended due to lack of participants, although similar electronic cash systems did see more success in less credit card-happy Europe.
I need to caution my readers that Chaum’s work was only a distant precursor of the cryptocurrencies we know today. That is most readily shown by the fact that Chaum was not out to start a new currency: he was seeking a means of circulating dollars electronically without compromising the privacy of the people using them. One can infer from this his belief that the global structure of fiat currencies could be adapted to electronic anonymity.
Chaum’s concern with financial anonymity was but one aspect of his overriding concern with privacy. Decades before the Facebook generation willingly abrogated its right to privacy, Chaum sought to combat the erosion of that right that had begun as the chronological 1984 approached. He saw as his chief weapon in the fight the branch of mathematics in which he specialized: cryptography.
Much of Chaum’s later work pursues this double concern of privacy and cryptography, and has positioned him as one of the seminal influences of the so-called Crypto-Anarchist and Cypherpunk movements. The idea underlying both of the latter is that cryptography can be used as a means of sticking it to, not so much The Man, but to an emerging Big Brother. The Chaumian idea of electronic cash was to be one way of achieving that.
Neo-Chaumian Crypto-Anarchist political theory (although a mouthful, that really is a thing) would become a major influence on the development of cryptocurrency. It’s one of the steps on the 25-year path that led from David Chaum to Satoshi Nakamoto. Because so much came in between (yes, I have plans to write about some of it, so stay tuned), one can only with difficulty say that Chaum’s ecash was an early version of Bitcoin. What you can say is that Bitcoin is a very different answer to the same questions Chaum had been asking: how can we establish a payment system that would be both electronic and anonymous? The intervening advances in computer technology (both in terms of hardware such as mobile phones and software such as cryptographic hash functions) made possible the more radical solution of, not fixing cash, but, rather, of reinventing it completely.