An Historical Treatise on the use of Validators in Digital Money and their Implications on Our Ability to Exchange Value

Validators in Early Forms of Digital Money

In the early 1990s, a cryptographer named David Chaum was designing plans for an encryption-based currency that could be used on the internet without having to trust private information with a third party. In July 1994, Chaum’s company, Digicash, offered the first 10,000 applicants 100 free cyberbucks. Each recipient of cyberbucks could freely transfer the electronic currency to others online.

Even though cyberbucks had no commodity value, to cypherpunks, the tokens presented an opportunity to experiment with digital money. In the summer of 1995, computer scientist Hal Finney offered cyberbucks to the first person who could crack his coding contest. That same summer, cryptographer Adam Back was the first person to sell merchandise for cyberbucks in the form of cryptographically themed t-shirts. For the first time in history, internet money was being used to exchange goods.


David Chaum is credited as the inventor of digital currencies with his 1982 paper Blind Signatures for Untraceable Payments.

On July 30, 1995, Ecash Exchange Market opened, allowing users to trade their cyberbucks for U.S. dollars. The exchange offered a rate of $0.05 for 1 cyberbuck, which gave the entire currency a market valuation of $50,000. However, there was one small centralized catch. Digicash’s server would anonymously validate the keys of each cyberbuck transaction. Once approved by Digicash, the recipient of the transaction would receive their cyberbucks. As time passed, cyberbucks were slowly gaining traction among users. However, Digicash ran into financial troubles. When the company turned off its server in 1998, Digicash transactions could no longer be verified, and the Cyberbuck currency became useless.

While Digicash proved that anonymity could be achieved, it also demonstrated to cypherpunks that a centralized currency was prone to failure. Cyberbucks relied on the long-term survival of Digicash to operate its server indefinitely. Going forward, cypherpunks were unlikely to place trust in a new digital currency that was controlled by one centralized authority.

With early electronic curriencies, cypherpunks faced the problem of users double-spending when a centralized authority was removed from a transaction. Without a centralized validator, a user could cheat the system by sending the same internet money to two people at the same time. Duplicating an electronic currency in order to spend it more than once would lead to inflation and a lack of trust in the currency. Experts at the time were hopeful that a decentralized solution could be found. In the late 1990s, the Nobel Prize winning economist, Milton Friedman, theorized that a reliable e-cash would soon be developed. Cypherpunks began searching for a reliable e-cash, with a decentralized way to validate transactions without the possibility of a double-spend occurring.


In 1999, Milton Friedman projected that an e-cash would make internet shopping anonymous, making it easier for people to use the internet.

In 1998, computer scientist Wei Dai came up with an idea for a decentralized currency called b-money. With each transaction, Dai proposed that every computer in the b-money network would credit a recipient’s account and debit the account of the sender. To stop a double-spend from happening, Dai proposed that several users would maintain servers that would record all peer-to-peer consensus in the network. B-money relied on a semi-centralized network. If the people running the servers joined forces, they could double-spend at the same time. Also, governments could make the currency illegal, and physically shut down each server. While b-money was never tested in the real world, its peer-to-peer consensus model would form the basis for a fully decentralized currency 10 years later.

Validators and their Use in Exchanges

If cypherpunks would not tolerate the use of validators in digital money, then why are modern cryptocurrency users complacent in their reliance on centralized exchanges to exchange value. In 2014, the Mt. Got exchange was handling more than 70 percent of all Bitcoin transactions. Like Digicash’s centralized issues in the 90s, Mt. Gox suspended trading in February 2014 and filed for bankruptcy protection. Many early Bitcoin users who found pride in their involvement in building a decentralized currency, again found themselves trapped with an unhealthy reliance on centralized servers to exchange value.


In 2014, Mt. Gox lost about 740,000 bitcoins, which amounted to nearly 6 percent of all bitcoin in circulation. Only 200,000 bitcoins were ever recovered.

