Will Banks Ever Be Digital Privacy 'Heroes'?

Last in a series

I read a moldy oldie from American Banker's archives, and it damn near broke my heart.

The 1995 article serves as a poignant reminder that digital cash has long been feasible – as in a payment system that eliminates the inefficiencies and costs of physical money and ensures true privacy while preventing counterfeiting.   

The subject was David Chaum, the legendary cryptographer and founder of a company called Digicash, which according to the article was "the first to demonstrate payments over the Internet." A few passages jumped out at me:

Banks are uniquely placed "to take the technological possibilities in hand, create a market, and steal the show," Mr. Chaum said. … "I tell bankers that if they offered customers something that looked after their interests, they might be able to create the kind of relationship that Apple got with its Macintosh. Some people just love that company, and that's not something you see in banking or credit cards."

Just swap in "iPad" for "Macintosh" and that quote sounds like something you hear all the time today.

Here's how American Banker described the digital cash Chaum was pitching:

Ecash is not designed to handle transactions that people would prefer to put on credit cards. … Ecash, in fact, appears as coins on the computer screen. Banks would serve as Ecash issuers, certifying that coins used to pay for, say, a downloaded picture or piece of software have not been illicitly duplicated.

And this is how Chaum dissed a rival digital-cash system:

"The (Mondex) system conceivably could be used to find out about your transactions and build a dossier," Mr. Chaum said. "As a participant, you are not in control, you are not empowered to protect your own interests."

The last few paragraphs really hit home for me:

"Privacy is just a part of the more general notion of people controlling their side of a transaction, protecting their financial interests against mistakes, against (dissemination of) unnecessarily detailed information about them and what they are doing," he said.

"My mission is to create a market for this sort of thing, and the best way to create it is on the demand side – by letting people know what is available to them, so they can control their lives and not be a passive participant [sic] in someone else's game."

If only bankers would be bold enough to be the empowerers, Mr. Chaum said, "they'd be heroes."

Well, that didn't quite happen, now did it? 

By all accounts the Ecash technology worked brilliantly, but it was a hard sell for banks. Digicash eventually went bankrupt. That's life. That's business. But it's disappointing that today there's no mainstream version of the virtual cash envisioned by Chaum and others at the time. 

Sure, we can securely make payments online with our credit cards, through online banking, or via PayPal. But all these methods require leaving a record of purchases. And, as I argued in my previous post, once paper bills and metal coins are gone, if the only payment options are traceable ones, we're all going to go nuts.