Digital currency

Digital currency emerged because the conditions of the early 1980s made it inevitable: public-key cryptography had solved the authentication problem, computer networks were connecting strangers who needed to transact, and cryptographers at Berkeley were asking an obvious question—could money be as private online as cash is offline?

The adjacent possible coalesced around David Chaum's insight in 1983. His paper "Blind Signatures for Untraceable Payments" introduced a deceptively simple concept: using RSA cryptography, a bank could sign a digital token without seeing its contents, just as signing a carbon-paper envelope leaves a mark without revealing what's inside. This "blind signature" meant the bank could validate that currency was genuine without tracking who spent it where—anonymity properties identical to physical cash.

But digital currency needed more than mathematics. Public-key cryptography had only emerged in 1976. Without Diffie-Hellman key exchange and RSA's one-way functions, there was no mechanism for secure authentication between strangers. The concept of networking computers for commerce was still nascent—ARPANET had fewer than 300 hosts when Chaum published. And crucially, the Cypherpunk movement that would later champion cryptographic privacy hadn't yet formed; it needed Chaum's ideas to crystallize around.

DigiCash, founded in Amsterdam in 1990, attempted to commercialize eCash. The first electronic payment was sent on May 27, 1994. In the United States, Mark Twain Bank of St. Louis became the sole adopter, signing approximately 5,000 customers and 300 merchants during a three-year trial. The technology worked—but the ecosystem didn't. Bill Gates reportedly offered $100 million to integrate eCash into Windows 95; Chaum countered by demanding $2 per copy sold. The deal collapsed. Banks that tested eCash never sold it as a real product. DigiCash filed for bankruptcy in September 1998.

The failure illuminated a critical architectural flaw: centralization. DigiCash required trusted intermediaries—banks, corporations—whose cooperation could be withdrawn. This observation drove the next generation of cryptographers toward a different question: could you create digital scarcity without any central authority?

Convergent evolution proves the conditions were aligned. In 1997, Adam Back created Hashcash, using computational puzzles for spam control—independently rediscovering concepts from Dwork and Naor's 1992 paper. In 1998, Wei Dai proposed b-money and Nick Szabo described bit gold, both outlining decentralized digital currencies using proof-of-work. These weren't copies of Chaum's work; they were parallel solutions emerging because the same problems faced anyone thinking seriously about digital value transfer.

The cascade from digital currency transformed finance fundamentally. Blockchain technology—first fully described in Chaum's 1982 dissertation—combined with proof-of-work consensus to produce Bitcoin in 2008. Cryptocurrency market capitalization exceeded $2 trillion by 2024. Central banks now develop digital currencies (CBDCs), with China's digital yuan already in circulation. The blind signature scheme Chaum invented finds application in privacy-preserving voting protocols and Tor onion routing.

Path dependence shaped which approaches survived. Bitcoin's pseudonymous rather than anonymous design—a deliberate departure from Chaum's vision—proved more acceptable to regulators and easier to implement without trusted intermediaries. Yet the trade-off persists: blockchain transparency means every transaction is permanently visible, inspiring ongoing work in zero-knowledge proofs to recover the privacy Chaum prioritized.

By 2026, digital currency exists on a spectrum from fully centralized (CBDCs, stablecoins) to fully decentralized (Bitcoin, privacy coins). The question Chaum asked in 1983—can digital money be private like cash?—remains contested. His answer was technically correct but commercially premature. The infrastructure of trust, the network of merchants, the regulatory accommodation, the user understanding of privacy—none existed in 1994. Chaum didn't fail because his idea was wrong; he succeeded before the adjacent possible had fully formed.