The headlines about the FTX cryptocurrency scandal likely either having you scratching your head or ruing your investment decisions. But FTX is hardly the first such company to declare bankruptcy. One of the first electronic currency platforms, DigiCash, lasted for only a decade before filing for bankruptcy in 1998. Yes, 1998—a dozen years before Bitcoin Pizza Day!
The concept of electronic currency can be credited to David Chaum, who founded DigiCash in 1989. Chaum earned a doctorate in computer science from the University of California, Berkeley, in 1982. His dissertation was titled “Computer Systems Established, Maintained and Mutually Trusted by Suspicious Groups” and is thought to be the first known proposal for a blockchain-type protocol. He also wrote “Blind Signatures for Untraceable Payments,” which outlined a formal system for mathematically encrypting and thus anonymizing payments, prohibiting the government from tracing payers in two-party transactions. Unlike today’s blockchain technology, however, Chaum’s system involved a bank as a trusted third party in transactions.
Chaum founded DigiCash in 1989 in Amsterdam, and the company’s initial success came from partnerships with European banks including Germany’s Deutsche Bank, Finland’s Mirita Bank, Norway’s Norske Bank, Switzerland’s Credit Suisse, and Bank Austria, as well as Australia’s Advance Bank. The Wall Street Journal summarized DigiCash operations in 1996: Users downloaded digital coins onto their computers, which debited their bank accounts. They could then use said coins to pay for products online. (Keep in mind that online credit card processing was a work in progress at this point.)
DigiCash ultimately didn’t make it, with major problems setting in when its only U.S. bank partner, Mark Twain Bank, backed out. But Chaum’s idea was prescient. In 1992, he told Scientific American: “The choice between keeping information in the hands of individuals or of organizations is being made each time any government or business decides to automate another set of transactions. The shape of society in the next century may depend on which approach predominates.”
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