What was DigiCash?

By Matt Hussey

DigiCash was a digital money company that existed long before the blockchain. It wanted to make electronic payments anonymous but unfortunately went bankrupt before this could be fully realized.

It’s often said that the history of cryptocurrencies began in 2008. The Bitcoin whitepaper was published as the centralized institutions--the banks--faced the very real threat of liquidation. Written by the pseudonymous Satoshi Nakamoto, it comprehensively outlined a peer-to-peer payments network, in nine pages.

But Bitcoin relied on the work of various computer scientists and cryptographers. The idea of an e-cash protocol existed long before. DigiCash was one of the first serious attempts to create an independent electronic money system.

What was DigiCash?

DigiCash was a payment system developed in the early 1990s. It was designed as an alternative means for users to securely pay for goods and services on the internet, itself just a few years old.

Who created DigiCash?

DigiCash was created by the American cryptographer and computer scientist David Chaum. The company was a chance for Chaum to test out many of the proposals for an untraceable payments system. He had first outlined the theory in a research paper when he was a researcher at Berkeley, published in the early 1980s.

A brief history

• June 1983 - Chaum’s paper outlining an anonymous electronic payments system gets published in an academic periodical.
• Late 1989 - Chaum founds the DigiCash company.
• 1994 - DigiCash beats the likes of Visa and Mastercard to prove small payments can be sent across the internet.
• 1996 - Chaum exits the company.
• Late 1998 - DigiCash files for bankruptcy
• 1999 - Chaum sells off his remaining patents and exits the company
• Feb 2002 - DigiCash is eventually sold off for assets.

What was so special about it?

• Electronic transactions - DigiCash was the first serious attempt to create a viable electronic payments system.
• Anonymous payments - New cryptographic protocols meant transactions could be sent without the user having to divulge any personal information.
• Security - Chaum’s cryptographical tools - like the private key - also meant that merchants could store value confidentially on the system.
• The first cryptocurrency - DigiCash allowed users to send and receive Cyberbucks. A digital currency which was not directly controlled by a centralized institution or bank.

How were Cyberbucks produced?

Cyberbucks were created and issued by DigiCash. During the trial period, to determine the currency’s dynamics, one-million tokens were created and issued to early adopters and enthusiasts. No more were created.

How did DigiCash work?

• Getting Cyberbucks - DigiCash users first needed to withdraw money from their bank account, which would then be changed into Cyberbucks. These would then be stored on the user’s PC hard drive.
• DigiCash transactions - Users could use DigiCash to pay for goods and services. A payment request would be sent, which once approved, would allow Cyberbucks to be sent across the network to the merchant. The receiver could also automatically change Cyberbucks into USD dollars that could be deposited straight into their bank account.
• Blind signatures - DigiCash transactions could be private. Although there were ways for banks to trace the coins created, a user could place a transaction in a special digital “envelope”. It was a way banks could be sure a transaction was valid, without the sender having to actually divulge private information.

What could you do with DigiCash?

DigiCash was meant to be a secure way to transact on the internet. It’s success depended on having enough users willing to use Cyberbucks and merchants who could accept it. Unlike many other online payment systems at the time, including the likes of Visa and Mastercard, which could only handle large amounts electronically, DigiCash was designed to allow users to send small transactions. Ideal for the burgeoning online retail sector.

Users at the time reported buying everyday items such as shirts or CDs online, which could then be delivered to an address or picked up from the store.

Why was it significant?

DigiCash was an experiment. It was an attempt to use computers and the internet, still largely in their infancy, to create an alternative payments networks centered around the individual. It wasn’t decentralized and the banks were still needed for a constant supply of money.

But it’s model underpins ideas that were later taken up and expanded on by Satoshi Nakamotoand other cryptocurrency creators. Chaum’s work on cryptography lies behind what keeps transactions on the blockchain secure and valid.

Chaum attributed the failure of DigiCash to the ‘chicken and egg’ problem. Users complained that there weren’t enough merchants; merchants said there weren't enough users to make it worth their while.

More than twenty years later, cryptocurrencies are increasingly adopted, by individuals as well as the financial institutions. Although DigiCash never actually made it, it is a part of the foundations for today’s digital currencies.

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