While we get started, let me tell you a story and take you way back into the early ’80s, to a time when sweet dreams were made of people sporting fashionable hair styles, walking down the street fabulously dressed, partying it up with their boomboxes (this is one of the most intense commercials I have ever seen!).

They were easier times.

Our story today revolves around a fascinating man, for whom safeguarding the privacy of us all has always been at the core of his convictions and in most of the things he did and continues to do. As it happens to be, he is also the guy who for the first time in history presented a sound vision for a digital currency. Oh, and he laid the essential groundwork for anonymous communications research (think TOR). Pretty dope in its own respect.

This man is David Chaum.

All throughout his career, there was one crucial aspect around which his work, his thoughts and his life revolved. Privacy.

His outstanding deductive and reasoning skills have enabled him to see what was waiting for all of us at behind the horizon of the digital revolution that was gaining speed and traction. He understood early that the extension of our analogue physical life into the electronic digital realms bears many highly problematic and scary outcomes. Just let his own words sink in, that were concerning the digital panopticon that was waiting to spread its all encompassing wings around the planet:

“Current developments in applying technology are rendering hollow both the remaining safeguards on privacy and the right to access and correct personal data. If these developments continue, their enormous surveillance potential will leave individuals’ lives vulnerable to an unprecedented concentration of scrutiny and authority.” — David Chaum 1991

At a time when many hailed the future laying ahead as the time of a more radical vision of individual freedom and expression, he managed to also point out the dangerous sides to this.

He wrote in an article in 1992, that “in one direction lies unprecedented scrutiny and control of people’s lives; in the other, secure parity between individuals and organizations. The shape of society in the next century may depend on which approach predominates.”

Photo by ev

But lets go back to where it all started. Fueled by his conviction to create cryptographic technology that liberates individuals from the spooky shadows of those who gather digital profiles, he published his groundbreaking research paper “Blind Signatures” in 1982.

I’ll briefly explain the way these blind signatures work, for a more in-depth explanation just click here.

The fundamental building block of this new concept is so called public key encryption.

If you want to deep-dive into this fascinating technological marvel, check out this comprehensive guide:

Otherwise here is a brief overview how this works.

We start by taking a random string of numbers (e.g. 3860280357), from now on this will be called our private key) and mathematically derive another string of numbers from it — the resulting new string of numbers is called public key. A very important aspect of this process is, that it’s a so called one way function, which means that it’s very easy to calculate it into one direction (ergo from private key to public key), but not the other way around (aka it’s almost impossible to derive the private key from the public key)! The main take away that you need to remember and understand right now, is that these two keys share an intimate relation and are linked to each other.

This very abstract sounding concept enables us to do some marvelous things though, because we can now take a piece of data, use our public key and scramble it up (by using some encryption magic). For everybody out there this new data set is incomprehensible and unreadable. In order to unscramble it and to make it readable, one need to be in possession of the corresponding private key. Whoever has that key, can now use some mathematical magic and unscramble the data. Voila!

An easy to grasp analogy for this can be found in these lock boxes for keys, that are quite commonly used by AirBnb hosts, maybe you’ve seen one of them already yourself. You have a key that you hide inside, the box is then deposited in the public and can be seen by anyone, aka a public key. But nobody can open it, unless they have the corresponding password, aka a private key.

Lock box for keys

A really cool thing you can do with this concept is to digitally sign a document. We just repeat the same steps as explained above, but this time we change the keys we use:

We take a document that we want to sign, add our private key and scramble it. The result is a new string of numbers. Now, everybody who is interested in checking that it was really us signing the document can simply check it, using our public key. Easy as that.

Based upon this cool property of public key encryption, David Chaum took this idea even further. He proposed adding a random number (note, not your public key!) to the data that you want to have signed. You then send this scrambled data to your friend Alice, who has no idea what the original data looks like. Because she has no idea what she is signing with her private key, she is signing it blindly (= blind signature). An interesting attribute of this is that now her signature is also linked to the original, unscrambled data.

But why would anybody with a sane mind want to sign something without knowing what’s inside? Good question, but hold on to it for a moment, we’ll get back to this very soon!

Hmm.

Wasn’t this article supposed to be about digital money? You’ve read you way through 1.119 words and still nothing about that?

Well, let’s change that.

Things really got rolling in the 90’s. While “real” money was already digital in a lot of cases (think inter bank and government transactions), a revolution was underway to digitize the final mile.

The advent of digital money was inevitable and people started to realize that. Just take this quote from a paper released by the Department of Energy’s Sandia National Labs in Albuquerque, New Mexico:

“The advent of high-quality color copiers threatens the security of paper money. The demands of guarding it make paper money expensive. The hassles of handling it (such as vending machines) make paper money undesirable. The use of credit cards and ATM cards is becoming increasingly popular, but those systems lack adequate privacy or security against fraud, resulting in a demand for efficient electronic-money systems to prevent fraud and also to protect user privacy.”

While the need for digital money was evident, there had been a big looming problem — digital files are easily reduplicatable. That lack of digital scarcity (pun intended) actually has and continues to be a big issue in many areas, but this aspect is worth another individual article some day!

And now there was a potential solution to this.

David Chaum enters center stage with his company DigiCash, which was founded in 1990. At first they were only focused on so called smart cards, with which they established electronic payment systems for toll collection, printer usage, etc.

The really revolutionary thing they gave birth to though was something very different. In 1993, eCash was born and came upon the world.

It’s very important to keep in mind that the main thing Chaum wanted to achieve and to ensure was to keep digital traces of your payment as small as possible, therefore ensuring an individual’s privacy.