Financial cryptography applies cryptography to protect financial systems where subversion could cause monetary loss, differing from traditional cryptography's historical military and diplomatic uses. It encompasses mechanisms for securing financial transfers and creating new money forms, including technologies like proof of work and auction protocols, with applications such as Hashcash to limit spam. Ian Grigg identifies seven interconnected layers in financial cryptography—cryptography, software engineering, rights, accounting, governance, value, and financial applications—highlighting its cross-disciplinary nature essential for robust financial systems and preventing business failures.
Nov 1 1999History
Cryptographers think the field originated from the work of David Chaum who invented the blind signature.2 The blind signature is a special form of a cryptographic signature which allowed virtual coins to be signed without the signer seeing the actual coin.3 It permitted a form of digital token money that prevented traceability. This form is sometimes known as digital currency. Similar concepts are now being applied to modern blockchain technologies.
A system that was widely used during the 1970s-1990s and previously developed cryptographic mechanism is the Data Encryption Standard, which was used primarily for the protection of electronic funds transfers.4 However, it was the work of David Chaum that excited the cryptography community about the potential of encrypted messages as actual financial instruments.
As part of a business model, Financial cryptography followed the guide of cryptography and only the simplest ideas were adopted. Account money systems protected by SSL such as PayPal and e-gold were relatively successful. In 2001, PayPal processed $3.1 billion in payments, averaging 189,000 transactions daily totaling $9.6 million.5
But more innovative mechanisms, including blinded token money, struggled to gain traction. David Chaum's DigiCash, opened in 1989, filed for bankruptcy protection in November 1998.6 Two competitive rivals also failed to remain viable. First Virtual Holdings abandoned its business in August 1998. CyberCash ceased its "CyberCoin" in early 1999.7
Associations
Financial cryptography is to some extent organized around the annual meeting of the International Financial Cryptography Association, which is held each year in a different location.8
See also
- Automated teller machines (ATM)
- Bitcoin
- Blockchain
- Cryptoeconomics
- Digital currency
- Monero (cryptocurrency)
- Point-of-sale (POS)
- Hardware security modules (HSM)
- Payment system
- Smart contracts
- Economics of security
- Bilateral key exchange
External links
References
Financial Cryptography in 7 Layers http://iang.org/papers/fc7.html ↩
Chaum, David (1983). "Blind Signatures for Untraceable Payments". In Chaum, David; Rivest, Ronald L.; Sherman, Alan T. (eds.). Advances in Cryptology. Boston, MA: Springer US. pp. 199–203. doi:10.1007/978-1-4757-0602-4_18. ISBN 978-1-4757-0602-4. 978-1-4757-0602-4 ↩
Chaum, David. "Blind Signatures for Untraceable Payments" (PDF). http://sceweb.sce.uhcl.edu/yang/teaching/csci5234WebSecurityFall2011/Chaum-blind-signatures.PDF ↩
"Standing the Test of Time: The Data Encryption Standard" (PDF). www.math.uci.edu. Retrieved 2021-10-13. https://www.math.uci.edu/~brusso/fea-landau2.pdf ↩
"UNITED STATES SECURITIES AND EXCHANGE COMMISSION - Form 10-K - For the Fiscal Year Ended December 31, 2001". www.sec.gov. Retrieved 2021-10-13. https://www.sec.gov/Archives/edgar/data/1103415/000091205702009834/a2073071z10-k405.htm ↩
Report, Wired News. "DigiCash Outta Cash". Wired. Retrieved 2021-10-13. https://www.wired.com/1998/11/digicash-outta-cash/ ↩
"Requiem for a Bright Idea". www.forbes.com. Retrieved 2021-10-13. https://www.forbes.com/forbes/1999/1101/6411390a.html ↩
http://www.ifca.ai/ Financial Cryptography http://www.ifca.ai/ ↩