Why digital cash needed a bank
Anything digital can be copied. A file that stands for a dollar can be sent to two people at once, and both copies look real.
From David Chaum’s 1982 paper on digital cash to 2008, the only fix was a trusted record keeper. Someone had to hold the one true list of who owned what, and that someone was a bank or a company.
The Bitcoin white paper describes where that left online commerce: it had come to “rely almost exclusively on financial institutions serving as trusted third parties.” That’s the five-party card payment from lesson 1, carried over to the internet.
A record keeper can also refuse you, reverse a payment, go bust or be shut down. Several people spent the next two decades trying to do without one.
Four ideas before 2009
Four earlier ideas led to Bitcoin, and it uses parts of the last three. The white paper cites two of them by name, Hashcash and b-money.
Continue with The Crossover Pro
The rest of this story, plus two paid editions a week. $24.99 a month, or $249 a year. Already a member? Sign in above.
Subscribe to Pro