Category Archives: David Chaum

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DigiCash and e-gold, the Cryptocurrencies That Failed Before Bitcoin Was Born

Bitcoin, which was first announced to the public on Halloween Day 2008, is not the first cryptocurrency. Bitcoin is the first decentralized cryptocurrency with a blockchain. Digicash and e-gold were cryptographic currencies that were born and failed before Bitcoin even existed, and the reasons for their failure are explained in the below article.

DigiCash

David Chaum published a scientific paper in 1983 which described anonymous digital money, and in 1989 Chaum invented DigiCash. Since DigiCash had no blockchain it depended on a centralized authority to issue it, which was the company Chaum created to run DigiCash. Once the user received DigiCash it was secure and anonymous since it used blind digital signatures.

DigiCash was launched before the e-commerce wave took over the internet in the latter half of the 1990’s. Unfortunately, customers preferred credit cards over DigiCash as anonymity wasn’t the priority for many.

Eventually, DigiCash gained enough traction that the major bank ING tried to make a deal with Chaum, but after months of negotiation, Chaum refused to sign. Bill Gates tried offering USD 100 million to Chaum to integrate DigiCash into every Windows 95 installation, but Chaum refused that offer too. This caused a rebellion in the DigiCash company, which resulted in DigiCash ceasing to exist by 1999. It is important to note that DigiCash survived 10 years, which is actually the current age of Bitcoin.

Essentially, DigiCash failed because it was centralized, and its survival depended on the decisions of the company running it.

E-Gold

In 1996, Douglas Jackson and Barry Downey had the idea to put gold in a vault in Melbourne, Florida and issue a digital currency backed by that gold. This was called e-gold, and within 4 years, 1 million people had used it. E-gold was easily integrated into e-commerce shops and became popular among commodity traders, casinos, and political and non-profit organizations. E-gold was the first digital currency that facilitated micropayments since it could be divided into 1/1000 of a gram of gold.

Online foreign currency exchanges were launched which supported e-gold, allowing e-gold to be transferred between various fiat currencies. The e-gold market cap hit USD 2 billion as it became a serious global currency.

However, as Bitcoin exchanges know, more transaction volume and wealth leads to more hackers. The central repository of e-gold got hacked, as well as many users, but this is not what sank e-gold.

Originally, United States authorities confirmed that e-gold did not need a license to operate since gold and digital gold were not considered money. However, after the 11 September 2001 terrorist attacks, the laws were retroactively changed to prevent money laundering.

The e-gold reserves were frozen, and Jackson was offered a deal where he would plead guilty of money laundering and then apply for a license. Jackson’s sentence was a mere USD 200 fine and 300 hours of community service, but when he applied for the license he discovered that criminals cannot get a license. That was the end of e-gold.

To sum up, e-gold was destroyed by government regulations, and DigiCash was destroyed by the centralized company which ran its network. Satoshi Nakamoto solved these issues by making Bitcoin completely decentralized.

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Crypto Pioneer David Chaum Builds Super Fast Blockchain Platform

Crypto guru and pioneer David Chaum is launching his own platform which he is promising will be able to process thousands of transactions a second.

The new platform named Elixxir will not only outpace Bitcoin, said Chaum at the Consensus conference in Singapore last week, but will allow digital cash to be traded at a similar speed to physical cash as well as cut down on the energy required.

Chaum is an American computer scientist and cryptographer famous for developing ecash, an electronic cash application that aims to preserve a user’s anonymity. He has also invented many cryptographic protocols and founded DigiCash, an electronic money corporation.

One of the reasons for cryptocurrency’s popularity is its speed of delivery to the user, with the Bitcoin network able to process around seven transactions a second. Chaum had been working on speeding up the processing time of electronic funds since the launch of DigiCash and then Bitcoin ten years later.

“These breakthroughs I’ve made change the whole game,” Chaum said in an interview. “We can actually meet the requirements to go to consumer scale…Truth be told, when I invented [DigiCash] there was no chance of using it… People didn’t even know about the internet.”

On the current Bitcoin network, transactions are processed in blocks. When connected, they create the blockchain which the stores the transaction on a ledger replicated on every computer. Miners compete to be the first to verify and process the transaction in a valid block, thus adding to the blockchain and collecting newly-created Bitcoin generated as a reward for finding new blocks.

Chaum’s Elixxir system limits these types of transactions, making the system less decentralized. These blocks won’t carry the transactions and won’t be linked to wallets, requiring less processing power due to less stored information. The key, he claims, is that producers will be given equal status, unlike the current system, thus eliminating the energy-intensive status quo.

Chaum has said that he will open up Elixxir as an open-sourced project to encourage improvement from developers in the future.

 

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