David Chaum - Forefather of Cryptocurrencies and the Cypherpunk Movement

Epicenter Podcast #304 Under Creative Commons license by Epicenter Media ltd

We’re pleased to be joined by the legendary cryptographer and computer scientist, David Chaum. From his early beginnings at Berkley, David pioneered many of the cryptographic techniques used in secure systems and cryptocurrencies today. Blind signatures, which are used in zero-knowledge proofs, and mix networks, used in Tor heavily rely on his work. At the dawn of the Internet, David founded DigiCash, what many believe to be a direct ancestor of Bitcoin. Today, David continues to pursue his mission to bring data privacy to all as his most recent project, Elixxir, aims to create a truly private messaging and payment app with a mass-market appeal.

Topics discussed in this episode

• David’s background as a Ph.D. student at Berkeley and his thesis entitled “Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups”
• What drove him to work on cryptography and privacy systems
• His relationship to the early cypherpunk movement
• David’s contribution to cryptography primitives such as blind signatures, undeniable signatures, group signatures and mixers
• The story of DigiCash and how the company was founded
• The idea behind Cyberbucks and why the company ultimately went bankrupt
• Cryptocurrency adoption as a chicken-and-egg problem
• David’s personal views and practices with regards to online privacy
• His thoughts on the blockchain space today and his views on the future of the industry
• His current project, Elixxir, a messaging and payment app which protects users’ data and metadata

Show links

• DigiCash
• lists.cpunks.org Mailing Lists
• DigiCash - Wikipedia
• Blind Signatures for Untraceable Payments
• DigiCash announcement article from 1994
• Project Page: Multiparty Computation
• Security without Identification
• Elixxir - Home
• Elixxir - Real Cryptography, Real Time: Precomputations in Elixxir
• Elixxir - Why Mark Zuckerberg wants no privacy, why he wrote his letter, and why it won’t help him
• Elixxir - Point of Departure
• cMix white paper

Transcript

Sebastien: We’re here with David Chaum. David Chaum needs no introduction in this space because he really he’s pioneered and set the stones that are the foundation for a lot of the things that we are building in the blockchain space. And I mean, personally for me, it’s a real pleasure and a real honor to have you on just because I’m so concerned by my own privacy. And a lot of these concepts are concepts that date back to when you were initially working on them and researching them and writing the papers that put all of this stuff in motion. So thank you for joining us today. It’s a real pleasure.

David Chaum: Oh, thank you, Sebastian. It’s great to be here. Really appreciate it. Thanks for the kind words.

Berkeley and the Birth of Digital Cryptography

Sebastien: Let’s start with the beginning. Tell us about your background, your time at Berkeley studying computer systems there and yeah, what was it back then to be working on these technologies?

David Chaum: Well, you’re taking me, taking me back, but, this was Berkeley. It was a very exciting progressive place and my office mates and colleagues, there were people that, created a lot of famous stuff in the computer science field. I was working in that kind of department, and then Bill Joy and Eric Schmidt and all these people were, people I talk to all the time there and everything. Dave Patterson with the Risc Architecture and a lot of, key things were happening then as well as in cryptography. Those were really exciting times for all the real basic, research. And, so we had all kinds of people coming through, constantly visiting, talking about there are research and in cryptography and so forth. So it was, but there was also a kind of, backdrop of most of the graduate students or being recruited to work for the kind of military industrial complex. But there were a lot of posters up saying, don’t do this. So there were a lot of ethical issues in the air. I mean, this was Berkeley, 77 to ‘80-‘82. It was a, quite a mix of interesting things going on.

Sebastien: So there were, there were some people that were going to work for kind of the government or it may be in industry. And then there are others that were kind of opposed to that. What were they doing? Were most mostly are working on research or did they have their own ideas about what they wanted to build? I guess you, you fell in that second credit category?

David Chaum: Yes. Well, I believe that my work was, as far as I know, probably unique in taking advantage of the opportunity to do unconstrained research in order to find a way to use the technology to really advance dramatically the, the causes of public interest.

Computer Systems established, maintained, trusted, mutual suspicious groups

Friederike: So you got a PhD from Berkeley with a thesis entitled computer systems established, maintained and trusted by mutual suspicious groups, which to anyone who’s familiar with the cryptocurrency sounds very modern, and if you actually look into this, the thesis puts forward, a system that has a lot of the hallmarks of Bitcoin. So basically you have the cryptographic a signatures, you have the peer to peer system, you don’t have the proof of work, but everything else kind of is now already. So what actually made you interested in these specific systems?

