Raison Faillite Digicash - Decrypted A Financial Trader's Take On Cryptocurrency

This document discusses the history of digital cash and early attempts to create electronic payment systems in the 1980s and 1990s. It outlines David Chaum's proposal for an anonymous electronic cash system called ecash in the 1980s. While ecash generated interest, Chaum refused lucrative deals which led to lost backing. Credit cards eventually won out over these early digital cash alternatives. The document also discusses how Nakamoto was aiming to solve the "double spending" problem that plagued previous centralized electronic payment systems by creating Bitcoin as a decentralized, peer-to-peer system without a single point of failure.

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Raison Faillite Digicash - Decrypted A Financial Trader's Take On Cryptocurrency

Uploaded by

MarwaneEl-lamrani

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Download as PDF, TXT or read online on Scribd

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THE NEW GOLD MINING 27

Similarly, Nakamoto was working on a widespread, well-

uiz.scholarvox.com:ENCG Agadir 2:720702096:88866025:105.158.246.211:1574700752

known problem among software engineers when he made the
proposal that changed everything.

Cash Is King
Today, we send money to vendors and each other via bank transfer,
PayPal or some other system that we take for granted. But we’re
using the winners of a competition held decades ago, when it was
realised that financial transactions could indeed be made over the
Internet. It may seem remote to us now, but the eighties were a
time of great technological uncertainty as many of the things we
take for granted today were still being figured out.
The idea of digital cash isn’t new; it dates back to proposals
made in the 1980s by mathematician David Chaum, whose
paper “Untraceable Electronic Cash,” outlined ecash, a system of
anonymous cash transfers over the then-new Internet. He found
partners in cryptography (that is, the science of encoding information
so it can only be seen by its intended recipients) and started his own
company, DigiCash, in an attempt to commercialise the idea.
“At this moment in history,” observes finance writer Dominic
Frisby, “credit cards were still considered unsafe and insecure. It
was not clear who was going to win the battle to control internet
payments.”4
Of course, no prizes for guessing which system won out in the
end. Despite much interest from partners like Microsoft (which
wanted to integrate ecash into Windows 95) and major banks
such as ING, Chaum insisted on holding out for more money—
refusing to sign lucrative deals that might have sealed his product
as a pioneer of electronic cash transfer. In the end, his backers
28 DECRYPTED

lost interest and the offers dried up as they sought a less obstinate

uiz.scholarvox.com:ENCG Agadir 2:720702096:88866025:105.158.246.211:1574700752

partner. Credit cards won that battle, and in 1999 Digicash went
out of business entirely.
Other models would be tried. Frisby cites e-gold, which
allowed users to buy physical gold using accounts on its website,
and sell portions of it to others. Its pioneering firm grew into a
success story from its founding in 1996, until its widespread use
by criminals led to the FBI taking an interest in the late 2000s. “It
fell victim to hacking, fraud and identity theft […] By 2009, it had
been shut down. Its founders faced all sorts of legal calamities—
and are still dealing with the fall-out.” 5
Perhaps, Frisby notes, this is one reason why Nakamoto
remains completely anonymous. If he were conclusively identified,
it would make Bitcoin far more susceptible to regulation, and
therefore much less empowering than he envisioned it to be.
Nakamoto definitely had the fates of ecash and e-gold on his
mind when he wrote:

A lot of people automatically dismiss e-currency as a

lost cause because of all the companies that failed since
the 1990s. I hope it’s obvious it was only the centrally
controlled nature of those systems that doomed them.
I think this is the first time we’re trying a decentralised,
non-trust-based system.6

Because the past attempts at digital cash were set up by

established companies with names, faces and identities to them,
they were tied entirely to the people that produced them. In other
words, they had a central point of failure—something Bitcoin,
THE NEW GOLD MINING 29

with its peer-to-peer, networked nature doesn’t have. Because

uiz.scholarvox.com:ENCG Agadir 2:720702096:88866025:105.158.246.211:1574700752

no one can be said to administer Bitcoin, there’s no single entity
whose trouble will spell the end.

Double-Spending

Why are banks still needed when you transact digitally?

Because their authority is needed to verify that you haven’t
spent money you don’t (or no longer) have.
You see, electronic payments have a vulnerability
that physical ones don’t, namely the problem of double-
spending—the possibility that a packet of data representing
a given transaction is sent, but a copy kept by the sender so
they appear not to have sent anything. When money is sent
in the form of electronic data, it’s far easier to duplicate, as
it’s simply a matter of copying and pasting code. Physical
currency by definition is more difficult to fake, needing
expensive counterfeiting equipment to defeat the measures
that mints have put into place.7 Also, a genuine coin or note
can only exist in one place at a time. Once you’ve spent it, it’s
gone from your possession.
Besides processing the payment, computers belonging
to your issuing bank need to verify that you’re you and that
you actually have the money you’re sending. After you’ve sent
it, they must confirm that it’s no longer in your possession.
Those are the tests your transaction needs to pass before you
can see that comforting green tick on the screen.