Digital cash built on cryptographic primitives is powerful because it shifts the delegation of trust and execution of incentive models to code and mathematics instead of central parties. Over the recent years, we’ve seen blockchain technology begin to gain more momentum, building on top of the shoulders of researchers that formed the foundation of electronic cash (also referred to as digital cash) decades earlier. As the use of the internet became more widespread, researchers began to think about ways to create some of the same attractive features inherent in paper cash to the digital world. One of such features is being able to separate financial transactions from the identities of people. As we’ve seen with the Ethereum blockchain, these crypto primitives can be used to create architectures that track state changes beyond digital currency transactions. However, the momentum had to start somewhere. David Chaum, Amos Fiat, and Moni Naor published a research paper called “Untraceable Electronic Cash” that served as a source of inspiration for digital cash systems to come.

Untraceable Electronic Cash developed a set of cryptographic functions that guaranteed that a person’s transaction history was untraceable, given that they didn’t attempt to spend the same coin multiple times. Chaum, Fiat, and Naor (CFN) used the concept of blind signatures to hide the identity of a payer, the amount of money spent by the payer, and the time of payment. Utilizing binary strings chosen by the payee and sent to the bank, the scheme is able to detect when double spending occurs. Only in this case, is the identity of the payer compromised. As a modification to the process, the account number changes from coin to coin and from one blinded candidate to the next.

Bitcoin uses similar cryptographic concepts to form digital cash, but differs in a few core ways. In the case of CFN’s e-cash, their scheme utilized a centralized bank to facilitate creating coins. Although the bank had limited information about transactions, the party still had to be trusted with account numbers, as well as account associated counters. Bitcoin instead uses the idea of a distributed public ledger that doesn’t rely on a centralized entity for operations. Instead, transactions are broadcasted to everyone, and are verified collectively using a proof of work algorithm combined with a “chain-like” data structure that makes it computationally infeasible to mutate data once it’s confirmed. This process makes frauding the system to do things like multiple spends extremely difficult with the assumption that honest nodes hold more computational power than malicious nodes.

Other blockchains have built on top of these foundational concepts to offer new features, but the underlying theme of using mathematics and code to allow secure and pseudonymous transactions to occur between peers still persists. And we can thank early work from researchers like CFN on e-cash systems for that.