SUMMARY

Table 2.1 provides a summary of the payment systems we discuss and their privacy and security guarantees. It is evident that although the theoretical background to build privacy-preserving systems exists, payment systems that have survived throughout the past few years do not support any privacy notion against either the bank or the provider of the payment service. Another remark is that in all the services provided so far (i.e., before the era of decentralized consensus networks and Bitcoin) the payment provider is always a centralized entity that has to be trusted. Micropayments are not sufficiently well supported by these systems but need to be handled by separate and dedicated payment systems.

Although digital cash proposals achieve strong privacy guarantees, these proposals rely on complex cryptographic primitives—such as zero-knowledge proofs—which are not easily understood by application developers and system integrators. This was one of the main reasons explaining the slow development of practical solutions based on digital cash.

In the following chapters, we start by describing the main operations of Bit- coin. Unlike previous electronic cash proposals, this proposal was rather straightforward, explained in a concise white paper comprising 8.5 single-column pages, and relying on basic cryptographic constructs, such as hash functions and digital signatures. The release of the proof of concept implementation of Bitcoin shortly after the dissemination of the white paper was extremely timely and important for the subsequent growth of Bitcoin. The working implementation confirmed that, unlike previous proposals, the system is clearly feasible/workable, and scales to a large

Table 2.1

Summary of Payment Systems Prior to Bitcoin and Their Classification

number of nodes. Open sourcing the implementation was also an excellent way for developers to maintain and support the growth of the system.