David Chaum: This is the most fundamental problem in security of information technology generally, right? How can you make a computation that can be trusted by a group of people who don’t trust each other and bore specifically each say participants should have a privacy protected channel with the computation. The, it’s based on a published, an end mutually agreed algorithm that the computation is supposed to perform, but all of the state and data in the computation is hidden from everyone. But when the computation speaks publicly or over the secure channels to the individual participants, everyone can be certain that what it is saying is correct and this is a problem that I recognized early on as being kind of the fundamental issue. You could think of it as the sort of Church Turing theorem, or conjecture, for information security, because if you can solve that problem, then you I believe can solve any information security problem with that mechanism.

Now that’s an unproven conjecture, but it’s just like, saying that the touring machine can do any computation. You can’t really prove that, but it’s a conjecture that seems to have held up. So that’s why I was interested in it and I proposed a way to solve it in my dissertation. Now it’s a little bit ironic, I guess that my concerned about digital sovereignty in all made me not sign the copyright of my dissertation over to something called dissertation abstracts. That would… most of these, they’d be online and people could find them over. You could, you could order copies. So I kept the copyright and everything for mine. So it just basically lived in the library in a paper form. There were three copies in three different, parts of the, Berkeley, library system, but there was never digitized.

And so it pretty much escaped notice. Although you know how library books in the old days when there were physical books that you go to the library, then they would so put a little stamp in a with a date and all the, on a little sticker that was kind of on the inside cover of the book or something. So you can go back and look at these copies and see that there were instances of when they were checked out and because of the length of time that people had them, you can make inferences about the type of library status they had.

Library Metadata and Inventing Blockchain.

Sebastien: Library metadata is a very dangerous, yeah cause he could go, you could go back now and you actually look at the library records and find out exactly who read those papers and basically just figure out exactly who the finite number of people who read that paper pretty much.

David Chaum: Right. But so at least from these little stamps, you can see that was checked out occasionally, but sometimes people kept it for a whole year and there are only certain people that are allowed to check out books for a whole year. So that’s it. There was, this was a down pretty much, but any event, yeah, so actually there was a recent paper that is mentioned on my Wikipedia page, Wikipedia page about me, I guess one should say that was by a professor, Alan Sherman and others that goes through.. And I think it provides the best kind of taxonomy explanation of all the different variants that we’ve seen in the blockchain space. And it sort of organizes those and it highlights my contribution and basically, as you said, print it. It’s pretty much, the only thing that I didn’t anticipate in that work was the proof of work. But there are a lot of other types of consensus mechanisms as and there’s a point I’d like to make about that, which is I think worth trying to keep in mind.

And that is that back in those days, let’s say eight, 1980, the idea of burning up tons of computing time in order to, as for consensus, a algorithm was beyond reasonable. And it wasn’t until I believe 12 years later or so, about 94 that the idea of burning up time to have a winner’s who could, be the next block producer and so on… or the whole idea of using a proof of work for anything was proposed by one of my coauthors, Moni Naor, and I remember very clearly sitting in the auditorium there while, I believe Cynthia Dwork the other coauthor presented the paper. And I remember actually where I was sitting and just thinking about this as they proposed it in the context of a way to defeat or impede spam email.

Sebastien: Was that a precursor to Hash Cash?

Chaum: You could say that, but what I’m trying to point out is that the technique was already pretty well known. It’s just that you had to kind of wait until there was enough computing power and bandwidth and everything out there that any of this kind of stuff would make sense to say that someone in 82 didn’t fully invent blockchain. Just cause that that one type of consensus algorithm wasn’t included. I don’t think that’s reasonable.

Friederike: Oh no, no. And it was very much not meant criticism in that sense. I was marveling at your foresight that…

David Chaum: yeah, I mean I should maybe say it that way. I think maybe differently put differently. What’s really interesting to observe is that there, there has been a kind of inflection point that occurred in the last decade or so where we had enough computing power. It was cheap enough. And the connectivity, everything was there that we could have these unpermitted fund chains and use proof of work, say to control a consensus and that just wasn’t technically feasible prior to that. And so in my mind, a whole new idea it was that we really had to wait. There was enough computing power out there and everything to do this and that’s the thing that made the world different, In my opinion.

Relationship with Cypherpunks

Sebastien: I want to come back maybe to some, some earlier times when you were at Berkeley and you were working on these things and people were getting arrested for printing the RSA algorithm and trying to get it across the border. And that’s where you were, you were, you gravitating around those people, did you know Mark Miller, what he was up to and all the other cyber cypherpunks?

