September 25, 2024 • 1hr 15min

BTC201: eCash on Bitcoin & Nostr w/ Calle from Cashu (Bitcoin Podcast)

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In this episode, Preston Pysh interviews Calle, the creator of the Cashu protocol. Cashu is an implementation of Chaumian ecash built on top of Bitcoin and Lightning Network. The discussion covers the motivations behind Cashu, how ecash works, its benefits and limitations, and how it fits into the broader Bitcoin ecosystem. Calle also shares his thoughts on topics like Nostr, DNS, and the importance of open source development.

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Key Takeaways

Cashu is an ecash protocol that aims to enhance privacy and efficiency for custodial Bitcoin services, particularly for small payments and micropayments
Ecash allows for offline payments and very high frequency transactions (thousands per second) between parties
Custodial services are widely used in Bitcoin today, especially for smaller payments. Cashu aims to improve privacy and functionality for these types of services
Ecash is not a true Bitcoin scaling solution like Lightning Network, but can make custodial services more private and efficient
Nostr provides a decentralized social graph and identity layer that can be leveraged by other protocols and applications
DNS centralization is a major issue that Nostr-based solutions may help address by providing alternative ways to discover and connect to services
Open source developers are critical for continuing to build and improve Bitcoin and related technologies

Introduction

In this episode, Preston Pysh interviews Calle, the creator of the Cashu protocol. Cashu is an implementation of Chaumian ecash built on top of Bitcoin and Lightning Network. The discussion covers the motivations behind Cashu, how ecash works, its benefits and limitations, and how it fits into the broader Bitcoin ecosystem. Calle also shares his thoughts on topics like Nostr, DNS, and the importance of open source development.

Topics Discussed

What is Cashu and why was it created? (5:04)

Calle explains that Cashu aims to solve the problem of privacy for custodial Bitcoin services. Many people use custodial services, especially for smaller payments, but these typically lack privacy. Cashu replaces traditional custodial databases with a more privacy-friendly and efficient ecash system.

He notes that ecash technology itself is much older, dating back to the 1980s when it was invented by David Chaum as a way to enable online payments with privacy. While online payments are ubiquitous today, the privacy preserving aspects of ecash remain highly relevant.

Cashu is not a true Bitcoin scaling solution like Lightning Network
It aims to improve privacy and efficiency for existing custodial use cases
Most Bitcoin users today interact through some form of custodial service

How Cashu works on a basic level (8:22)

Calle uses the analogy of casino chips to explain how Cashu works:

Users deposit Bitcoin to a Cashu mint and receive ecash tokens in return
These tokens can be freely transferred between users without the mint's involvement
When withdrawing, users redeem their tokens back to Bitcoin
The mint cannot link deposits to withdrawals, preserving privacy

He gives an example of a donation website using Cashu:

Users deposit Bitcoin and receive ecash
They can then privately donate to different projects on the site
Projects can withdraw their received donations without the site knowing who donated

Privacy benefits of Cashu compared to other Lightning solutions (15:11)

Calle emphasizes that Cashu and ecash provide stronger privacy guarantees compared to typical custodial Lightning services:

The mint cannot track or link individual transactions
Users can transact privately with each other once they have ecash tokens
Small payments benefit most from this privacy, as they reveal the most about spending habits

Challenges for user adoption of Cashu (22:26)

The discussion touches on some challenges for Cashu adoption:

Users need to trust the mint operator to some degree
Educating users on the benefits and tradeoffs
Building integrations with existing services and wallets

Custodial vs non-custodial Bitcoin solutions (22:49)

Calle clearly states that non-custodial solutions like self-hosted wallets are superior for security. However, he notes that custodial services are widely used in practice, especially for smaller amounts and payments. Cashu aims to improve privacy and functionality for these existing custodial use cases.

Non-custodial is always better for security
Custodial services should only be used for small spending amounts
Cashu improves privacy for custodial use cases but doesn't eliminate custodial risk

Why micropayments are more scalable with custodial solutions (30:13)

Calle explains that truly scaling Bitcoin to billions of users and frequent micropayments likely requires some custodial solutions:

Blockchains fundamentally don't scale to that level
Lightning helps but still has limitations for very small/frequent payments
Custodial services can provide the speed and low fees needed for micropayments
Ecash improves privacy for these custodial use cases

Decentralization and Cashu's future (32:31)

The conversation covers how Cashu aims to promote decentralization despite relying on custodians:

Cashu is open source software anyone can run
Multiple independent mints can exist rather than one centralized service
Users can choose which mints to trust
A web of trust system may emerge for rating mints

How Cashu integrates with Lightning Network (37:11)

Calle details how Cashu interfaces with Lightning:

Users can deposit/withdraw to Cashu mints via Lightning
Mints can use Lightning for settlement between each other
Cashu transactions themselves don't touch Lightning, happening entirely within the ecash system

Nostr and its potential impact (48:40)

The discussion shifts to Nostr, a decentralized social networking protocol. Calle is enthusiastic about Nostr's potential:

Provides a decentralized social graph and identity layer
Can scale horizontally with many small communities/relays
Offers an open platform for building social features into apps
Could provide censorship-resistant communication for Bitcoin

Calle notes: "I think Nostr is here to stay. It's going to grow steadily as it has right now, because with every day people will realize that it's a source of data and publishing, communication between people, and also communication between computers from machine to machine that has these beautiful properties that everyone can join, everyone has the same authority."

DNS centralization and potential Nostr-based solutions (55:23)

Preston and Calle discuss how the centralized nature of DNS (Domain Name System) is problematic, and how Nostr might offer alternatives:

DNS is controlled by a small number of entities
Websites can be easily censored by revoking domain names
Nostr Web Services could allow hosting services without relying on DNS
Services could be discovered via Nostr public keys instead of domain names

Calle explains: "You can basically take this existing software that you already have and you can plug it into Nostr such that another application on the other end can reach your server through Nostr without having to rely on DNS. And this is super useful and especially for low bandwidth applications where you don't want to put too much pressure on the system."

Hole punching and peer-to-peer communication (1:03:11)

The conversation touches on hole punching technology for enabling direct peer-to-peer connections:

Allows direct connections between computers behind NATs/firewalls
Could enable serverless messaging and video calls
Nostr could be used for discovery, then switch to direct P2P connection
Privacy considerations as direct connections reveal IP addresses

Conclusion

Calle concludes by emphasizing the excitement and potential of building open, decentralized technologies for money and communication. He makes a call to action for more developers to get involved in open source Bitcoin development:

"We really, really, really need you. Bitcoin's lifeline are the engineers and developers building the thing. It's very important that people do podcasts and education and courses and so on and so forth. But what we never can miss is the engineers building Bitcoin open source software."

The conversation highlights how technologies like Cashu, Nostr, and others are working to enhance privacy, decentralization, and functionality in the Bitcoin ecosystem. While challenges remain, these projects demonstrate the ongoing innovation happening in the space.