E-Cash Flow Diagram
TL;DR
Traditional eCash involves a three-way interaction where a bank handles the issuance and verification while blind signatures protect user privacy.
The Cycle
- Withdrawal: The User sends a “blinded” serial number to the Bank along with fiat money. The Bank signs it and returns it.
- Unblinding: The User unblinds the coin. They now have a coin signed by the Bank with a serial number only the User knows.
- Payment: The User gives the coin to a Merchant.
- Verification: The Merchant sends the coin to the Bank to ensure it hasn’t been spent before (Double Spend Check).
- Settlement: If valid, the Bank credits the Merchant’s account and records that serial number as “spent.”
Why It Failed
While the Bank couldn’t see what the User was buying (privacy), the Bank was still a Centralized Authority.
- It could stop the withdrawal.
- It could stop the verification.
- If the Bank’s server went down, the money became worthless.
Evolution to Bitcoin
Bitcoin removed the “Bank” in the middle. Instead of a central server checking for double-spends, the Timechain (Proof of Work) allows every node to check for double-spends collectively.