Meet The Godfather Of Cryptocurrency

start to spike, interests follows soon thereafter. It's one of these things where when it's down suddenly people go quiet and stop talking about it and pretend they were never involved, and then when it's surging, everyone's like, oh, yeah, I'm I'm interested in that stuff at a very much a

great example of narrative following price. Yes, indeed, I actually joked on Twitter earlier today that now we're going to see all the people that scrubbed blockchain from their Twitter bios and LinkedIn profiles, they're all going to start adding it back in. But I think when it comes to the bitcoin price, you know, I know a lot of people watch it sort of purely out of entertainment value.

But we've talked before on the show about the importance of the network effect and the idea that if you're actually going to get people using bitcoin, you need to generate a buzz, right, absolutely, so obviously the buzz is picking up. Bitcoin itself has been around, uh for about a decade now, basically exactly ten years more or less.

But what I think a lot of people don't know or they've never really thought about, is for for so long, many years prior to bitcoin, decades really, people had been trying to work on the problem of digital money and somewhere or other, whether it's anonymous payments online or payments that didn't have some sort of centralized clearinghouse to facilitate them. Bitcoin isn't just a new thing. It's kind of the uh, the solution to a problem that people had been focused

on for a while. Right. So, I think the notion or the exploration of digital currencies kind of started growing in tandem with the Internet, right, and it was sort of a solution to a problem that the Internet and um, new technology suddenly threw up. Didn't you read a book on this, by the way, weren't you really excited about something? Yeah, there's a great book coming out this summer by Finn

Brunton all about this, But yeah, exactly right. I mean, obviously, in the real world and the physical world, I can pay you in cash and no third party no uh, you know, legal authority has to know about it. But very early on people sort of intuitive that as our economy became more digital, that that would be a problem that would need to be solved. So today I'm very excited because we are going to be talking to a guest who was at the forefront of this search for

a solution to this album. Truly, I think everyone in the space would agree. One of the godfathers of digital currency, a true pioneer, an inventor of digital currency long before bitcoin ever came around, who could tell us all about this prehistory of cryptocurrency and where he sees the space now. So that further Ado, I want to bring in David Chaum. He is the CEO and founder of Elixir, but very early on for decades. Like I said, one of the

godfathers of the space. Really appreciate you joining us. It's so great to be here with you both. Let's start. David, just tell us how did you when did you get interested for the first time in solving this problem and seeing that as the world got more digital there would need to be away for transactions to be at least in some sense anonymous. Well, actually eighty two I published a paper about blind signatures, which was the e cash technology that I later deployed in in the mid nineties.

So e cash it was not a cryptocurrency as we know it. Now, why don't you explain what was the cash? Well, actually, the cash is slightly different and in some sense slightly better than perhaps cryptocurrencies, in that current cryptocurrencies are generally think of the more like digital checks. They move money from one wallet I d one account, your account to someone else's accounts, whereas with e cash, it was a the first digital bearer instrument. It was a number that

was worth money. And one of the additional features of the cash was because it was a digital bearer instrument, in the first such thing, it could have this special blind signature property, which meant that when you withdrew one of the is from your bank account, and you know your bank account was reduced in value, and they gave you this signature publicly digital signature, the cryptographic operation they performed on a number that you sent them, that that

signature was worth let's say one dollar, that came out of your account. Well, you were able to transform that signature into a different and unrelated form that was still clearly signed worth one dollar, but absolutely uncorrelatable to the number that you sent to your bank, So that meant that you had the money. There was no way that they could stop you from spending it or even noo where you would spend it or if you had spent it. So this is an actual improvement over these check based

systems where much can be traced. So I have two questions based on that. But one was e cash dependent on the banking system? Could it own work if you had a bank accountant? It was sort of deriving the number from that transaction, And be what was the problem exactly? We alluded to this in the intro, But what was the problem that you were trying to solve with this invention. Well, to answer the part A, we issued what we're called cyber bucks. This is what today is called an air

drop in effect. So what I said was we're only going to issue a million of these, and anyone who wants to put up a digital shop, we will give them a hundred. And there were like over a hundred shops set up and if you go to my website, you can still see their logos and click on them and see kind of what their homepages looked like. In many cases in those days, this was way before really the web or an electronic commerce was very early days.

