Ecash the First Anonymous Electronic Payment System
The 20th century is the century of computing and the internet, which inspired computer scientists to create and implement many new ideas. One of such inventions is electronic cash. The purpose of the invention was, of course, the formation of electronic payment infrastructure, but it was more about creating a new secure electronic payment mechanism, that was tasked to ensure the privacy of the user. The main hero was the scientist David Chaum, who came up with a unique idea of electronic cash that was based on the best practices of computing and banking. He was inspired by the individual’s right to privacy and saw that the government had difficulty in protecting the privacy of individuals in the light of increased micro-economic interests of commercial organizations. It was getting easier to collect information on individuals, while privacy protection did not undergo significant legal or technical development. He did not intend to deconstruct the centralized system but offered a particular mechanism to sustain the privacy in the system itself. Chaum also advised the US government to protect and promote privacy technologies, that would ensure its economic growth and global market leadership. According to Chaum, companies are at ease when collecting consumer information. They have an opportunity to connect with each other and store the data that is derived from our actions. They can study our financial history as well as travel and relationship patterns.
Private information is very useful for business. For example, it is very convenient for banks to access the credit history of the client when issuing a loan. On the other hand, such information can also be used in bad faith. The companies that possess the consumer transaction information may obtain an unfair advantage and advertise their goods exactly when consumers need these particular products. If personal records are accessed by the criminals, they may steal the money from personal bank accounts or the users may become the victims of various illegal activities.
Chaum’s company DigiCash offered a solution, a tamper-resistant technology, Ecash. It was protected by the encryption that was based on public-private key cryptography, and also ensured the privacy of the users. They were able to engage in cryptographically secure, encrypted digital coin transactions and hid their identity with blind signatures. Ecash relied on computer software, which could transfer electronic money to the marketplace or any other entity with just one mouse click. But the user needed to obtain the approval of an electronic bank. This particular request was not about a transfer itself. It only touched upon the approval and validation of digital coins via the application of the blind signature technology. Technology allowed the bank to validate the digital coins securely and automatically, without knowing the identity of the user who had requested the approval. In that way, it was impossible for the bank to collect the data on user spending, but the bank had the opportunity to control the circulation of electronic money and ensure that all coins were correctly approved to prevent the uncontrolled creation of additional coins, in other words, avoid the double-spending.
The users benefited twofold. They remained anonymous as well as secure from the third-party interventions. Despite the guarantee of anonymity, the electronic bank was entitled to keep the record of all existing coins to detect the unauthorized creation of new ones without its approval. In that way, users had an opportunity to remove the blinding mechanism and reveal all transactions they had accomplished and all coins they had spent. It was especially convenient to do when someone tried to steal their coins.
DigiCash provided the Ecash system in which it controlled the supply of electronic money. It processed all transactions, therefore, the success of Ecash technology was fully dependent on the company itself. DigiCash had a real chance to attain success at a rapid pace, but David Chaum did not play it well. Bill Gates offered him to integrate Ecash into Windows 95 and make it global. He also received offers from Netscape and Visa, but he turned down them all, and in 1998 DigiCash declared bankruptcy. The company’s failure certainly slowed the success of digital money, but Chaum’s invention was crucial for future developments in the field and can be viewed as an ancestor of modern cryptocurrencies.
Find my YouTube lecture on the same topic: https://www.youtube.com/watch?v=u-KNLnrP65w
Originally published at https://www.linkedin.com.
