Widely credited as the inventor of digital cash, David Chaum is sometimes known as the “father of online anonymity” or the “godfather of cryptocurrency,” whose work inspired the near-mythical group called the Cypherpunks from which Bitcoin emerged.
Beginning his studies in computer science in the late 1970s, when encryption was classified at the same level as nuclear technology, Chaum quickly realized that the technology would be crucial to ensure the continuation of privacy and democracy in the digital age. More recently, he founded xx Network, a privacy-focused blockchain whose connected xx Messenger Chaum hopes will withstand attacks even by quantum computers of the future.
“The National Security Agency was taking the position that cryptography was born classified, even if you created it yourself — like nuclear weapons technology,” Chaum recalls. He was told around 1980 that conferences on the subject would naturally not be allowed and that “people who organize them would be prosecuted.”
Cryptography, encryption, cypherpunks, xx Network, xx Messenger, xx Coin, privacy, quantum computing, Ecash, DigiCash, democracy, Hannu Nurmi — “I was risking spending the rest of my life in jail,” he says.
Encryption has long been of vital importance in warfare, and the Allies breaking the cipher of the Enigma machine and decoding the Nazis’ secret messages changed the course of World War II.
Afterward, the United States government regulated cryptography as a military munition alongside nuclear technology. The 1976 invention of public key encryption, which allowed information to be shared between two parties without a mutual encryption and decryption key, which could not be cracked or intercepted, took away governments’ monopoly on the technology. The cat was out of the bag, as they say.
As a computer science graduate student at the University of California, Berkeley in 1977, Chaum, now 67, recalls how he “started thinking how important privacy would be for the upcoming digital world” and, by extension, for democracy.
Privacy was the default state in those analog days, with surveillance such as listening to conversations, intercepting mail or searching for records requiring active and concentrated effort. With digitalization, surveillance no longer needed to be active, as data could be more easily searched, cross-referenced and stored for later use. Chaum came to the “fundamental realization that cryptography was the only way to protect privacy in cyberspace,” he recalls.
“That’s when I realized it was important to organize a conference on cryptography,” he says with a laugh, fully recognizing the absurdity. The result was the International Association for Cryptologic Research, which continues to organize conferences several times a year. “I called it crypto — the conference was called Crypto 81,” he notes.
He was the first person to describe cryptographic money in his 1983 paper, “Blind signatures for untraceable payments,” which led to the creation of short-lived Ecash by his company DigiCash from 1995 to 1998, as well as the invention of blind signatures, a type of digital signature used in Bitcoin and other cryptocurrencies.
It is notable that some cryptographers, such as Matthew D. Green, have aired grievances with the word “crypto” coming to stand for, and even being soiled by, cryptocurrency, thus disrespecting its original meaning of “encryption.”
Chaum takes the opposite view. “It’s so exciting to me because it’s bringing what was an archaic, esoteric, highly technical, mathematical, possibly classified technology area into widespread appreciation, so on contrary, I’m happy” to see the word “crypto” get new life.
“Crypto” means cryptography. Not that other thing. https://t.co/yaLOOCyx8d
— Matthew Green (@matthew_d_green) November 23, 2017
Among the most remarkable aspects of Chaum’s work is that his 1985 paper “Security without Identification: Transaction Systems to Make Big Brother Obsolete” is credited as providing the spark from a privacy-focused group in 1992 that began calling themselves the Cypherpunks.
Princeton’s Arvind Narayanan wrote about the group:
“[This movement], which originated in the late ’80s, took Chaum’s ideas and ran quite far with them in terms of rhetoric—in an explicitly subversive direction. For cypherpunks, crypto was at the core of a vision of how technology would cause sweeping social and political change, weakening the power of governments and established institutions… Anonymous digital cash, one of the key parts of Chaum’s proposal, by itself has political significance in that it offers an alternative to government-backed currencies.”
After several unsuccessful attempts at digital cash by various members of the Cypherpunks, the Bitcoin white paper by Satoshi Nakamoto emerged in 2008. He was soon contacted by fellow member Hal Finney, who went on to receive the first Bitcoin transaction on Jan. 9, 2009. As such, Chaum is appropriately labeled the godfather of cryptocurrency.
But Chaum wants to go further with private, uncrackable payments. In order to have real privacy in the modern age, Chaum explains that actions must be un-linkable both to the individual (vertical un-linkability) and to each other (horizontal un-linkability), meaning that individual actions must exist within a data vacuum of sorts. Unlike PayPal or credit cards, cryptocurrencies like Bitcoin and Ether are not directly linked to the real identities or IP addresses of users — the transactions themselves are, however, linked to each other, and publicly so.
To have real privacy in payments, Chaum reasons, “you need to use a different pseudonym with each entity you interact with,” so as to ensure that nobody can keep a dossier on a particular anonymous identity. Taking the next step from privacy coins such as Monero and Zcash, Chaum’s xx Network is working on xx Coin to enable quantum-resistant private payments.
"The difference between a bad electronic cash system and a well-developed digital cash will determine wether we will have a dictatorship or a real democracy." Crypto pioneer David Chaum in 1996 #bitcoin pic.twitter.com/jiNh9TCqsf
— BankSith Lord (@renegruner1) July 18, 2022
Chaum is clear in his belief that “the only effective way to maintain any level of privacy is to control the information with your own keys” and goes on to explain that continuous government leaks suggest that any information entrusted with others can become public at any time.
“All those leaks are forever, and they can be aggregated and amalgamated.”
Unlike the criticism leveled at the Cypherpunks he inspired, Chaum denies being an ideologue, saying his views are based on practicality, as people need to have a credible assurance of privacy.