David Chaum: yes, of course. And in some sense I think the way that it’s told is that I was the inspiration behind the whole cypherpunk thing, however, I wasn’t really 100% on board with let’s say, the tactics that were kind of enlivening the movement. Right. And so, I wasn’t a big fan of automatic weapons and explosives and all this other stuff. I was more like, maybe we could just get the powers… trick the powers that be into using stuff that would protect our privacy and we’d be a lot better off because going to war against them didn’t make a lot of sense to me. It is a real lot of fun to be in a movement thinking that you could actually do stuff that. But, I didn’t think that was, that realistic. It didn’t prove to be that realistic. So I was really trying to affect the change and not just have fun doing so. So that’s different.

On Permissionless Systems Guarding Against Government Circumvention

Sebastien: Do you have similar views about the way you know people in the blockchain space now? And so you were recently at Web3 summit, all these young people now that are building these privacy technologies and trying to, I guess in some way, fight the system. Do you feel similarly about their approach to trying to build permissionless technologies that can’t be circumvented by governments, et cetera?

David Chaum: Especially that’s, that’s a pretty deep question. And I’d like to say that, I’ve been trying to make the world a better place for my whole career. And very often I see a number of different avenues and approaches that, my peers and colleagues, take. And this is a multi-factor evaluation that you have to make about each one. I mean it, so is it an approach? Okay, yes, it’s in a positive direction, but is it an approach that can go the full distance that’s needed? What are the obstacles to that? Are those fundamental or are those things that will just improve over time and over what time frame you expect that they will improve? So you have to kind of try to pick your best bet and sort of ride that out. If you’re really serious about effecting change, if you’re just trying to be happy with that, you’re doing something that isn’t a bad thing or that’s in a good direction, that’s a different consideration. I’ve put some real thought into finding ways to actually do things that could really make a substantial difference and, that makes me appreciate all the people that are working. But it doesn’t mean that I wouldn’t try to redirect their efforts if I thought that could work. Does that make sense?

Sebastien: Yeah, that makes sense.

David Chaum: It’s a pity to have to say. So I would say, but I’m pretty serious about all this and I, I tend to try to figure out what I think the best thing to do is. And the primary consideration is not about me personally.

Fundamental Work

Friederike: I get that. So the impact that you’ve made on cryptography is really hard to overstate. So you just, just for the benefit of our listeners, so you invented blind signatures and undeniable signatures, group signatures, you invented mixers, you introduced the first predecessor to secret sharing, and you jumpstarted the field of zero knowledge proofs and probably many other things that I have neglected. Tying into what you said, just an idea, which one of these do you think is going to become the most important to society and why?

David Chaum: Well, let me answer an easier question first while I’m thinking about that, the most fundamental work is you didn’t mention, which is the multi-party computation, there’s a series of papers. So you could say that zero knowledge, which I was on par with… there was sort of two competing groups, the MIT group and my group. We kinda had all three results at more or less the same time. And actually, we ended up winning the best paper awards, and getting papers invited to journals. But you could prove things to the world that’s zero knowledge or minimum disclosure were the two models that I proposed where the MIT only had the zero knowledge model. Then the computationally based multi-party computation work, and then there’s the honest majority work.

So those are two different full, multi-party computation models. And then the final thing that tied it all together as is my work they didn’t do, which is the spymasters double agent problem work. You could see it on my website, chaum.com. So this has the best of both worlds. If you have unlimited computing power, then you still have to have a majority participants to defeat the security system. So this is the robust fundamental stuff. I’m really hoping that the two things that I’m focused on now can dramatically change the world, and I think it’s become very clear that this stuff is really needed. And one is, you can see on the Elixxir home landing page the video, in a little more in detail, but basically the messaging integrated with payments with dApps or mini-apps, in the same namespace, has proven to be the killer app for consumers.

You can see that by we chat and what Facebook’s tried to do and the other major platforms in, in smaller markets. So this is an indisputable fact that, it makes perfect sense. That’s what people want. So if we can provide that, which is what my current companies dedicated to in an unpermissioned manner that shreds the metadata in real-time, and has a very secure payment system, that is comparable to the non-secured, to the other systems, in terms of performance, user interface and so forth. And where we have an easy to build on dApp platform, then I think that is one of the two key things that’s needed because, if you don’t have a protected space where people can communicate with certainty that they’re not being observed, among their friends and family, to obtain information about what’s going on in the world, and support the collection and distillation of information financially, if you don’t have those protected spheres, you cannot have meaningful democracy.