So I invented de cash more truth be told to demonstrate that it was possible to do all the things that you need to do in the digital world as a consumer while still maintaining your privacy yourself. Is it like a today called digital sovereignty, keeping your own keys so that you didn't have to rely on others to safe you know, do not look at your personal data or stored safely. Just before we move off the specifically, I want to make sure people understand exactly how the

mechanism works. So the idea was, I mean, we don't have to get too technical, but the idea was essentially, if this had spread and if this had become well adopted, the idea was one could take money out of their bank and have it would be on a card, or they'd have some sort of card that would represent this. This was a purely digital process, so your computer would create a random number at itself, which no one else could predict. Or imagine right, and then it would we

say blinded. It would hide it in a second in a key, and then it would send that hidden random number, which is like this would be the serial number of your digital one dollar bank note. Later it would hide the digital serial number by encrypting it with another random key, send that hidden serial number in the bank would use the secret key that only it has, which it gives it the exclusive ability to validate these digital bank notes. It would then return that signed hidden number to you.

And then because of the magic of commutativity, and like you know, three times four is equal to four times three, you could divide out the hiding layer and now you would have the signature, the actual bank's validating signature on your seal number, without any residue from the hiding And then the recipient of this money, so you get the money out of your bank. The recipient then has something

that they can deposit in their bank account. Absolutely. And but then there was the old little double spending problems, So there's the bank would that have to send it into the bank to make sure that you hadn't spent

it elsewhere. But there was a more sophisticated version that we developed that was enjoyed work with money or and names fiat that if you did double spend it, you would in effect be digitally signing a confession to this effect, whereas if you spend each one only once, you would never reveal enough information to allow your identity to be linked. And that's because when you spent those those special types of coins, you would have to answer a random query.

And if you'd answer two questions, it's kind of like when the police interrogate you. You know, if you answer two questions, they don't fit together and then they realize, oh, it's you. So I'm guessing you know we're talking about um, I guess the early nineties. When when you did this?

The early eighties, right, Well, I wrote a technical paper on e cash in two, which was the same year that I or canize the International Association for Cryptologic Research and held the first really scientifically sponsored conference on cryptography to counter the National Security agency directors threatening to scientific organizations draconian legal measures if they were to even have sessions little own conferences on cryptography, so I organized a

conference without using any electronic communication that created in effect in international scientific association. And then when the people all appeared there. I said, okay, now you're all members by virtue of having paid your registration fee, and we'll have our next events in Italy in the spring. And here's the you know. And so I did all that without ever using the phone. So the guys in the front row were all from the n s A. And they

all turned green. So you're developing this in the eighties, and then in the nineties, I guess, well, the idea was published in the eighties, and then in the nineties the Dutch government because I was based in Amsterdam at the Center for Mathematic Computer Science and whole leading group of crhotography of search there, and the Dutch government came to us said we want to do a road toll pricing like sort of like I think it's often called easy paths these days on the highway speed on without

lane constraints, and uh, we don't want the drivers to have to reveal their identity or they're there, who they are to these to these radio frequency transceivers that they passed under. And can you do this? And I said yes, I've just happen to have the answerd blind signatures this decash. So they said, great proof to us that it can work. I recruited like a dozen college students, said you guys, build this in ten days. I'll send you and your

girlfriends to Disney World for for two weeks. And they turned their like student housing into a lab or twenty four hours a day and they did it. We started Dutch government and they were like, wow, that's cool. One in one yard of road travel at two a like at a hundred kilometers an hour could make this privacy protected payment. And so I just took the contract they gave us to the bank and said, hey, we got this contract from the government to make this and they said, oh, great,

you can borrow against that, no problem. And that was digit cash. So what I was going to ask is, you know it's now and clearly we're not using digit cash. We're arguably not even really using a lot of other cryptocurrencies for for payments. So so what happened, like what went wrong? Why wasn't there more adoption? The real question that I was fighting for it at that point was the web over the like what I used to call

the five channel guys that the set top boxes. I don't know if you recall, but it wasn't a done deal. That we'd all be using the Internet and the web right. It was more like you have this closed box and it would deliver video but also like the web interface, but it would be a closed system and that would you know you have an account with it, and that

there would be no real need for payments. And it all seemed quite plausible and there were a lot of big actors supporting that, and it was kind of a uh an insurgency that was pushing for an open web.

