David Chaum: The Man Who Inspired Satoshi Nakamoto

Satoshi Nakamoto’s Bitcoin (BTC) whitepaper is often regarded as the most important document in the history of cryptocurrency, but its ideas are far from original.

Bitcoin ushered cryptocurrency into the modern era when it arrived on the scene in 2008. However, it arguably could never have even existed if not for research that was conducted over two decades prior by the legendary cryptographer known as David Chaum.

Nakamoto may not mention him by name in his Bitcoin white paper, but one only needs to look back at Chaum’s work to understand how his ideas ignited the spark that Bitcoin needed to get off the ground.

Who Is David Chaum?

David Lee Chaum was a hugely influential computer programmer who established some of the basic principles of cryptocurrency back in the 1980s and 90s.

He was one of the earliest pioneers in creating a digital currency designed around privacy and security, which would eventually become commonly known as cryptocurrency.

As a result, he’s been called the “Godfather of crypto” or the “father of online anonymity”, despite the fact that he lived at a time when making crypto a reality was much harder than it is today. 

Instead, Chaum’s most valuable contribution at this time was his ideas, outlines, and experiments that he made available to the public. 

Early Career

Chaum was born in New York City in 1955, during the post-war economic boom. Though he attended the Sidwell Friends private school early in his life, his interest in computer technology really took off when he joined the California Institute of Technology.

This led him to study computer science at the University of California, Berkeley. Thanks to his studies, he quickly picked up the basics of coding. He was also surrounded by tech wizards at the time, mainly Eric Schmidt and Bill Joy, who would go on to found Google and Sun Microsystems, respectively.

After earning his PhD, Chaum decided against applying for a regular office job and instead started thinking a little more radically about the nature of cryptography. More specifically, he was pondering ways in which it could be used to protect people’s privacy. In his own words, Chaum’s aim here was to “Alert the public that they could control their own information” .

Chaum’s earliest concept of what this could look like came through a concept he called Mix Networks in 1980. It was a revolutionary idea that proposed that people could send messages to a server that was completely encrypted. For now, though, this was just an idea, but one that was very appealing given how suspicious people were about being monitored by the government. 

Setting Out a Crypto Blueprint

Chaum wanted to create a currency that was centered around privacy so that people could manage their hard-earned money without there being any trace of where, when, and how they spent it. 

He set out his plan for creating digital cash through three key documents, all of which were published in the 80s:

1. Computer Systems Established, Maintained and Trusted by Mutually Suspicious Groups – A doctoral dissertation that introduced new and bold ideas to the public about authorizing mathematically encrypted payments that could hide personal information during transactions. It was also the first outline of a blockchain protocol to register transactions in real-time. 
2. Blind Signatures for Untraceable Payments – Introduced the concept of ‘blind signatures.’ Banks can still sign off on transactions but cannot see the sender or their contents. While this wasn’t full decentralization, in the sense that it didn’t remove the need for banks when making transactions, it was as close as Chaum could get without facing legal backlash. 
3. Security Without Identification: Transaction Systems to Make Big Brother Obsolete – Formally introduced the idea of “eCash” as a form of digital money that would provide users with full privacy and anonymity when making online transactions.

Chaum had a firm idea of what he wanted to create and knew what it could offer the public at large, but it wouldn’t be until the tech boom of the 90s that he could finally make his dream a short-lived reality.

Creating the First Cryptocurrency

In 1989, David Chaum founded DigiCash, an electronic cash company based in Amsterdam. The company’s goal was to make Chaum’s eCash concept practical and available to the public.

The company proposed to provide full anonymity for its users so that they could conduct transactions without exposing their identity or personal info. It also contained advanced cryptographic protocols, which granted it tight-knit security against counterfeiting and unauthorized duplication.

What’s important to note here, though, is that DigiCash still relied on the banks. Though the transaction details were hidden, they still had to be authorized by banks to ensure the digital money being passed around was legit, which allowed Chaum to seem a lot less radical than some other ‘cypherpunks’ at the time. 

DigiCash introduced the very first fully electronic money, eCash, in 1993, and it wouldn’t take long before it gained popularity. The Mark Twain Bank, Deutsche Bank, and Norske Bank all entered agreements with Chaum and DigiCash, and for a while, it seemed like this ambitious project might just work after all. 

The Decline of DigiCash

The truth is that DigiCash was a brilliant idea that came about at the wrong time.

The company and the idea of eCash, in general, didn’t receive enough public recognition to evolve, leading it to file for bankruptcy in 1998. 

