Curious how history turns out. Back in 1990 or so, David Chaum launched a revolution with his invention of untraceable digital cash tokens. For much of the 90s, there was a pervasive expectation that electronic money would be untraceable. Yet, it didn't turn out that way. Almost all systems were traceable. Even DigiCash's offerings were only loosely private. And now, a fairly tough analysis on the Bagdad Greenbacks mini-scandal has this engaging quote:
A former consultant to the Senate Banking Committee opined after the Kelly hearings: "It is a monumental act of stupidity for Congress and the Treasury to allow the Fed to ship large amounts of physical currency around the world and then act shocked when the customers turn out to be drug dealers and money launderers. The U.S. government should promote the electronic use of dollars as a means of exchange, but not the use of physical currency ."
Electronic Money is Traceable Money. So we rely on the Issuer to be careful with the data, by one means or another. In order to evaluate the privacy of the data, evaluate the policies and weaknesses of the Issuer. You are going to have to do that anyway, to evaluate the safety of the Issuer, and it adds maybe 5% to the workload to check out their privacy practices.
I am reminded of my informal research into the heavy narcotics world. Being dragged to ever-frequent social gatherings in the "tolerant and open" Amsterdam party scene, I found myself a fish out of water. So I constructed a little plan to gain some benefit from the experiences on offer: I mixed financial cryptography and the available experience in movement of product, and verbally trialled the new untraceable digital cash products on the street dealers.
The results were a surprise, even to me. Your average hard-core dealer would not use a digital cash product that was touted as being a privacy product. Reason? Because if it was touted as a privacy money, then that was probably a lie.
That is, if it is claimed to be untraceable, or anonymous, it probably isn't. Whereas, if there is no such claim, at least you can examine the system and draw what benefits there are plainly on view.
The fears of these dealers seemed to me to be overly paranoic at the time (and recall, the mid 90s was a time when everyone was paranoic!). But they have been confirmed empirically. At least two high profile money systems that claimed to be private were lying (these were the cases I *know* about). Literally, they were misleading the public and their own people by keeping secret their transactional tracing capabilities.
Why was this? In both cases, the original aim was safety of the float. And, this is a good reason - hard analysis of an untraceable money system such as blinded token money (sometimes wrongly called anonymous money) leads one to the overwhelming conclusion that it will fall to the bank robbery problem. But, in the 90s, everyone believed that these money systems should be private, so that was what they claimed.
Now, I guess, if people in Congress believe that electronic money is traceable money, then we can get over the myth of untraceable digital cash and get back to serious architecture. It was a nice myth while it lasted, but ultimately, a huge distraction, and a waste of the resource of countless programmers who believed it could be done.
 Is Alan Greenspan a Money Launderer?