For years, most bitcoin users resigned themselves to the reality of centralized exchanges in the ecosystem. Hardened Bitcoin users treated exchanges as a hot potato, quickly executing trades and immediately withdrawing funds. Many grew complacent. A few visionaries spent the next few years enhancing the capabilities of decentralized exchanges. While a step in the right direction, centralized components persisted in ‘decentralized’ exchanges. 2018 saw IDEX blocking orders from users in New York State, and Bancor being hacked for $13.5 million in user assets. This leaves us with the question of whether an exchange can be truly decentralized if it can freeze or lose customer funds. The answer is obvious to cypherpunks, but what is the modern alternative?

Binance, which boasts $1.4 billion in daily trading volume, is offering its interpretation of what constitutes a decentralized exchange. Similarly to b-money, Binance’s network consensus relies on 11 validator nodes. And similarly to Digicash, Binance will have influence over each node, selecting node operators from their close partners. Keeping true to a philosophy that is based on control, censorship, and greed, Binance will charge $100,000 to list new cryptocurrencies on their ‘decentralized’ exchange.


Cypherpunks believe that validators erode the privacy of individuals over time, and that they are needed to help defend this privacy.

The Vision

What should modern cypherpunks do in the face of the bold use of counterfeit decentralization. Should we bend to the will of a powerful few? Will we stand by and complacently watch as old-world banks are replaced by an elitist, all-powerful few that control the way in which we exchange value? A decade after Bitcoin was first released, 2019 is the year where we finally have a choice. The cypherpunk in all of us is ready to embrace a world where validators, centralized influencers, and greedy gatekeepers are obsolete. Where we can freely transact in a decentralized, trust-less way. That vision is embodied in the unwavering vision of Block Collider. A vision that does not take shortcuts. A vision where each person is in complete control of their own actions. It is a vision that is present in every Block Collider Evangelist. A shared vision that modern cypherpunks in EMB Nation can achieve together. Now is the time to embrace the momentum. 2019 is going to be a wild ride!

“A lot of people automatically dismiss e-currency as a lost cause because of all the companies that failed since the 1990’s. I hope it’s obvious it was only the centrally controlled nature of those systems that doomed them. I think this is the first time we’re trying a decentralized, non-trust-based system.” - SN, February 15, 2009.

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This is great @Roumanis. I’ve moved your topic to the philosophy category.

There is definitely a sense of complacency. It’s like building a house without a roof and saying it hasn’t rained yet so it’s all good. This historical account really puts things into perspective, and this period of complacency will become just another mark in history towards true decentralisation.

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Great definition of cypherpunk. Would you say cypherpunks can be represented by anyone who is of the mindset to fight for individual privacy?

Thanks Spec! Good analogy. I’m sure BC will be a big part of eroding that complacency! We just need to help people educate themselves.

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Thank you Veklar. Absolutely! I think anyone with the right mindset can represent the philosophy that was created by cypherpunks in the 90s. I think these cypherpunks would have worked together to increase their knowledge of cryptography, politics, philosophy, mathematics, and computer science in order to effectively fight for individual privacy. And I think that they would encourage the Block Collider generation to build these skillsets in order to contribute to and continue the cypherpunk legacy.

oh great mindset. That is real long term vision.

Sounds like the cypherpunk name could use a revival in the blockchain space

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Can you share the original source for this one please @Roumanis ? Would love to read more. Found an excerpt here but not sure if it’s the same.

Well… I researched this subject a while back for something I am working on. What I wrote above is from well over a dozed sources, and I can’t remember the specific sources anymore. The graph on the Digicash Network was something I made in InDesign. The article you found looks awesome! Don’t think I’ve read that yet. Let me know if you have any more questions about this. Would love to chat about it :slight_smile:.

Definitely would love to have a chat, I skimmed a few more links, will share em once I’m done with them.

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This my friend is the post to rule them all!

An excellent read.

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Applause for you my friend. Great article!

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Thank you! I’m really happy to hear you say that.

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Enjoyed the read … will be keeping an eye out for more from you!

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Fantastic read. Really interesting to go back to the origin of digital currencies and the point of failure being centralization. Thanks for your great work.

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Thank you! I am working on a similar treatment that’s more focused on the history of exchanges over the last ten years. Might take me a bit to finish though, as I like to test things as much as possible while I write. Makes it more believable. I only wish I had been able to test out Cyberbucks :grinning:.

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