And that’s becoming, unfortunately quite abundantly clear these days. We could come back to that. But, the other thing, which I think is really fundamental and I’m very excited about, however, it’s taken a little bit of a backseat right now because so much going on with the messaging and the payments, the debeda and stuff that we’re working on. But the new type of, of voting that I’ve proposed and that we’ve run a binding elections with, which is called sample voting is something that looks extremely promising to me because it allows direct democracy to scale with both the size and the complexity of society. And it’s quite applicable for governance of our blockchain. And I think that will really demonstrate it will really shine there. But if you ask me what I think so might be the most important contributions, I think those, those two and, and they’re interrelated right now

Metadata’s Relationship with Privacy

Sebastien: I’d like to ask you about something you mentioned a few times already and that’s about metadata. Why do you feel that metadata is so critical to the privacy and sovereignty and vision of individuals and because a lot of times people talk about their privacy and I think they [only] consider the message. “I don’t want people to be able to read my message,” but I don’t think people really consider the importance of metadata. How would you effectively communicate that to someone that beyond the message that all the extra inferences that we can make them up, that metadata are as equally weaponizable, I guess,

David Chaum: well, what I’d like to say is that back in the 80s and so forth, privacy was a kind of a free standing issue. And I think in the last year or so, the public has come to recognize the significance of metadata as far as it’s enabling the manipulation of public opinion and allowing for the sort of taking control of nation States in the democratic portions of the world. And this is a fundamental and sort of irreversible phenomenon. Whereas if you look at the non-democratic parts of the world, you see that the same manipulation of media… and so on, is underway and diffusing any real hope of kind of a rise of public sentiment. Just look at the way China has manipulated mainland opinion related to the recent events in Hong Kong. I was just reading about it. This is quite, quite stunning.

And then that sort of the carrot side and then the stick side is, there are people that are disappeared and their, their access to their, their bank accounts aren’t disconnected and so forth based on the surveillance of WeChat and so forth. So it’s this type of ferreting out who can be manipulated around which issues and manipulating the apparent will of the public online is something that’s so powerful for almost all of the populations on the planet. It’s I sad, I think it’s a profound and sort of irreversible, dangerous specially given the progress in artificial intelligence and sort of the immense amount of data that’s already been kind of vacuumed up.

This is fascinating and I, we will definitely get back to this in a little bit just before we do and it’s completely fine if you don’t want to, but what do you mind disclosing how you protect your privacy online at the moment? Just because most of us, I mean most of us use Google and almost all of us at some point or other used to use Facebook and I mean Facebook is not such a thing anymore. But I mean I know very few people who can actually live without Google and other big tech giants and it’s very difficult to protect yourself. Right? And your privacy and your data

First of all. I have not been a user of social media and there were a few things that come out, but it’s not really for me actually. But in any event, now that the Elixxir platform is starting to become available, I really have no excuse not to use something that actually does protect privacy and shred the metadata and so forth. I’m gonna start to become a user guide. That’s about as much as I’d like to say about my own personal activities.

Privacy Practices and Social Media

Sebastien: Okay. So, so you, I mean, you don’t use Facebook or any social media and things that, I presume. Do you use services Google, Gmail of this sort of thing? Or do you have some sort of, personal ops sec process that, you’ve developed to protect your privacy but still have the ability to communicate effectively with people?

David Chaum: I said, I’m not a user of social media, but I will start using Elixxir and I try to make the best use of my personal energy to make the most effective change globally. And sometimes that means making compromises in terms of my own personal protection, where I better put the energy into, try to come up with things that really can address the key issues and trying to find a way to get them out that seems attractive too to the widest possible audience.

Expressing the Need for Privacy

Sebastien: I get, I mean, we all have to make compromises at some point. I mean, so personally in the last year or so, I’ve pretty much stop using any Google services for anything personal. I have my own mail server in my house, I’ve set all that up. I use signal with my family, but it takes a lot of time, right? And I’ve infested maybe hundreds of hours and getting all this opsec set up and everything, and having products that appeal to the masses where you don’t need to know how to use Linux for example, or any, any more complex than just installing an app is highly desirable. So in that context, something like Elixxir, which we’ll get to in a few minutes I think fulfills that need, where it’s a simple app that you install on your phone, WhatsApp or anything that and people can use it just as they’re used to using any, any sort of messaging app.

One of the things that I found challenging a was getting friends and family to use the systems that I was using and that I thought would protect my privacy. So for example, I got my family and most of my friends that I talked to regularly with do you use signal and signal is an encrypted and open source version of WhatsApp where there’s still metadata, presumably, but not under the Facebook umbrella I guess. And so the challenge was getting people to use that. With something like Elixxir, what are some of the immediate steps that you’ve taken? How have you effectively communicated that with, your friends and colleagues for them to start using those systems? where you’re not using Facebook or WhatsApp or any of these other things that normal people use? I would say people that are not so concerned about the privacy like we are?

