eCash Inventor Unveils ‘Better than Money’
David Chaum Reveals Breakthrough Replacement for $2tn Payments Industry
David Chaum, the inventor of the first electronic cash, eCash, is often hailed as the godfather of cryptocurrency. ‘Better than Money’ (BTM) was revealed to the public for the first time at the Singapore Fintech Festival. The new transaction platform is designed to reduce global inequality by removing cost and friction in global payments and remittances. Moreover, it helps evade the risks and depreciations of fiat currencies by instead using any form of asset-based value for instant transactions. The platform interfaces with portfolios holding essentially any type of tokenized asset; the cryptography is quantum-safe and protects against forgery of the underlying digital instruments while protecting privacy. The platform is scalable to any type of asset or commodity that can be tokenized. It combines security with transparency, mitigates systemic risk of a liquidity crisis, and improves the market efficiency of assets.
David shared his journey and inspiration behind the project, which may prove a game-changer in the world of digital finance.
The Problem with Current Money Systems
Money, as we know it today, faces significant challenges. Traditional financial systems are inefficient and contribute to income inequality. Additionally, transaction costs are high, and privacy concerns are growing. This situation affects not only individuals but also businesses and the whole global economy.
David, recognized as the pioneer of digital currency, identified major issues with the traditional financial system. He observed that the current money system contributes to income inequality and imposes high transaction costs, particularly affecting less affluent individuals. Holding money in its traditional form leads to a loss in value due to inflation and high costs for global transactions.
“I had this epiphany earlier this year. Forty years after inventing electronic money, I realized how important it is for the poor to have good money. You can trace a lot of strife, division, and struggle to income inequality. It is not a healthy thing for the world. Not only for the global poor, but actually for everybody, because a rising tide will lift all boats,” David said.
David elaborated on the inefficiencies of traditional monetary systems, where individuals hold assets in money without accruing interest. BTM addresses this by allowing users to keep all the value they hold invested where they choose, providing a hedge against market fluctuations and accruing value. Such an innovative approach benefits individuals and SMEs, empowering them to manage their assets even more effectively.
“When I was a grad student at Berkeley, I realized how critically important cryptography was for the survival of humanity and democracy. It’s the only way for people to protect themselves in the information age. I realized that in 1982. I organized a conference, and the paper I presented there was how to use blind signatures to make a digital bearer instrument. Blockchain technology can be traced back to that. If you go back and look at my dissertation at Berkeley, which came out the same year, it has a full specification for a blockchain in it that is executable and has all the elements of blockchain except for proof of work,” said David.
eCash, David’s brainchild, was developed by his company Digicash in the late 1990s. It faced challenges during the dotcom collapse due to the unpreparedness of platforms to handle the intricate cryptography required on personal computers of that era. However, the core concept of eCash, representing a form of digital currency, persisted. It has now resurfaced in a more advanced form as eCash 2.0, which was recently implemented and proven out by IBM for the Bank for International Settlement (BIS) and the Swiss National Bank
Speaking about the fundamental differences between eCash and its upgraded version, David highlighted a key innovation—a public ready-to-spend list of all valid serial numbers. This list, unlike the ‘spent coin list’ of the original eCash, is not linked to individuals but undergoes encryption through a mix network, making sure it's unlinkable to the withdrawal before being published.
This advance ensures the prevention of double spending without the need to maintain a list of previously spent serial numbers, allows for auditability of all outstanding coins, and thwarts counterfeiters even with infinite computing power.
David argues that the current payment industry, representing a $2 trillion annual tax on global transactions, disproportionately impacts the poor. By enabling individuals to hold and invest their assets directly, BTM could contribute to reducing this regressive burden.
“Money is not the answer to anything. It is a misdirection, and we have to get over it because it is the problem. It is not something that we can improve. If you hold money, you are going to stay poor. You are paying around 7% for remittances globally. It is unconscionable. Even the World Bank was against it and forced companies to go to 5%. They all agreed but now they’re back up to 7%.”
Innovative Solutions
David continued: “BTM is, simply put, a system that interfaces portfolios of all types of assets and settles the transactions by value coming out of my portfolio in proportion to my holdings. No one can see what the counterparty has in their portfolio; and neither the government, nor anyone else, can see the transaction. That is the basic idea of the direct asset portfolio and asset-portfolio value transfer. You do not want to hold money; you want to hold assets that stay invested all the time and don’t depreciate in value due to inflation,” David explained.
David further emphasized that this shift in financial dynamics could mitigate systemic risks and benefit markets. BTM’s decentralized nature encourages a diverse crowd of global investors, feeding valuable information to markets and minimizing the impact of a financial meltdown on all but the super-rich.
David’s vision for BTM marks a significant leap forward in the evolution of digital payments. As the world grapples with the challenges of income inequality and systemic financial risks, the advance offers a promising solution, potentially reshaping the way we perceive and engage with digital finance.
How is BTM (based on eCash 2.0) different and better than the original eCash?
The unveiling of eCash 2.0 took place earlier this year around the Point Zero Forum hosted by Elevandi and the Bank of International Settlements in July. David expressed his excitement about the demonstration and the transformative potential of the upgraded system. The enhanced security features and public ready-to-spend-list make eCash 2.0 a robust contender in the digital currency arena.
Addressing the participants of the Elevandi Insights Forum roundtable on CBDCs in Singapore, Chaum made his case for privacy. “The contest, or cooperation, between public-sector-issued money versus non-public-sector-issued money may potentially be completely changed by one getting the ‘unfair’ advantage of offering privacy, and that is the elephant in the room.”
At the Point Zero forum in Zurich in July, David presented eCash 2.0, a concept and pilot for a payment system built by the Bank of International Settlements (BIS), Swiss National Bank (SNB), and IBM. David explained: “What that system has, which other systems do not, is real user-controlled privacy. If the private sector provides privacy and the public sector does not, I think it will be game over in the [digital currency] competition. This is the secret weapon, and it is available now! That’s how to take the moral high ground in this whole contest.”
David elaborated: “There are a lot of very angry people concerned with the privacy issue [around CBDC] and I do not think they are going to go away. I would, moreover, like to suggest that maybe money is not the ultimate thing for consummating transactions between counterparties. What if two parties could each just exchange value between their asset portfolios directly, and with privacy? I was shocked when I realized that this can be built with a very similar kind of technology [to eCash 2.0], which has already been demonstrated as possible in the very near erm.”
The key features of this platform include:
· Minimized Transaction Costs: It reduces the financial burden of transactions, especially for the poor, who are disproportionately affected by current high costs.
· Privacy Assurance: The system ensures the privacy of transactions, a critical aspect often overlooked in traditional money systems.
· Asset Investment: Unlike holding static money, Better-Than-Money allows users to keep all the liquidity they hold invested, providing protection against market fluctuations and inflation.
· Systemic Risk Mitigation: This new approach could reduce the risks inherent in the financial sector, benefiting both individuals and markets.
Benefits for Different Stakeholders
· Individuals: Lower transaction costs, opportunity to invest all value, protection against inflation, and privacy in financial dealings.
· Corporations: More effective management of assets, allowing treasurers to leverage the system for better financial outcomes.
· Global Economy: Solves systemic liquidity risk; lets a diversified pool of global investors, feed valuable information into the market; the impact of financial crises; and reduces the 2% of global GDP fees for payments and the resulting friction.
Path to Implementation
According to David, so-called ETFs and current banking regulations are enough to allow banks to issue BTM and cooperate in providing interoperation. Also, a blockchain version can readily serve blockchain-based currency asset categories. A country might even issue BTM globally to secure itself against the weaponization of money while providing an ongoing revenue stream.
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