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In this episode of "Bitcoin, Explained," hosts Aaron van Wirdum and Sjors Provoost are once again joined by resident sidechain and Layer 2 expert Ruben Somsen, this time to discuss Federated Ecash, a project that has been sponsored by Bitcoin infrastructure company Blockstream since October 2021.
In the episode, van Wirdum, Provoost and Somsen discussed the history and design of Ecash, a pioneering digital cash project developed by cryptographer David Chaum and his startup Digicash in the early 1990s. The trio explains how the Ecash system allowed customers of regular banks to make private transactions over the internet.
This latest iteration of Ecash, Federated Ecash, takes the original concept, but applies it to be utilized by custodial (or shared custodial) Bitcoin and Lightning wallets. In short, a Federated Ecash service would accept bitcoin deposits, and exchange them for bitcoin-denominated Ecash tokens. These tokens can be send to other users, and ultimately redeemed for the deposited bitcoin. These bitcoin would, in the meantime, be locked up in a multisig address shared between a set of custodians.
Concluding the episode, van Wirdum, Provoost and Somsen went over a short list of ideal properties for a digital cash system, and asses how Bitcoin, Ecash and the combination of the two embed these properties.