From bitcoin to blockchain to distributed ledgers, the cryptocurrency space is evolving rapidly. So fast that we are more concerned with looking to the future than to the past. But the history of bitcoin is a very interesting one. Today's innovation is built on decades of work.
The origin of Bitcoin can be traced back to the CypherPunk movement. The Cypher Point movement began to take shape with the work of David Chaum, who is sometimes referred to as someone who might be behind the pseudonym Satoshi Nakomoto.
By following history, we can understand the motivations behind the movement that bitcoin has produced and better look forward to the future.
As personal computing became more popular, people like David Chaum began to philosophise about the implications of information technology. In his article entitled Security without Identification: Transaction Systems to Make Big Brother Obsolete, Chaum outlines some of his major concerns. If you didn't know better, you'd think the article was written this year instead of 1985.
At the end of 1992, Eric Hughes, Timothy C. May and John Gilmore founded 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. Cyperpunks is derived from figure and should not be confused with cyberpunks.
The name cypherpunks is stuck.
As the group grew, a mailing list was set up. This would allow them to reach other cypherpunks outside San Francisco. The mailing list grew quite rapidly in popularity.
The hundreds of subscribers used this list to exchange ideas, discuss development and try things out. These exchanges took place through the use of encryption methods, such as PGP, to ensure privacy.
A Cypherpunk's Manifesto
Only a few months later Eric Hughes published the "A Cypherpunk's Manifesto". The most important 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 a matter of 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 manifest itself selectively to the world.
Privacy in an open society requires anonymous transaction systems. Until now, cash was the primary system for transferring money anonymously. An anonymous transaction system is not a secret transaction system. An anonymous system enables individuals to reveal their identity when they wish and only when they wish; this is the essence of privacy.
Developments from the mailing list
In 1997, Dr. Adam Back, who is best known as the founder of Blockstream, created Hashcash. Essentially, this was an anti-spam technique that would add time and computing power to sending emails. A sender must prove that they had used computer processing power to make 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 when you're working on BTC.
Each participant in the network would maintain a separate database to keep track of what money belongs to whom.
All data is kept by a specific group of users.
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 builds 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 is still carried out here by a central server.
Finney died in 2014 from the effects of ALS. It is cryopreserved by the Alcor Life Extension Foundation. Finney hoped to be able to wake up again in the future.
Nick Szabo published a proposal for "bit gold" in 2005. This is a digital collectible that built on Finney's RPOW proposal. The bit gold system consists of seven steps. It starts by generating a public code using a benchmark function.
This is similar to the mathematical calculation puzzle used to mince bitcoin. The user generates a 'proof of work' string from the benchmark function and details of the transaction are stored in a title register (similar to a blockchain in the consensu 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.
Satoshi Nakamoto will be on the screen in October 2008. He sent a paper to the members of the cypherpunk mailing list. The paper is called Bitcoin: a peer-to-peer electronic money system, and referred to B-money and Hashcash. The main contribution of the bitcoin white paper was how to eliminate the problem of double spending without the use of a third party.
The first bitcoin was mined in 2009, but the origin of bitcoin goes much further. Bitcoin exists on all kinds of pieces of technology that Satoshi has merged into the protocol that was launched in 2008.
In my opinion, Bitcoin's philosophy is diametrically opposed to today's financial developments. Bitcoin does not need institutional money. Bitcoin needs the attention of the people who want to get away from the banks. Attention from those who want to have power over their own money. This is worth more than the fiat price of bitcoin.