Despite what the popular media may report, cryptocurrency didn’t start with Bitcoin. On the contrary, the concept of anonymous digital cash goes back to the 80s! Not only is anonymous digital cash an ancient idea in tech years, but its original conception was far different from what we accept today as cryptocurrency.
A quick note: I’ll refer to anonymous digital cash as “bitcash” from here on, to avoid repetition.
Now, let’s dive in!
Devised in 1982 by that great wizardly guru of cryptography, David Chaum, bitcash was a groundbreaking achievement. In the same paper that discussed the potential of an anonymous digital future, Chaum devised “blind signatures”, the basis of the entire system. A blind signature is when someone signs some piece of content, ensuring the recipient that only that person could have signed it, without the signer knowing what the content is. It’s almost like signing a contract without reading it — you wouldn’t want to do this in real life, of course, but it has interesting applications when it becomes a digital process.
As described in Applied Cryptography, with blind signatures, a bank can “sign” a “money order” (all digital, of course), without knowing that Alice is the one requesting funds. Used in combination with anonymity-preserving tech like “mix networks” or the “dining cryptographers protocol”, Alice can send this digital “money order” to Bob under a pseudonym, or completely anonymously.
This is the first difference between bitcash and modern cryptocurrency: while banks are beginning to dabble in cryptocurrency, cryptocurrency is inherently decentralized. Bitcash, on the other hand, relied on existing financial institutions.
Although decentralization is generally a good thing, federation by the banks has a few benefits, bringing us to the second difference between bitcash and cryptocurrency: bitcash is truly, provably anonymous. With cryptocurrency, transactions are usually, ostensibly anonymous. However, every transaction is tied to an identity of some kind. With bitcash, anonymity is built-in.
That brings me to another benefit of bitcash: guaranteed untraceability. Cryptocurrency relies on the blockchain, an immutable ledger of every transaction that ever happened — bitcash has no such need, and it’s still able to prevent double-spending and fraud!
Chaum’s work inspired a revolution in the way technologists thought about cryptography. Among those inspired were the “cypherpunks”, formed in 1992 primarily by Eric Hughes and Timothy C. May (the name was coined by the great Jude Milhon, about whom I could write an entire article). They envisioned a world where privacy, anonymity, and free speech were mathematically guaranteed, built-in to every internet service.
It started with mix networks, email chains that pass along messages like notes in a classroom. Unlike those notes, however, messages on mix networks are encrypted with public keys in onion-like layers, so no one in between can read them.
Likewise, only the first mailer in the chain knows who the sender is, and only the last mailer in the chain knows the recipient. The former can be remedied with another protocol, another procedure called “the dining cryptographers”. The latter is like a courier delivery: they know the recipient, but not what their message says or even who sent it.
Dining cryptographer networks, or “DC nets”, are networks of 3 or more people who want to publish something anonymously. The protocol is traditionally described as a group of diners who wants to know whether the NSA paid, without revealing the identity of anyone who paid at the table. Every pair of cryptographers flips a coin apiece. Then, each person announces the XOR of each partner’s coin, inverting the result if they paid. If the XOR of each announced result is 0, none of the cryptographers paid, i.e. no data was transmitted). If the result is 1, one of the cryptographers paid, i.e. transmitted a bit.
Put together, these protocols are incredibly powerful. You can publish under a pseudonym, with guaranteed anonymity. You can pay a person without them knowing who you are, and vice versa. But it gets better…
If entire networks exist like this, where people can send data anonymously, why not receive data anonymously? Why not create a network where you can share content, and it is propagated throughout the network, such that you can request content like a web page, or a resume, or a song, and do it anonymously, privately.
For better or worse, the dream of the “cypherpunks”, or god forbid, the subset of cypherpunks known as the “crypto anarchists”, never came to fruition. There are several reasons for this, but it can be summed up here: no regular folks cared enough about anonymity and privacy online to jump through the myriad hoops required to use crypto software, and in the post-9/11 world, there were real and serious concerns about such systems that came to the forefront.
If this article had a point, if there were a moral to the story, it would be this: existing cryptocurrencies are not the end-all, be-all of digital currency, and if you look at the history of cryptography, it never has been. I’m not going to dive into the debate of true anonymity and privacy and its ramifications in this article, although I’d be happy to do so in the comments section. Let’s all just keep in mind: cryptocurrency as we know it is just another point in a much larger timeline, a chapter in a much larger story that’s still playing out. I’m excited to see where it goes.