David Chaum: well the history of social media, even though at any moment in time it looks the most dominant systems are never going to be displaced, the history proves that every few years there is the mass migration to the next best thing. And this has happened, more than a half dozen times and I believe that now the public has become quite disenchanted with the tech powers that be, they feel betrayed by the fact that they, their data has been misused without their permission of course and with such devastating consequences for faith in democracy, and so on. And so there is a huge opportunity at this moment, which is to create an unpermissioned social media system, which is a messaging which is all the new users basically interested in messaging, integrated with payments we chat and the rest is, I’ve said which supports dApps in the same namespace, that shreds metadata in real time and that is free to users, the consumers, so ordinary people and that has the capacity to scale to address a full out global use.

So such a technology which we are building and starting to roll out has the ability to destroy what amounts to essentially $1 trillion worth of market cap of these companies that have been exploiting the public secretly and creating this huge danger to society and to sort of give away for free to the public what it is they really want, which is these abilities to transact without being spied on. And there’s interestingly no way that these major players can compete with such a thing because they are not un-permissioned. They are companies. And so they cannot shred the data apparently because governments seem to want to be able to force them to give it to them so and their business model’s based on it. So we have this ability to dramatically change the whole landscape by creating an un-permissioned chain which offers these kinds of capabilities to the public for free. So I think that with the thought leaders and people yourselves and, and your listeners on this podcast and so forth, this can provide the sort of initial critical mass that will then because of the network effect lead to a mass migration and that can be a tremendously helpful thing for the future of the free world.

The Great Hack

Friederike: Yeah. And these things, after they’ve crossed a certain point, they permeate society way faster than one would, would have ever thought. Right. I mean basically you get these major consensus narrative shifts. well beforehand everyone had one opinion and then everyone just kind of shifts more or less at the same time. And you get you get this mass migration to a new thing and I think you may be completely right in that. We may be seeing that soon because people are being sensitized about what Facebook and the Facebook’s of the world are doing. That recently a movie on Netflix came out, a documentary called the great hack. Have you seen it?

David Chaum: Yes.

Friederike: Yes. So basically if you go listeners haven’t seen it yet. it’s totally worth of watch. It’s about Facebook and how Cambridge Analytica used metadata to influence voting behavior. It’s very scary. So it’s very dystopian.

David Chaum: and I just like to point out that if you were to just look into it a bit, you’d see that Cambridge Analytica by its own admission has been active in most of the large democracies around the globe and there are dozens of other companies which seem to be terribly pursuing similar business and similar approach. So it’s not something that’s going to go away. It’s only quite surprising to me that it even became, known to the general public. It’s quite a sea change that we’re witnessing.

Origins of Digicash

Friederike: Yeah. I want to go into your solution for this problem a little bit later on in the show. But let’s talk about your first company. Your first company was DigiCash. Can you tell us when you got the idea for digicash and, how it actually worked.

David Chaum: Sure. Well, in 1982 I published a little paper on blind signature based payments. Then in the mid nineties I was running a research group, one of the top research groups in the world on cryptography and… it was in Amsterdam in the Netherlands, and the Dutch government came to us and said, we want to do a road toll system here in the Netherlands, but we don’t want the government to be able to know where everyone is driving. And so we’re wondering is it possible to have a smart-car based automatic road toll collection system, with the radio transponders just like we see around the world today, but where the identity of the vehicles is not disclosed, but the payments are, are made and the pricing varies during the day. And I said, well, that’s funny. You should ask, I actually invented something in 1982 that could do that.

And they said, Oh, well, really? Well, I mean, would it be fast enough? at a hundred kilometers an hour, the radio connection only exists for about a meter of road travel. So that’s not a lot of time to complete a payment. And I said, Oh yeah, I think we could do it. And they said, Oh really? Well. I said, yeah, well say what if, if we can do it in two weeks, will you give us a contract to build it? We can prove to you that we could do it in two weeks. And they said, sure. So I got a bunch of students and we wired up this house, and it was a crash project. And in about 10 days actually built a little hardware gizmo that used to say, kind of micro controllers that a smart card of 60 to five. And, we demonstrated that we could make these blind signature payments in a special way, at that kind of speed. And so they gave us the contract and we had to build that. And so I hired the students and we started building it. And this was a done on the same campus as my research group, but it was in a separate facility and eventually as the web started to emerge, I moved over to actually run the company.

Digicash Usecases

Sebastien: So from there this was kind of the inception of DigiCash and so DigiCash was used to manage this toll payment system.

David Chaum: Well they never built the road toll systems actually, but that’s the most, wasn’t because our part didn’t work. We partnered with a company called Amtech and we demonstrated it and everything, but the government guy just got cold feet that it’s really interesting, but I think you can get a lot of insight and perspective from their big fear was that if they built this, that people would in mass ignore it and just not pay. And even though they would have photographs of all the cars and stuff, there’d be such a mass opposition to it that it would erode the power of government. It would be, it’d be extreme embarrassment to them. So that was I think why they decided not to do it in the end because… the Dutch don’t like to pay for anything, let’s put it that way.