And I think that the Scientific American article that I published in the mid eighties would show that you could do all these interactions online protecting your own privacy and your own information, using your own keys, was instrumental in getting people to realize that the web was could work for everything that would be needed in future, and was a much better option than this kind of closed set

up box option. Do you think the the closed set top box people are kind of winning again, because I think that's a big people look at the web and it doesn't feel as open, and it feels dominated by a handful of companies, and people don't use much uh technologies that could obfuscate their privacy. Is this is this is part of the reason that we see this revival of interest in cryptocurrencies in blockchain as a response to

the fact that the open web is losing. Well, that's a that's a really interesting way to look at it, and I think the open web has one because my definition of winning is deployment wins. So we have now used this approach to get a very powerful and very easy to use computer in the hands of everyone half the people on the planet, and that that's a huge win. And what that has done to answer come back to your your point is the transparency and the east access

to information like what your show provides it. It is revealing that the web isn't kind of what it could be and what end that all these strange things are happening behind the scenes, and people are have become very upset about it. I thought's the sense of the public that I get. They really are starting to recognize that

it's not just you know, strong end end encryption. It's needed is the protection of the metadata, the whole social graph, who you talk to and when, where you are, how you interact with things, all that inciliary information which you know they've been distracted from being concerned about now is something the public is aware of and so I think we're it's it's all tied up to the just the perfect point where the Maslowian level is about to do

a phase change. So now we have smartphones that are so handy and cheap and work great and can do everything, and now people are saying, Okay, it works. Now what

I what I really need is privacy. Something that's striking to me listening to this is you two, Like very few people were thinking about any of these problems, even just this idea that there would be something called an Internet, or that there were different versions of how it could have gone, the more closed version, and anticipating that privacy, which is incredibly salient topic in twenty and nineteen, would ever be have to be a thing that we have

to worry about. Setting aside digital money for a second, just tell us about, like, how this became something that you anticipated in the group of people who were thinking about this. How did it tell us about that scene and anticipating all this stuff. I'm not sure there was much of a scene. It was me and I wrote about this very extensively, at so much so that my work was invited to the best journals and republished in a bunch of languages, and then I laid out two scenarios.

Basically is what's played out right, that that privacy technology could protect people, allow them digital sovereignty, if you will, in tony sterm alogy, or it could go the other way, and that is that all this information could be used to control society under the pretense of, you know, preventing criminal use of of systems, and that this would lead

to a kind of battle between these two approaches. The winner would determine whether we'd have like a free, democratic society or we'd have a kind of totalitarian society that's orchestrated by let's say, AI helping evil actors control everything. And I think that that choice is now, finally, after all these years, become quite a parent to people. And also it's much more imminent than people realize because all the AI and and and and message data and all

that stuff is going way ahead behind the scenes. And I think people are starting to get a sense of that, and they're saying, hey, wait a minute, this is this is a pretty dangerous situation. Democracy is a key aspect of all this too, And not to be left out and done a lot of work, I'm voting and I think that all this digital privacy is a critical and

necessary ingredient for democracy. And and that's kind of to me, that's kind of the meta issue that the public gets to decide what kind of world they want, and the only real way to do that is if they have, uh, the ability to see whatever they want, to communicate with people and to pay for be paid for information or supplying if its subscribed to your your show, whatever, if they had to pay for it without anyone being able

to notice that or stop them. So, David, I have, um, what might be a stupid question, but when it when it comes to that metadata issue, when it comes to the problems of sovereignty, it seems like we expend collectively so much energy, or at least the cryptographic community expends so much energy trying to solve this problem, you know,

creating anonymous payments and similar things. Would it not just be easier for the government or the regulators to limit, um, the use corporation's use of information of metadata or is the issue that you don't trust the government at all to do that in a fair and um unbiased way. I came back, so to speak, into this space truth

be told. When the snow and revelations were made public, and I went to my cryptography conference that I had founded, so that we have one every year, and there's two others that were sponsored by organization publics and journalist one.

