In the 1990s, there was a group of crypto enthusiasts who met to discuss online and in person in California, about the future of the Internet and how they could make it private and secure. They called themselves Cypherpunks and their online forum was the Cryptography Mailing List - the first site to see Bitcoin's white paper by Satoshi.
Cypherpunks is a pun on the cyberpunk movement including cypher, which in English means ciphers or codes. But before we explore the biggest names in this group, let's take a step back and meet the man who inspired this movement: David Chaum.
He graduated from the University of Berkeley, California, where he would later teach. And it was in this institution that, in the early 1980s, Chaum, now 64 or 65 years old (prefers to keep this information private), was concerned with keeping communication on the Internet private. He published a paper in 1981, about secret communication on public networks, return addresses and digital aliases. This work would become one of the bases for encrypted communication on the Internet and technologies such as the private Tor browser.
But I would go further and design the first concept of private digital money. Chaum works developing technologies, always with privacy as the ultimate goal. At a time when the Internet was not yet spread around the world and few people had access to it, Chaum, and later the Cypherpunks, imagined a network in which we would have to pay a small amount to access a website. Therefore, there was a need to create digital money that would work easily and natively on the Internet.
Today we take the Internet as free, but everything comes at a price. This apparent gratuity (?) Comes with the cost of delivering our data to companies that manage the space where we circulate. Chaum and the Cypherpunks created forms of money that would allow us to roam the Internet freely and without revealing our identity.
At a time when there were few things online, Chaum was already imagining online commerce and therefore predicted the need for money that would operate naturally in this medium. It got to work and effectively created the first anonymous payment system for the Internet.
Blind signatures and eCash
Chaum created a system that allowed someone to sign data without verifying its origin or even verifying that information. What would be the use of this service?
Imagine that Manuel wants to pay Maria something. To do so, Manuel withdraws digital money from his bank. Note that the bank here is a traditional bank, an external institution that serves as a trusted entity. This digital money is raised in the form of “digital notes” with unique serial numbers created by Manuel. For security, shuffle these serial numbers and send them to the bank to sign, confirming that Manuel has that amount and the right to withdraw it from his account. The bank will deduct that amount from Manuel's account.
Then, pass the notes to Maria in order to make the payment.
Upon receiving the digital notes, Maria sends them to the bank so that they are verified and the amount deposited in her account. The bank confirms that they have their signature and that the serial number has not been registered to prevent the same money from being spent twice.
Only at this point will the bank be able to see the unshuffled serial numbers. It is here that the “blind signature” becomes relevant. The bank had signed the notes without knowing the serial number. This way, when receiving the notes for verification, you do not know their origin, guaranteeing Manuel's anonymity.
Chaum called this form of eCash digital money, because it is "electronic cash". This, like the physical cash, allows the privacy of the players and their transactions to be maintained.
Note that this application does not eliminate the need for intermediaries. An external entity is still needed to validate the origin of the money traded and, therefore, did not release users from banks.
DigiCash and the practical application of eCash
After exploring how best to create that electronic money, Chaum created a company to implement his ideas and take them to the users. So, in 1990, he founded DigiCash in Amsterdam, where he lived at the time.
To put it in context, at this time technological companies on the Internet were beginning to gain notoriety, especially by the hand of the search engine Yahoo! or the Netscape browser. This industry would have a huge growth during that decade, which would lead to the creation of numerous companies and services in the industry.
DigiCash wanted to become the company responsible for money in this new world and the interest around it started to grow. In 1994, they began testing by selling licenses for their technology to banks. The first was an American bank in the state of St. Louis - the Mark Twain Bank. Later, some of the biggest European banks started to take an interest in the technology and acquired the license. Names like Deutsche Bank, Credit Suisse or Bank Austria are on the list of institutions that have used the system.
However, the adaptation of eCash could have been global if some of the deals Chaum had rejected had been carried out. Perhaps the loudest offer was from Bill Gates, to include eCash in Windows 95. Chaum declined the $ 100 million offered by Microsoft, asking for $ 2 for each copy of Windows 95 sold. The deal fell. Netscape, which had the most used browser at the time, also saw its proposal rejected. Visa, the payment systems giant, is said to have later offered $ 40 million. The 75 million counter offer was rejected.
These offers would have put eCash directly in front of users and that would have been fantastic for its adoption. However, due to the poor management of Chaum, who would be removed from the position of CEO, DigiCash would eventually go bankrupt in 1999.
However, his legacy would remain alive in the minds of some of his collaborators who ended up creating their versions of private digital money. Noteworthy is Nick Szabo, the inventor of smart contracts, or Zooko Wilcox who would later create a Zcash cryptocurrency.