As the years have gone by, a few other arguments have sprung up regarding why DigiCash met such an untimely end. Some suspect that Chaum himself was distrustful of big tech players like Microsoft, which limited the project’s scope. 

Technical limitations, especially the lack of a core algorithm, were also proving difficult to overcome.

Chaum’s beloved project may not have lasted very long, but while DigiCash was gone and buried, it would be revived and remolded into a new platform a decade later: Bitcoin.

Inspiring Satoshi Nakamoto

Satoshi Nakamoto is the mysterious author of the Bitcoin white paper and the founder of Bitcoin itself. Nobody actually knows who Nakamoto is, but one thing that is clear from his writing is that he was probably a big fan of Chaum.

For example, the paper’s prominent theme is its emphasis on privacy and anonymity, which echoes Chaum’s whole purpose of eCash and his ethos of blind signatures.  

From a more technical standpoint, the whitepaper also builds upon Chaum’s cryptographic techniques, which are used to prevent double-spending and keep transactions secure.

Nakamoto also finalized the blockchain protocol first introduced by Chaum in 1982 by implementing a proof-of-work model, which was required to verify each transaction. 

Completing the Concept of Decentralization

One of Chaum’s major ideas, which Nakamoto pushed to new heights, was providing full decentralization for Bitcoin users. 

As we’ve already seen, decentralization was important to Chaum, but he couldn’t go all the way with it, considering he would have been labeled a criminal. Therefore, his company, DigiCash, still relied on banks despite using blind signatures, but Nakamoto decided to cut these ties entirely with Bitcoin.

In a sense, Nakamoto finished what Chaum had started by pushing decentralization over the finish line. It’s worth remembering that Nakamoto wrote the whitepaper the same year as the 2008 financial crisis and not long before the Snowden reports.

Therefore, cries for truly decentralized privacy were much more prevalent than in the 1980s or 1990s, which explains Nakamoto’s willingness to pursue the idea.

David Chaum’s Crypto Legacy

It would be an understatement to say that David Chaum has impacted the cryptocurrency landscape, but his legacy has lived on in three central ways: new projects, developer recognition, and technical influence. 

New Projects

David Chaum remains an active player in the world of crypto and is still developing new projects, primarily as part of his new XX network. 

Two of the most popular examples are Elixxir, a blockchain solution capable of handling thousands of transactions in a second, and Better Than Money, which allows users to make and receive payments directly from a portfolio.

Chaum has also been instrumental in creating a democratic and fair online voting method through VoteXX, which is the first attempt to create a legitimately secure voting system. 

Developer Recognition

David Chaum has also received plenty of acclaim from the new developers on the block. During a 2021 livestream, for example, Cardano (ADA) founder Charles Hoskinson was asked about his opinions of Chaum. He replied that Chaum is a “brilliant guy” who he has always enjoyed talking to during conferences and lectures.

In 2018, Chaum was invited to the ‘Cryptocurrency, Blockchain, and Distributed Economy’ lecture in Seoul alongside developers like Vitalik Buterin, the co-developer of Ethereum (ETH) .

Chris Larsen, the founder of Ripple, has also praised Chaum’s contributions, calling him a “Defender of privacy in the digital world for almost forty years.”  

Ironically, Chaum has also received support from modern developers through their own technology. For example, he used Gavin Wood and Polkadot’s (DOT) Substrate framework to create his XX project. 

Technological Influence

Bitcoin proved that Chaum’s concepts could work in the long term. As a result, his influence would extend beyond Bitcoin as other crypto-related developments began cropping up, with NFTs and Smart Contracts being the biggest examples. 

Blockchains, originally established by Chaum, have also become commonplace not just in crypto but in all kinds of corporations and agencies. 

Chaum’s ideas have been built upon and upgraded for modern developers, but his technological influence is still clear to see. 

On the Flipside

• David Chaum wasn’t the only one who influenced modern developers with their ideas. Nakamoto references computer scientist Adam Back in the Bitcoin whitepaper by name for his early studies on a proof-of-work model. 
• While Chaum is clearly the biggest inspiration, there are still other developers from the 80s and 90s who deserve credit for their contributions to the field, such as David Back and Wei Dai, for example. 

Why This Matters

Cryptocurrency is evolving at a breakneck pace, and considering how popular it has become, it seems evident that it’s not going to disappear any time soon. The truth is, though, that Bitcoin and, by extension, cryptocurrency probably wouldn’t have even crossed the starting line if not for the research and resources Chaum left for Nakamoto to use decades later. 

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