The origins of Bitcoin and the Cypherpunks
The Bitcoin Whitepaper was published by Satoshi Nakamoto on 31 October 2008. It stands on the shoulders of many years and decades of work attempting to build digital money however. In this article, we’ll look at this history of ‘Internet Money’ in the era before Bitcoin?
The origins of Bitcoin can be traced back to the Cypherpunk Movement that developed through the work of David Chaum. Indeed, it’s rumoured he might even be behind the pseudonym Satoshi Nakomoto. Looking into this movement’s history may well explain some of the motivations behind Bitcoin itself.
As computers became more popular, people like David Chaum began to philosophise about the implications of this information technology. In his article entitled Security without Identification: Transaction Systems to Make Big Brother Obsolete, Chaum outlines some of his biggest concerns.
If you didn’t know better, you might think the article was written this year rather than in 1985. It describes the dangers of a fully digital society and seems visionary even today. An key aspect of personal liberty is the freedom to pay without financial surveillance. If someone controls your money, they can control you.
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 is an activist who advocates the widespread use of strong cryptography and privacy enhancing technologies as a pathway to social and political change. The definition is a broad one, but prominent cypherpunks have made massive contributions to where we are today: a world where bitcoin has been running for years. The cypherpunk name isn’t without merit and it stuck.
As the group grew, a mailing list was set up. This allowed the cypherpunks to communicate outside of San Francisco. The mailing list popularity grew rapidly and hundreds of subscribers exchanged ideas through through it, discussed developments and tried things out. Much of these exchanges took place through the use of encryption methods, such as PGP, to ensure privacy.
A Cypherpunk’s Manifesto
A few months later, Eric Hughes published “A Cypherpunk’s Manifesto”. The main principle behind it being the importance of privacy and security, principles that went on to be foundational to the Bitcoin Network.
“Privacy is necessary for an open society in the electronic age. Privacy is not a secret. 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 reveal oneself selectively to the world.”
Privacy in an open society requires anonymous transaction systems. Until now, cash has been the primary system for paying anonymously. 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 born from the mailing 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 uses for it was to prevent or reduce spam. Someone who wants to send numerous mails would lose a little money each time with hashcash. 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 that should sound familiar if you are familiar with BTC. The second method is now known as ‘proof of stake’ (POS). The first 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 duplicate spending was still performed 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 one day he’ll be reanimated to see the Bitcoin of the future..
In 2005 Nick Szabo came up with a proposal for ‘Bit Gold’, a digital collectible built on Finney’s RPOW proposal. Do you see a pattern yet? Within the cypherpunk community, people often build on the work of others. Because of the open source nature of software development, all code can be reused, iterated upon, like an evolution.
The BitGold system consists of seven steps. It starts with the generation of public code using a benchmark function, similar to the mathematical solution used for bitcoin mining. The user generates a proof of work string from the benchmark function and details relating 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 came into the picture. He sent a paper to the cypherpunk mailing list called ‘Bitcoin: a peer-to-peer electronic money system’ in which he made reference to Wei Dai’s B-Money and Adam Back’s Hashcash.
The main contribution of the Bitcoin Whitepaper was how to solve the problem of double spending without trusting anyone on the network. Bitcoin is a way to make transactions peer to peer without having to ask permission or trust any third party. Third parties are security holes.
The first Bitcoin was mined in 2009, but the origins, as we’ve seen, go back decades. Bitcoin is a synthesis of inspired Cypherpunk technologies that Satoshi united to create a revolutionary digital money protocol. He released this to the world in 2008 and in subsequent years began stepping away from managing it, for reasons we’re only beginning to understand.
Bitcoin’s philosophy is fundamentally odds with the centralised behemoth that is today’s Global Financial System. Code alone is law, the protocol (which is built by humans, of course) forges its own history through consensus agreement of the network’s participants and the market determines Bitcoin’s value.
There is no party that can change its rules or the supply of Bitcoin – these are constants. Bitcoin demands the attention of the people who want to break free from the banks and governments. Its gravitational pull is a phenomenon.This wonderful technology and monetary innovation stems from the vision and work of the Cypherpunks. It now rests on our shoulders to continue this evolution and to manifest the dream of those who built it.
Cyperpunks write code.