Digicash User-Base

Sebastien: Yeah. How was DigiCash put to use them?

David Chaum: Well, in 1994 I gave one of two keynotes and the first keynote at the worldwide web conference. It was the first worldwide web conference in Geneva. And what I did of this in those days was, we use the web browser to make the slide presentations right. And this was projected by a huge projector. And I made the first E cash payment from Geneva to Amsterdam, and launched this idea that number could be worth money, so-called digital bearer instrument. And launched the DigiCash company. And this was picked up by all kinds of media around the world. Within a couple of days, there was a lot of interest in the idea that a number could be worth money, a digital bear instrument. And so we were very much in the spotlight and we kind of started with the first thing which was called cyberbucks.

And this is a digital currency as currently understood but different than a few ways. So one commonality is that it had a limited amount of the currency that was going to ever be issued. So that was an interesting thing, a good innovation. The another thing was that of course all the transactions conducted online, it differs technically from current blockchain which have, arguably, zero privacy, right? Whereas digicash use of the blind signature concept you mentioned earlier that has a really nice special kind of privacy with some metric called one way privacy or payer anonymity, which is essentially that only the person who forms the digital coin, initially at random, should be the user can recognize it later. So it’s hidden by a blinding process when it’s received the validating signature by the issuer so that when they’re used, user receives it back, they can unblind it and spend it and everyone can see that it’s really signed and they just have the truck checked for the double spending.

But that digital coin is unlinked bubble to the withdrawal process where it was originally signed. So what it amounts to is that as the payer, you can always irrefutably prove who received the money from you, but they cannot find out who you are. And that it turns out as the kind of an ideal kind of privacy because at the time of what’s called the bank for international settlements, you guys, the central banks that are bag proclaimed that criminal use of payments could be divided. The three types, extortion, black markets and bribery. And if you think about it, such a one way privacy it makes the money unsuitable for any criminal use. Because you know what kidnapper would accept payment by check or, or what politician would accept the bribe by, wire transfer or in a black market. It’s always sort of follow the money up the hierarchy.

So it was quite unique. And so what this means is that each coin has a phase one of a fixed set of denominations. On current blockchain, where that is in effect a digital check system where each transfer has a potentially unique amount, which links it horizontally from account to account from, well I need a wallet ID with, with DigiCash each 1 cent or 2 cent 4 cent eights that we use. A binary denomination scheme just is a little more efficient, but each, each such domination has its own type of signature and its own sort of freestanding digital bearer instrument that’s kind of a containerized, just retired version of money that prevents or reduces, the horizontal traceability from, from account to account to account. So that because of the standardization of and that sort of breaking the payments up in, into just paper money and coins today, metal coins. So another difference of the DigiCash, technology.

Sebastien: So who are the users of the DigiCash? Were there sort of classes of people that you could kind of say we’re using this? Was it mostly for online purchases or were there are certain use cases that you were starting to kind of pick up on when, when, when it started getting traction?

David Chaum: Well, so those initial payments were part of the Cyberbucks and you could call today in airdrop. So basically we said we’re only going to issue this amount and we will give it away for free. But our condition on that was that you have to create a shop, an online web based shop that accepts cyber bucks for something. And then we would give you a hundred cyber bucks and that’s how we rolled it out. And if you go to chaum.com you can see it’s sort of the e-cash museum. You can see all the press releases in somebody, you can actually see the icons of a lot of the shops that, were up issuing, selling things for ecash and that participate in the CyberBucks launch of ecash bots. Then we also subsequently licensed banks around the world to issue ecash in their national currency at the time, as well as for internal use.

So the […] securities, they use it internally, but we had issuers in most, most continents. We had Australian dollars, we had US dollars. In those days it was pre Euro, so this would be at the Deutschmark and then a number of other licensees in Scandinavia and so forth. So actually Deutsche bank in those days was the biggest bank in, in Europe, indisputably. And they were like toughest customer. They had a data center that was an old bunker underground and they wanted every kind of industrial audit back up, role in every kind of protection and everything. And so we had to build all that stuff for them and they, they deployed it and there were shops that accepted payments, why he cash Deutschmarks and so they were very enthusiastic about it. And so they were moving forward and as we’re, so there’s a lot of interest in the, in this technology and the, in the product, a lot of perspectives. But the web has grown very, very rapidly in those days. And, I don’t know if you recall, but people were reluctant to make payments using their credit cards, but e-commerce was projected as to something that was, was going to happen. And so there was just a, it was very difficult to deploy. It was somewhat of a labor of love to install. And he cashed client in your computer in those days and keep it up to date and eh, and so forth. So it was a, the interesting times

