Daily Tedium

Cashing In Early

As bitcoin nears an unbelievable new peak, now’s a good time to ponder DigiCash, the cryptocurrency that came first. Its idea has roots in the 1980s.

By Ernie Smith

Cryptocurrency is having a bit of a moment right now, thanks in no small part to bitcoin, the currency launched under unusual circumstances that has suddenly become really, really popular. (As I write this, it’s continuing its daylong flirtation with the $10,000 valuation mark.)

But of course, while cryptocurrency is growing in popularity, bitcoin and other blockchain-based currencies can’t come close to making the claim to being the first digital currency.

As I wrote in 2016, the early internet-era currency Flooz was a bit of a bust for Whoopi Goldberg, but there are forms of currency that well predate it.

In fact, the guy who was at the very front of this whole idea has been thinking about it for more than three decades. David Chaum, a computer scientist who had already proposed the basic ideas behind encrypted messaging tools, is widely seen as the father of electronic money, having proposed the idea in his 1982 paper Blind Signatures for Untraceable Payments.

The paper highlighted something of an alternative to the electronic transactions then hitting retail, and within a few years of writing the paper, he tried taking some of the ideas and … uh, well, monetizing them. That led him to launch a company called DigiCash in 1990, which was perhaps the first time that a digital currency was created for exclusively electronic use. In 1994 the company put forth the first-ever electronic cash transaction over the internet.

A must-read Wired article from that year (which is sizable and will keep you busy a while) reads like a template for what was to come with bitcoin: Ecash was designed to be untraceable, but with each transaction tracked anonymously—just like bitcoin. One passage asks a question bitcoin and other blockchain-based currencies are still in the midst of answering: "This gives rise to a provocative question: Can digital cash become anonymous, as real-world money is? And if so, should it be?"

But, also like bitcoin, it carried a sense of mystery to it, as well as a vague sense of danger, some internal and external fights, and some oddball figures, among them Chaum, who was thoughtful about the potential impact of his invention:

At heart, David Chaum is driven by ideals. Indisputably the brains behind making digital cash work, he holds the key patents in the field, particularly in the area of anonymous, untraceable cash. He is therefore in a position to become a very rich and powerful person. Yet he avoids the path of least resistance and largest revenues—cashing in by licensing his schemes—because he is passionate about the potential of anonymous cash and wants the news of its viability spread far and wide.

Chaum’s reputation cut both ways, however. A 1999 article from the Dutch periodical Next Magazine implied that he carried a strong sense of paranoia to him. “Almost every ex-DigiCash employee who you ask is able to tell you a story of his legendary suspicion,” the article stated, according to a translation of the piece. Fair or not, the commentary carried.

The idea was perhaps a bit ahead of its time, to put it lightly—we weren’t even buying pizza online, let alone trading cash—and by 1999, the dream had faded. Chaum, who left the company that year and sold off his patents, implied in an interview with Forbes that it was a chicken-and-egg problem.

“It was hard to get enough merchants to accept it, so that you could get enough consumers to use it, or vice versa,” he said at the time.

He gets a wide amount of credit for his early work on cryptography (both in terms of security and currency), and his status as an elder statesman means that he sometimes puts forth exciting and controversial ideas, such as last year, when he launched PrivaTegrity, an initiative designed to secure public communications while making it possible for bad actors to be detected.

With bitcoin reaching new heights right now, now seems like a good time to appreciate the fact that someone thought of the basic idea behind it first. It would take a lot longer to perfect it and sell it to the world.

(Above: A screenshot from a document on the DigiCash website, circa 1998.)

Ernie Smith

Your time was just wasted by Ernie Smith

Ernie Smith is the editor of Tedium, and an active internet snarker. Between his many internet side projects, he finds time to hang out with his wife Cat, who's funnier than he is.

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