The bitcoin (BTC) white paper was published by Satoshi Nakamoto on October 31, 2008. But in the years before that, people were already looking for a way to build fully digital money. We look at the history of ‘internet money’, what happened in that area before bitcoin?
The origins of bitcoin can be traced to the cypherpunk movement. The group of cypherpunks began to take shape in part through the work of David Chaum, he is sometimes mentioned as someone who may be behind the pseudonym Satoshi Nakomoto.
By following history, we can understand the motivations behind the movement that spawned bitcoin and better look forward to the future.
As computers became more popular, people like David Chaum began to philosophize about the implications of this information technology. In his article titled Security without Identification: Transaction Systems to Make Big Brother Obsolete, Chaum outlines some of his biggest concerns
If you didn’t know better you would think the article was written this year instead of in 1985. It describes the dangers of a (fully) digital society. A key aspect to freedom is freedom of payment. If someone can take your money, that party has you in their grasp.
In late 1992, Eric Hughes, Timothy C. May and John Gilmore formed a small group that met monthly at Gilmore’s company Cygnus Solutions in the San Francisco Bay Area. They were jokingly called cypherpunks by Jude Milhon.
According to Wikipedia: A cypherpunk an activist who advocates widespread use of strong cryptography and privacy-enhancing technologies as a pathway to social and political change.
That definition is quite a broad term, but there are a number of prominent players in the world of cypherpunks who have contributed to where we are today: a world where bitcoin has been running for years. The name cypherpunks has stuck.
As the group grew, a mailing list was established. This allowed the cypherpunks to communicate with each other outside of San Francisco. The mailing list grew in popularity fairly quickly.
The hundreds of subscribers exchanged ideas using this list, they discussed developments and tried things. These exchanges took place by using encryption methods, such as PGP, to ensure privacy.
A Cypherpunk’s Manifesto
Just a few months later, Eric Hughes published “A Cypherpunk’s Manifesto.” The main principle underlying the manifesto is the importance of privacy and security. These principles are also applicable to the Bitcoin network.
Privacy is necessary for an open society in the electronic age. Privacy is not secrecy. A private matter is something you don’t want the whole world to know, but a secret matter is something you don’t want anyone to know. Privacy is the power to selectively reveal oneself to the world.[/penci_blockquote]
Privacy in an open society requires anonymous transaction systems. Until now, cash has been the primary system for paying anonymous money. An anonymous transaction system is not a secret transaction system. An anonymous system allows individuals to reveal their identity when desired and only when desired; this is the essence of privacy.
Developments from the email list
In 1997, Dr. Adam Back, known to most as the founder of Blockstream, created Hashcash. Essentially, this was an anti-spam technique that would add time and computing power to sending emails.
One of the thought applications was to prevent or reduce spam. Someone wanting to send numerous emails would use hashcash to lose a little money each time. A sender would have to prove that they had used computer processing power to create a stamp in the header of an email.
A year later, Wei Dai published a proposal for “B-Money. He described two interesting concepts from that should sound familiar if you are involved with BTC.
The second method is known today as proof of stake (POS). The former is similar to what bitcoin does with proof-of-work and the consensus mechanism.
Reusable proof of work
In 2004, Hal Finney created reusable proof of work (RPOW), which built on Back’s Hashcash. RPOWs were unique cryptographic tokens that could only be used once. This development was an important step in the history of digital money.
However, validation and protection against double spending was still performed here by a central server. In short, there is still a central point where more power lies on the network.
Finney died in 2014 from the effects of ALS. He was cryopreserved by the Alcor Life Extension Foundation. Finney hoped this would allow him to wake up again in the future. Who knows, maybe someday he will be able to witness the bitcoin of today (or indeed the bitcoin of the future) in the flesh.
In 2005 Nick Szabo came up with a new proposal for ‘Bit Gold’, a digital collectible that built on Finney’s RPOW proposal.
Do you see a pattern yet? Within the cypherpunk community, people often build on someone else’s work. Because of the open nature of the development method, everything is open source and can be used. The Bit Gold system consists of seven steps. It starts by generating public code using a benchmark function.
This is similar to the mathematical solution used for mining bitcoin. The user generates a proof of work string from the benchmark function and details related to the transaction are stored in a title register (analogous to a blockchain in the consensus system). In Szabo’s system, the last piece of string is responsible for creating the next set of strings. Similar to the block creation process in bitcoin, where hash addresses are used as headers pointing to the next set of blocks.
In October 2008, Satoshi Nakamoto really came into the picture. He sent out a paper to members of the cypherpunk mailing list. The paper bears the name Bitcoin: a peer-to-peer electronic money system, and referred to B-money and Hashcash, among others.
The main contribution of the bitcoin white paper was how to eliminate the problem of double spending without having to trust anyone on the network. Bitcoin is a way to make transactions (with each other) without having to ask permission or believe anyone in the world.
The first bitcoin was mined in 2009, but the origins of bitcoin lie decades further back in history. Bitcoin consists of all sorts of pieces of technology that Satoshi put together to create the protocol that was introduced to the world in 2008.
Bitcoin’s philosophy is at odds with today’s financial developments. Code is law, the protocol (which does get built by humans, of course) is leading and the history we all agree on (consensus) determines how much bitcoin is in the market.
There is no party that can just change the rules or change the number of bitcoin. Bitcoin needs attention from the people who want to break free from the banks.
We owe this wonderful technology and monetary innovation largely to the cypherpunks.