Reserve Backed ECash

Sebastien: I remember back in my mid teens in the late nineties, wanting to buy some, I wanted, I wanted to order an SSH server or something, and the only way to do it was to pay online. And of course, it didn’t have a credit card as a teenager. So I asked my mom if I could use hers and she’s like, I’m not putting my credit card number online. And you’re crazy. So what she ended up doing, she got an extra credit card with a $500 limit just so that I could buy stuff online. And, so having something like digi cash back then would have been very useful. or something like, obviously Bitcoin or something that. also, but so, so DigiCash was backed by actual reserves, right? there was us dollars or Deutsche bank or something in a bank account representing these, individual coins. Correct.

David Chaum: A handful of banks around the world which issued E cash. And what that technically meant was that if you had an account at their bank, then you could withdraw money from your account into E cash, just you could visit an ATM machine and withdrawn into paper money. So you could load up your ecash wallet from your bank account and then you could spend that money. But it was in the form of these binary denominated digital bearer instruments that all of our payments were privacy protected in that way, with blind-signatures then you, you could spend that at any of the shops that would except it.

Sebastien: it strikes me that this is kind of similar to, so some of the assets back stable coins that we see in the space now and in some way it put setting aside all the privacy issues, et cetera. But in some way it is a little bit similar to what Facebook has proposed in Libra in that cryptocurrency. Would you not say so?

David Chaum: Well way I frame it is that we issued a free standing digital currency cyberbucks. And we had a way to get it except that a lot of merchants and we gave it away. So we were trying to create our own currency with a bounded cap. And in parallel with that we allowed others to issue their own versions of it and we help them do that. And those others all turned out to be banks or I think there were also the, Nora was a research organization and I think that the Sweden pulse license it so people would want to use it beyond other than bags. But we try to make it available to anyone who wanted to use it. But in those days we had to help them do it. And so we wanted this stuff to be come the digital currency, but there was such a rapid growth, that hesitation and then lurch forward of growth and was not anywhere near as convenient as credit cards once that became a viable option.

Friederike: … imagine a private person, if I accept your eCash, what’s my route to redeeming it for Fiat? Can I do that with any bank or just my bank? Or how does it work?

David Chaum: Back in the, in the DigiCash days, there were banks that excepted E cash in different currencies and would, we’re willing to convert them exchanges. So there was a bank called Twain bank in the U S they issued you a Starz, but they would also accept other currencies I and convert. So the only way that you could get, let’s say into or out of fee art was through a bank account that was denominated in that fee of currency. And that was w was provided by a bank that was actually part of the eco system.

Friederike: And so basically the banks within the eco system, they didn’t set it amongst themselves.

David Chaum: I think it was a little simpler than that, but more or less, yeah, I mean they had just like, if you don’t understand how national banking works, I mean they had accounts at correspondent banks and so on.

ECash Business Model

Friederike: Okay, I see. And what was the business model of e-cash?

David Chaum: you mean the business model of the company, DigiCash?

Friederike: Yeah, exactly. So basically, how was DigiCash meant to make money?

David Chaum: Well, DigiCash did make money and I mean, we did the cyber box thing for free and we hope to really foster the creation of an alternative currency based on, pretty idealistic vision for that. But we also, licensed banks and organizations as I mentioned. And, and for that, they paid us for the right to do it and paid us to help them. And we had S I think a the sound and sustainable business model. But then as the web really started to take off, we saw, I decided that this technology was too important to not be given a chance to really rise with the tide.

So we took in a substantial investment and I think the strings attached to that in the end didn’t really have the same interest in making the world a better place. So that was the decision I made too because it was put very clearly internally, we could have just kept on keeping on in a modest way and that would have been much safer for us and that would’ve been fine. Like, you mentioned business model in your question, but I decided that we should really just go for, try to make the world a better place and try to rise with the tide. So we took in fair amount of money under terms that assume that those people who put the money in really had the same concern about changing the world as us. But in the end that in proved to be the case.

High Level overview of Elixxir

Sebastien: Let’s get back to this topic that has been falling us through this conversation, which is Elixxir, your current project. Can you give us a high level overview of what is the here and what’s the goal here? what, what are you trying to achieve with this new project?

David Chaum: Elixxir aims to be a free to consumers messaging and payments platform that is second to none in terms of privacy because it’s unique in its ability to shred the metadata to provide the kind of transaction speeds that people are accustomed to and has the capability to scale to the bandwidth that’s needed for mass adoption. And that also allows for the integration of dApps and in that way positions itself as a a full alternative to the we chat or a Facebook with labor or some of these other offerings. And, and I believe a very attractive alternative. And with the network effects we can expect perhaps a very rapid transition.

