MARCH 6
Why Digital Cash Failed Before
The Brilliant Experiments That Almost Changed Money
The Signal
Digital cash did not fail for lack of brilliant ideas. It failed because every design still contained something that could break, disappear or be controlled.
The Reading
October 1995. A modem screams into life. A customer of Mark Twain Bank moves dollars into special software and receives encrypted coins on a computer. David Chaum’s company, DigiCash, has made private digital cash real.
Banks from America to Australia tested it, but customers needed unfamiliar software, merchants needed to accept it and banks needed to support it. Credit cards were already easier. The mathematics worked, but the network of people never grew. In 1998, DigiCash entered bankruptcy.
Other experiments reached different walls. E-gold attracted users, but one company held the gold and operated the accounts. When authorities acted against it, the whole system had nowhere else to go. Wei Dai described b-money, but admitted part of his design was impractical. Hal Finney built reusable proof-of-work tokens, but one trusted server still kept the ownership record.
None of this work was wasted. Chaum brought privacy. Adam Back brought provable computer work. Dai imagined shared records. Nick Szabo pursued digital scarcity. Finney made digital work reusable. By 2008, the pieces lay scattered across papers, failed companies and silent machines. The dream had not failed because it was foolish. No one had yet assembled every piece into one living system. The future was visible, but every road toward it still ended somewhere.
First Principles
Brilliant money is useless if nobody accepts it.
A digital currency with one controlling company still has one point that can be stopped.
Earlier inventors discovered vital pieces of digital cash, but no design combined them all.
Today’s Challenge
Write these four requirements on four pieces of paper:
- Private.
- Scarce.
- No central owner.
- Cannot be spent twice.
Now remove one piece. Would you trust the money with your life’s savings?
Remove privacy and payments can reveal you. Remove scarcity and unlimited units can be created. Add a central owner and the system can be closed. Allow the same coin to be spent twice and nobody can trust it.
The early inventors solved some of these problems. Digital cash required someone to solve them together.
Tomorrow’s Signal
The Double-Spend Problem