It was a big deal. Now we have like a half a dozen workshops around the world and there so the seven hundred league cryptographers in the world are there, and I know a lot of them, all the ones anyways, and just but I realized we didn't even establish that's your background, right, Yes, I'm generally thought of as like I published a bunch of articles on cryptography and for a long time, more than anyone else in the world, even five years after I stopped publishing. That's what the

publisher told me. I don't really know, but I'm not academic really anymore. But I was at at this conference and no one seemed very concerned about the Stone revelations. But to me, it was really shocking because I never really believed or was certain that the government was spying on everything. I remained open to that. Yeah, would I like to believe there was a benevolent information security aspect

to government spots. When it was revealed that they were really doing the worst possible things we could imagine, and and the people in the field were hardly shocked by it because they make a living kind of you know, being a part of the what do you call it, like the crypto industrial complex, you know, education that I just had to find a way to speed up all my old work, which I did, so I've made a thousand times faster we don't want have done in thirty

five years. The mixing, and that was the missing ingredient in the e cap so that to hide where you're sending the money from. Let's talk about the sort of closer prehistory to bitcoin. So we as we established Bitcoin came out in two thousand nine, I think, or into two thousand eight, people had been working very towards this goal for a while. The cash was one of them. There was a famous mailing list called the cipher Punk mailing list. You I believe you participated in that mailing list, right.

The cipher punks all maintained that that my work inspired, so your name is is mentioned all over those archives. It was the technology that I developed which enabled their position. So at that point, how much were you talking to the people working on this problem, thinking about the solutions that you would come up with talk about the opportunity is like, how much were you sort of uh in communication with the people who ultimately we're getting closer to

solving bitcoin. Basically, I filed my dissertation at Berkeley into the library and two without releasing the copyright to dissertation abstracts. So the three copies in the library and the archive there were the only copies that were let's say, publicly available in principle. Now it turns out that there were some times that they were checked out, and it's very interesting to go look at those little slips of paper

and see the dates and so on. But that dissertation laid out in code how to build a blockchain, and and recently there's a referee article that appeared in the Tripoli Security and Privacy is a pretty good journal, established that that dissertation included all the aspects of modern blockchain's permission I'm in un permission sort of corporate in the open ones except for the proof of work, which was presented like ten years later at the cryptocomis that I mentioned,

and I was there in the audience thinking that's where they want to use this to protect against spam. Maybe you could use it for other things, but I'm not going to think about it because they both were working at IBM and it's probably bad that completely and they already thought about it, so I didn't think, oh, maybe we could use this to solve, uh, you, improve electronic money. So in October two thousand eight, the you know, the

famous Bitcoin Satoshi Knockamoto white paper comes out. What did you think when you write it or when did it first come to your attention and what was your reaction? Did you go like, oh, this sounds a lot like my dissertation. Well, it's kind of a blend of of my dissertation and the kinds of electronic money systems that we worked on back in the day. But honestly, what I thought it was, Gee, this is a potentially very powerful mechanism. Could possibly be used by government for various purposes.

It might have bad implications for voting that's not done in a polling place in terms of vote buying. It might be able to be used to pay people to do things that are an athetical to democracy, or maybe that are supportive of democracy in emerging countries. It's like it's a very powerful extra uh state kind of mechanism, and that was to me the dramatic thing about it.