An Arms Race Between Surveillance and Privacy Advocates?

Friederike: That sounds super exciting. And, we, we are doing an episode, especially on Elixxir in the near future, so an entire hour dedicated to this topic. It seems to me that maybe we’re at some sort of turning point. I mean basically the, the past couple of years or the past couple of decades have been, an race between people who are interested in surveillance and surveilling people, nation States and other actors and, people who are developing ways to preserve your privacy. Would you agree with this? And, what do you think are the possible outcomes? W hat are the possibilities that you anticipate?

David Chaum: Well, I wouldn’t characterize the past couple of decades as an arms race between governments and let’s say good intention developers, but rather, unfortunately, it’s a pity to have to say. So what I think that there’s been a lot of kind of honeypots set up that lured good intention people into using systems that were a little bit hard to use, but actually simply revealed them as people who were concerned about their privacy. And if you look at things the Arab spring, so-called or other kinds of movements, it’s always really surprising how easily all the leaders that are identified and eventually arrested in or whatever disappeared. And it’s recently was revealed that China also has, what Snowden told us, the US government has the full take, the ability to surveil the entire network (Needs Citation). And what that means of course is that tor is simply a transparent to both of these major power groups.

And similarly a lot of other good intention things turned out that to really be adequate solutions. So, I think that we’re, we’re at a really great point because all that good work and intention and so on has resulted in a, a culture of and an understanding of a lot of these issues at a tactical level by developers and so on. A real interest to see this happen. So we’ve gone to a lot of momentum and now with the ability to do un-permissioned chains and with some of the technology breakthroughs that I’ve been working on to try to speed up some of this stuff and so forth. And we have a thousand X speed up in, in mixing with Elixxir, right, which is needed for chat with the parallel realization by the public in effect. This is the whole game. If you cannot have protected sphere, then you’ve lost control over governance. And that may be something that’s very difficult to recover. So I think it’s now we’re, we’re at a really exciting point in this, in this, in this process.

Optimism for the Future, and creating ‘White-Hat Malware’

Sebastien: I’m glad you’re optimistic this because my, my views on this stuff has have become slightly tainted over the last couple of years and I’ve become more pessimistic about it. I feel that these platforms have gained so much power and they’ve gained power for a couple of reasons, but one of the reasons that they become powerful is because, well, obviously they connect people, right? people want that connection. But I think that they also exploit very primitive aspects of what makes us human. So I believe there’s quite a few studies out there that talk about kind of how Facebook and Instagram and the, the light culture affects, neuro-receptors in our brains and how they accurately hit our, our pleasure receptors, etcetera. And it’s almost an exploit, right? It’s almost these platforms are exploiting our brains. some, some malware. I think for platforms that try to, do the right thing and not use people’s data to exploit their privacy and their voting habits or like, get them to buy stuff.

All those people that are on the other side doing the right thing, I think that they may be also need to try to approach this with that same malware approach. But the white hat version of that, right? what’s the white hat version of the Facebook button that or the Instagram button that just gets you coming back all the time but, but doesn’t exploit you as a user. And I think that the space of good intention, people haven’t yet figured out what the white hat version of that is. And I really hope that people you and the folks working on Elixxir and other products it, get to figure that out and get to create that, that massive network effect that topples Facebook and makes it the next my space. You know what I mean?

Friederike: But in principle, there’s not a reason why you shouldn’t be able to build that.

David Chaum: Yes, that’s right. That’s what we, when I proved back in the late eighties what the multi-party computation results prove is that if there’s any way to create a white hat incentivization or reward scheme that doesn’t inherently exploit data, then cryptography can allow for it to be realized securely and transparently.

DAOs

Friederike: Do you feel that DAOs have a place in this, in the governance of these protocols?

David Chaum: Well, I think that yes, it’s, it’s essential that there is a kind of democratic structure that controls this infrastructure and that’s, as I mentioned earlier, was one of the two key ingredients. I think you need protected spheres and you need a kind of democracy that scales with complexity and size of the system. Those two ingredients together that can solve it.

Friederike: I think those are nice last words. Maybe this is a good point to end this episode. It was a great pleasure to have you on. We talked about this before the episode. We’ll have you on again very soon. When you’re ready to talk about Alexia, your platform and blockchain that runs on it at practice.

David Chaum: Great. Yeah. Well this was really a blast and interesting and I appreciate, your good question is interesting year and your thoughts and, and I look forward to continuing the conversation. Thank you very much.

Sebastien: Thanks so much David. It’s been a real pleasure.