Chaum argues that privacy, over the long term, is critical for a functional democracy because “you cannot be a citizen of a democracy without the ability to communicate freely,” bringing up a story about how when coffee was introduced in Europe around the time of the enlightenment, it was hated by kings as it encouraged people to spend their evenings discussing politics.
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Having a “private sphere of communication,” he argues, is the pivotal distinction between China and the West and that payments are a fundamental form of communication. A stable democracy, therefore, requires the ability to pay anonymously according to Chaum — something that has traditionally been the case with cash.
“Did you know that every single banknote is traced from the teller desk to the ATM machine in China?” he notes. The Chinese government has introduced the digital yuan to get a panopticon-style view of every last payment.
Despite all the attention on cryptocurrency, Chaum seems far more excited about blockchain as a mechanism of future governments. Armed with a confidently deep understanding of political history, he dives into a lecture.
“We’ve had civilizations we know of for 6,000 years,” he begins, saying that they gained traction when they were able to exercise public policy but naturally became failed states and flipped to autocracy largely because of the difficulty of finding intelligent people to do the government’s work while resisting the temptation of corruption. “If democracy fails to govern effectively, it gets kicked out,” he says, somberly opining that the west appears to be heading toward such a phase.
Join me in welcoming the xx messenger – truly a dream come true! A big thank you to all the hard work from the team at xx labs for making this vision a reality. https://t.co/zbIFxWEyu8
— David Chaum (@chaumdotcom) January 26, 2022
Citing University of Turku political scientist Hannu Nurmi, he reasons that direct democracy, a system in which voters vote on issues directly without the use of elected representatives and which was used in ancient Athens, is the only way to make democracy sustainable. Such a system became infeasible as societies grew beyond the city-state, but Chaum believes that the advent of smartphones and cryptography make the ancient system workable once again after 2,500 years.
In practice, Chaum envisions the reemergence of Athenian democracy using a randomly selected sample of the population to vote on specific issues using their private keys in a way that he believes would root out the potential for corruption. A natural problem, however, would center around the media, which is immensely powerful in shaping political opinions of the would-be voters.
“That type of democracy can scale to the complexity of modern civilization — no other system can,” Chaum asserts.
“Nation states are proving to be somewhat dysfunctional — I’d much rather see a sort of global democracy if there was a way to make it fair in a poly-cultural and more diverse environment, which I think I’ve found.”
It shows that blockchain outside of government is a very important step” toward such a new order, he says. Such ideas admittedly come across as rather grandiose and utopian in bringing back memories of a curious experiment in blockchain governance on a Thai island, but the name behind the vision commands one to envision where it could lead in 50 years’ time.
Chaum is taken aback by the success of cryptocurrency’s proliferation since the publication of the Bitcoin white paper. “The fact that these economic instruments succeeded to be outside the control of governments is a profound thing,” he says. He is, however, no fanboy of the crypto order as it stands, seeing many shortcomings from privacy to vulnerability to quantum computing. “Bitcoin is not a digital currency — it’s something else right now,” he says.
“Part of the reason I decided to launch my own project was that I sat in on an early Ethereum 2.0 meeting,” he recalls, coming to the view that “it was not likely to happen in a good way any time soon.”
Chaum founded xx Network in 2016, which he describes as a quantum-secure blockchain. “The first phrase of Satoshi’s white paper is ‘a digital currency’ — that’s me, right?” he says referring to his invention of the concept itself. In his opinion, both Bitcoin and Ethereum “are a little jammed up” and fail to live up to the functional title of a “digital currency.” They also face an existential threat from quantum computing, which some believe could arrive by 2030.
“There’s a bunch of ways you can use quantum computing to either steal money or damage the consensus unless both are hardened in this way,” he asserts, referring to the quantum-hardened nature of his xx Network.
“The kind of encryption used by Bitcoin and Ethereum can be easily broken by a reasonably large quantum computer in seconds.”
Many cryptocurrency enthusiasts believe that no such computer exists or is likely to come around anytime soon, but Chaum points out that “people who have machines that can break other people’s codes find a lot more advantage in keeping that a secret than in announcing it,” again using history to demonstrate his point with the fact that the Allies allowed German U-boats to sink passenger ships in order to prevent giving away that they had broken the Enigma Code.
What so many people in the @xx_network community have been waiting for, is finally going to happen at the end of July… 📈👀
For those who don't know xx network, it's a privacy focused bc/ecosystem founded by THE cryptography OG David Chaum. Start here: https://t.co/aFxIaero9L
— Philipp Weber (@PhilippWeber_) July 14, 2022
Be calm and don’t panic just yet. According to The New Scientist, “calculations show [quantum computers] would need to be a million times larger than those that exist today” in order to crack Bitcoin. Cointelegraph recently reported on an MIT Tech Review report that asserts that such threats are many years away and a successful quantum attack “is akin to trying to make today’s best smartphones using vacuum tubes from the early 1900s,” according to physicist Sankar Das Sarma.
If such a quantum capability did exist, it is difficult to imagine who could resist the temptation of declaring oneself Satoshi or his predecessor after effortlessly cracking the private keys to the estimated 1 million BTC mined by Nakamoto.
Read more: 6 Questions for David Chaum
6 Questions for David Chaum of XX Network
Elias Ahonen is a Finnish-Canadian author based in Dubai who has worked around the world operating a small blockchain consultancy after buying his first Bitcoins in 2013. His book ‘Blockland’ (link below) tells the story of the industry. He holds an MA in International & Comparative Law whose thesis deals with NFT & metaverse regulation.
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