You know, it's one thing to say that two cryptographers can do send messages back and forth all day long, but government can just like turn off their phones or you know, see that they're doing that. You can't be anonymous. You're not really protected unless you're in a large group. And what what Bitcoin did was it said, Hey, we're going to have so many people participating in this from so many different jurisdictions, that this is going to be

outside of the control of government. And I think to me, that's the key thing, that's the real distinguishing factor. The the technologies arguably a bit crude and primitive, but it apparently gets a job done. And you're definitely not Setoshi, right, I don't into that. Okay, he tried, Joe. The state of things now, obviously Bitcoin is massively bigger than almost anyone could have guessed. We have thousands of other different coins,

blockchain projects, spinoff ideas. What are you working on and what do you see as the opportunities today? Well, there's a tremendous amount going on in the blockchain space. Sort of a lot of it's kind of a little bit behind the scenes, and this is amazing how many big actors are kind of working on blockchain projects. So it's

it's it's extraordinarily exciting. And there are sort of scenarios where these kind of mechanisms really helped maintain our kinds of civilization if the government really starts to weaken more. And I think a lot of people are worried about that to some extent because of the transparency of the web. But the real killer app, so we also used to call it that in the modern world, is clearly messaging integrated with payments, with popular applications in the same name space.

This is what we chat has in China, and it's essentially what Facebook is turning into if you believe what they say that all the new users are basically just chat users, and so it's we chat with blockchain inside. So that means we don't keep the metadata. In fact, we have a way to destroy it using a mixing technology which I also published in the eighties, uh and

found this way to speed up after the revelations. So it's a payment system based once again on digital bear instruments denominated digital coins, and a solution to the who's talking to whom the mixing the uh metadata problem integrated, and we have a way to allow the depths to run securely off chain so that it doesn't depend on

the chain like the current major chain. So it's I think the killer app that will displace current dominant you know, just like so many times we've seen it seems like the major social network systems are undisplaceable and the next thing you know, everyone's moving over to the next new

thing because because they get better privacy. That happened with like Telegram, right, So this is metadata protection a whole other level beyond what people are trying to recognize is the real issue, not the end and encryption that like Telegram provides. So I think we'll see people move over to our platform and they'll then their social graph, who they communicate with, and when they'll have integrated payments. As I mentioned for this is really essential for democracy, and

we've got it all working on a blockcheam. We've got tremendous support from the community. We've got almost nine nodes that have volunteered to operate our system without making any money off it. So an anonymous payment system with an anonymous messaging platform attached, so that the entire sort of

transaction becomes anonymous. Well, I would to me it's not so much the anonymity because you are able to establish who you are, and you do have the benefit of knowing who you're communicating with and so on, and you can always reveal this. This blockchain based you know, chat today doesn't really give you the ability to prove that you send a certain message, so it can be used as a replacement for email, which is an important thing

for developing country. So and it's also censorship resistant, you know, it's hard to kind of stop people from be able to because they can access it through any one of our uh node. So it's a it's a pseudonymous self sovereign identity based messaging integrated with payments. But then it's also an open, two sided business model platform for debts. Okay, with that caveat This is something I often wonder about cryptocurrencies.

But again, it feels like developers spend a lot of time working on the underlying technology of crypto, trying to make the blockchain or whatever more efficient. How much does technology actually matter when it comes to cryptocurrencies? Are people basing their use case or they're buying and selling of you know, something like bitcoin on the underlying technology or is it just first mover or advantage. How much does

it matter? I believe that being able to do untraceable messaging to solve the metadata problem at the speed needed for consumer transactions, which is like ten second latency from initiation and sending a message, receiving it or banking payment and having to be final, is they key enabler for taking the blockchain out of its current kind of huddles investment kind of mode and making it a mass consumer product.

And I think that that phase change is what the technology breakthrough that I've established, like a thousand x speed up in this in the in the messaging privacy allows, So in that sense, I think technology plays a very key role there. And I think that there's also a second and part of the question is you know about

good money. It's all about good money. And if if I think that a bitcoin or an etherorum or whatever popular crypto you think of could be displaced by one that is arguably stronger, and even though there's a lot of momentum, brand and and value and so on, because it's all about good money. And I think one of the things that our elicks are. Technology has going for it in that regard is that it is based on

quantum resistant cryptography so called random functions. No one else is, and that makes it something that nation states can trust. And so that's a kind of cryptography. It's the only kind that they used to protect their national security information and commanding control systems and so on, and so it's it's actually very important for developing countries or even countries like Japan. We are worried that you know, China is coming in and dominating with with Alipai, that they if

