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In this episode of Bitcoin, Explained, moderators Aaron van Werden and Sjors Provoost are again joined by Ruben Somsen, a sidechain expert and Layer 2 expert, this time to talk about Federated Ecash, a project that has since been Bitcoin infrastructure company Blockstream is sponsored October 2021.
Subsequently, van Werden, Provoost and Somsen discussed the history and design of Ecash, a groundbreaking digital cash project developed by cryptographer David Chaum and his startup Digicash in the early 1990s. The trio explain how the Ecash system enabled regular bank customers to make private transactions over the internet.
This latest iteration of Ecash, Federated Ecash, takes the original concept but applies it to use by custodial (or co-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 sent to other users and eventually redeemed for the deposited bitcoins. Those bitcoins, meanwhile, would be locked in a multisig address shared by a number of custodians.
To conclude the episode, van Werden, Provoost, and Somsen went through a short list of ideal properties for a digital cash system and evaluated how Bitcoin, Ecash, and the combination of the two embed those properties.