When it comes to the “crypto” part of cryptocurrencies, David Chaum’s work predates the crypto ecosystem. His endeavors as a renowned cryptographer date back to 1989, well before Bitcoin (BTC) was a thing.
Chaum developed the protocols that serve as the foundation of DigiCash – the world’s first cryptographically secured digital currency. As CEO of privacy-focused network developer Elixxir, David Chaum is working with the Swiss central bank to develop a central bank digital currency (CBDC) that could also attract the crypto ecosystem due to its privacy features.
Dubbed eCash 2.0, the new project aims to develop digital cash that is “inalienably private” and quantum-resistant to counterfeiting. As the technical details require a deep understanding of crypto, Cointelegraph sat down with Chaum at Istanbul Blockchain Week to get a better understanding of the mechanics behind this crypto-friendly CBDC project.
A censorship-resistant CBDC
It all started when Thomas Moser, a board member of the Swiss National Bank, invited David Chaum to a conference in Zurich and told him “he wanted to make eCash great again” and asked for his help with a new project.
“[Moser] couldn’t understand why people aren’t using eCash for CBDC,” Chaum began to explain. Large banks have to pay too much attention to reliability and sustainability. So they are not eager to invest in something that is not quantum resistant.
As part of the project, internally called “Project Tourbillon,” Chaum developed a cryptographic protocol that proves a CBDC can be privacy-preserving, censorship- and quantum-resistant, scalable, and even compatible with blockchains for decentralized finance (DeFi). One of his goals was to make the total amount of coins supplied transparent.
At first, the project team tried to use the old eCash, but quickly realized that it didn’t suit their needs. For this reason, the BIS Innovation Hub, the Swiss National Bank and xx Network have developed the joint project based on eCash 2.0. Chaum noted that user-controlled privacy, “the best feature of the original eCash,” has been carried over to this new project.
According to the official announcement, Project Tourbillon aims to balance tradeoffs between cyber resilience, scalability and privacy by combining technologies such as blind signatures and mixed networks with the foundations prepared by David Chaum and Thomas Moser.
Chaum pointed out that privacy is critical for banks along with scalability and blockchain compatibility as the public is very concerned about it. He noted the European Central Bank’s public call for comments on the CBDC, stressing that 40% of the comments concerned privacy.
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“You can withdraw $500 every day with your ATM card, but you can’t go into a bank and withdraw $1,000,000 in cash — that’s privacy for people,” Chaum explained. It should be similar with electronic payment systems, he noted. “These systems should make it very difficult for someone to collect enough and use it for bad purposes, like hiring a hitman, without being noticed.”
Inalienable Keys: A New Approach to Privacy
To meet the privacy requirements of a digital currency, Chaum envisioned a privacy system in which it is possible to prove that a user knows their secret phrase without revealing it. It’s a relatively new approach that Chaum called “inalienable.”
The name inalienable keys derives from its keying ability: this new type of private key inherently cannot be given or taken away. The key itself is a phrase or phrase that is easy for the owner to remember, but which cannot be guessed by third parties.
In the context of central bank digital currencies, if a user wishes to join the CBDC system as a user, they can go to a bank to prove that they know their inalienable key by confirming specific placements of random letters in the phrase.
When done in a privacy-focused physical environment, as Chaum illustrates in the image below, it helps users prove they know the key without actually revealing the private key.
Once users have verified their identity, they can create a whole family of related aliases that cannot be seen together, although they are all linked to the user’s passphrase.
In the inalienable system, the user does not have to go through the physical confirmation step after the first time. They can send their confirmation electronically and also create pseudonyms for any other specific situation, explains Chaum. He likened the pseudonyms to notebooks with specific signatures, or “credentials.” He believes the utility of Inalienable Keys extends beyond finance.
“You can show that a user paid their taxes this year. Or they graduated with honors,” Chaum said, adding, “If they’re asked for proof of that, they can use one of those pseudonyms and corroborate it in a zero-knowledge way.”
Quantum resistance can’t wait for quantum computers
Any conversation with the “Godfather of Crypto,” a nickname given to David Chaum for his decades-long contributions to cryptography, would not be complete without discussing quantum resistance. While not yet a direct threat to crypto, quantum computers that can easily crack Bitcoin’s SHA-256 cryptographic protocol are expected to emerge within the next decade. Therefore, it is a must for all future-proof systems and services to be armed against attacks from such devices.
Chaum advised that quantum resistance should be on everyone’s agenda. “Because the data, even if it can’t be read now, is easy to salvage.” Once quantum computers hit the market without warning, today’s encrypted data will be much easier to crack.
His company Elixxir focuses on the quantum resistance aspect of cryptocurrencies with xx Network using quantum resistant backup keys to support its xx coins. Chaum claimed that xx Network was able to perform 3,500 quantum-resistant transactions per second during the public test of xx Coins.
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But money isn’t everything; Communication also plays a role. Chaum pointed out that most of today’s chat services use end-to-end encryption as their promotional label. He added that most modern messengers mislead people to avoid noticing that metadata isn’t being shredded, adding that anyone who taps into one of these messengers worldwide can see “who is talking to whom”:
“We figured we’d deploy quantum-resistant encryption to protect the message content, then announce it and see what happens. And so we did, and we have it, and none of the other messengers followed.”
Instant messaging services don’t care about their so-called strong end-to-end encryption, Chaum claimed, “because they don’t have it.”
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