it's a kind of digital imperialism. What you want is a level playing field between countries so that the small countries can also introduce innovative products and safely allow sophisticated financial services to come in from abroad to create economic growth. We have to wrap up. But one less GUESSI do you ever worry about all this technology in the hands

of people. I mean, obviously you look at something like the Snowden revelations or various other things, even financial collapse, and that gives rise to a lot of well deserved skepticism about centralized authorities, whether they be governments or banks. But do you ever worry about the sort of complete flip side and what happens when institutions that have essentially provided some sort of order to society for centuries or decades suddenly get deeply undercut and their ability to maintain

control of communication and transactions. Yes, I think that it's obviously a vulnerability to stability if these major institutions were to be really disrupted, and I think they recognize that, and they are acting behind the scenes. I'm getting on a plane a couple of days to go visit one of the major central banks of the world. Invited me there. The people, you know, and I've been involved with these

sort of folks for quite a while. They're all working desperately behind the scenes to try to find a way that they can issue a digital currency that's uh really you know, worthy of of their backing and and so I don't think that they'll just as as this technology goes mainstream, the regulatory you know, people recognize that it's really important for privacy and security and democracy, the regulatory impediments will will fall away and be you know, for good.

And I think it's just like all financial services innovation, you know, when the eventually when it becomes mainstream. It's all happily accepted, and I think then the these mainstream organizations and major actors will continue to be a significant players and this will create a stable, gradual transition to a much better world. David Chum, thank you so much for coming out. Fascinating conversation. Thank you. It was really a blaste here. Thanks David. That was great, Tracy, I

really loved that conversation. Yeah, that was really fascinating. And I think, Um, you hit upon something in one of your questions to David, which was just how early he was when it comes to talking about a lot of the problems that we are talking about today's such as privacy concerns, such as the idea that you know, our private data is going to be used by nefarious corporations or governments. He was just so early to all of that.

It's it's kind of unreal like it was sort of at a time when a lot of that was in the realms of science fiction. Yeah, something that I thought of that I hadn't really thought of before is like, obviously, right now, among mainstream pundits and the tech press and uh analysts, privacy is a huge deal and people are really concerned about how much data companies like Facebook and Twitter and all these and Google and all these entities

have on us. And yet in the conversation, and again I think it's sort of like mainstream, mainstream tech journalism, there's still quite a bit of dismissiveness, I would say, about the sort of crypto world, of the blockchain world. They think a lot of it is a snake oil or just weirdos and cranks who live in Silicon Valley

or off the grid somewhere. But when you figure or when you sort of think of the big picture of that, actually it's a lot of the crypto blockchain people that have been warning about privacy concerns long before most tech journalists had even it occurred to them. It seems like

it should be more a part of that conversation. Well, we've talked about that before, the notion that there are so many sort of value systems attached to cryptocurrencies, but there's also I don't know, just based on the conversation we had with David, it feels like there's something deeper here, you know, he mentioned digital imperialism. It feels like the world right now is sort of having to choose between

which technological and which government system it wants. And I say that someone who's you know, technically in China at the moment, and it's sort of watching this unfold in various ways, but it does feel like we're at that moment of time where people are going to have to

start making these decisions right and there. It almost doesn't feel like there's a big distinction between a government system and a Facebook coin, like whatever it is, it's some gigantic entity upon which the individual has no control one minor thing. Uh, and maybe it's a subject of a future conversation. Uh. David pointing out that the first time he came across proof of work, which is integral to UH, bitcoin,

was it was presented as a spam fighting technology. I'm not sure how many people know that bitcoin kind of came out of work to to fight against spam. So it might be worth unpacking that one at a later day. Yeah, Bitcoin of fighting the good fight against junk email and privacy concerns. That's that's something, all right. This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway, and

I'm Joe Wisenthal. You could follow me on Twitter at the Stalwart, and you could follow David on Twitter at Chalm dot com, and be sure to follow our producers on Twitter tofur Foreheads. He's at four Heast, as well as Laura Carlson at Laura M. Carlson and be sure to follow the Bloomberg head of podcast, Francesco Levy at Francesca Today. Thanks for listening.