This year, October 31 marked the 14th anniversary of the release of one of the most consequential white papers of this century, Satoshi Nakamoto’s Bitcoin: A Peer-to-Peer Electronic Money System. Its 2008 publication launched a “revolution in finance” and, as the NYDIG noted in its Nov. 4 newsletter, “heralded a new era for money, one that derived its value not from government decree but from technological skill and ingenuity.”
What many don’t know is that Satoshi’s nine-page white paper was met with some skepticism even among the cypherpunk community where it first surfaced. This reluctance is understandable, as previous attempts to create cryptocurrencies have failed — such as David Chaum’s Digicash effort in the 1990s — nor did it appear at first glance that Satoshi brought anything new to the table in terms of technology.
“In 1994, it was technically possible to develop Bitcoin,” said Jan Lansky, head of the department of computer science and mathematics at the University of Finance and Management of the Czech Republic, explaining that Bitcoin was based on three technical improvements. then: Merkle trees (1979), blockchain data structure (Haber and Stornetta, 1991) and proof of work (1993).
Peter Vessenes, co-founder and chief cryptographer of Lamina1 — a tier-one blockchain — largely agreed: “We could have mined Bitcoin in the early 1990s, at least technically,” he told Cointelegraph. The necessary cryptography was in hand:
“Bitcoin’s elliptic curve technology is technology from the mid-1980s. Bitcoin does not need any in-band encryption like SSL; data is unencrypted and easy to transmit.”
Satoshi is sometimes credited with creating the proof-of-work (PoW) protocol used by Bitcoin and other blockchain networks (though no longer Ethereum) to secure digital ledgers, but he had his forerunners here too. “Cynthia Dwork and Moni Naor proposed the idea of proof-of-work to combat spam in 1992,” Wessenes said.
PoW, which is also effective in preventing Sybil attacks, imposes a high economic price on making any changes to the digital ledger. As explained in a 2017 paper on the origins of bitcoin by Arvind Narayanan and Jeremy Clark, “In Dwork and Naor’s design, email receivers would only process emails accompanied by evidence that the sender had performed a moderate amount of computational work. ‘” As the researchers later noted:
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“Calculating the proof would take maybe a few seconds on a regular computer. So it won’t be a problem for regular users, but a spammer who wants to send a million emails will need a few weeks using the equivalent hardware.
Elsewhere, “Ralph Merkle invented Merkle trees in the late 1980s — so we had era-safe hashing functions,” Wessenes said.
So why did Satoshi succeed when others founded? Wasn’t the world ready for a decentralized digital currency before? Were there still technical limitations such as available computer power? Or maybe Bitcoin’s true constituency has yet to come of age – a new generation distrustful of centralized authority, especially in the wake of the Great Recession of 2008?
Creation of “untrusted” systems
David Chaum has been called “perhaps the most influential person in the cryptocurrency space.” His 1982 doctoral dissertation, Computer Systems Built, Maintained, and Trusted by Mutually Suspicious Groups, anticipated many of the elements that would eventually find their way into the Bitcoin network. He also presented the main problem to be solved, namely:
“The problem of creating and maintaining computer systems that can be trusted by those who do not necessarily trust each other.”
Indeed, an academic study of the origins of blockchain technologies by four University of Maryland researchers praised “the 1979 work of David Chaum, whose arch system incorporates many elements of blockchains.”
In an interview with Cointelegraph last week, Chaum questioned whether Bitcoin could really have been launched 15 years ago, as some have claimed. He agreed with the Maryland researchers that all of the key blockchain elements were already present in his 1982 thesis – with one key exception: Satoshi’s consensus mechanism:
“Characteristics [i.e., Satoshi’s] The consensus algorithm is, as far as I know, different from the literature on consensus algorithms.
When pressed for specifics, Chaum declined to say more than that his 2008 white paper actually described a “somewhat specialized … crude mechanism” that could be “more or less worked on.”
In a recently published book, Oxford University social scientist Vili Lehdonvirta also focuses on the uniqueness of this consensus mechanism. Satoshi rotated the cryptocurrency’s record keeper/validators, more commonly known as “miners” today, approximately every 10 minutes.
Lehdonvirta writes that “the next randomly assigned administrator will then take over, double-check the previous block of records, and add his own block to it to form a chain of blocks.” Cloud empires.
According to Lehdonvirta, the reason for the rotation of miners was to prevent system administrators from becoming too entrenched and thus the corruption that inevitably comes with the concentration of power.
While PoW protocols are well known at this point, the features of Satoshi’s algorithm “really came out of nowhere…it was unexpected,” Chaum told Cointelegraph.
“Three Major Advances”
Vinay Gupta, founder and CEO of the startup Mattereum, who helped launch Ethereum in 2015 as a launch coordinator, agreed that most of Bitcoin’s core components could have been taken when Satoshi arrived, though he differs on some chronologies. “The shares themselves weren’t ready until at least 2001,” he told Cointelegraph.
“Bitcoin is a combination of three major advances on top of public-key cryptography — Merkle trees, proof-of-work and distributed hash tables,” all developed before Satoshi, Gupta said. Even in the 1990s, there was no problem with network equipment and computer power. “It’s the underlying algorithms that are slow […]. Until 2001, we didn’t have all the basic building blocks for Bitcoin. “Cryptography was the first, and the ultra-smart network layer was the last.”
Garrick Hileman, a visiting fellow at the London School of Economics, also referred to a later date for Bitcoin’s technical feasibility:
“I’m not sure the early 1990s is a strong claim, as some of the earlier work cited in Satoshi’s white paper — such as Adam Back’s hashcash/proof-of-work algorithm — was developed and/or published in the late 1990s or later.”
A favorable social environment awaits
What about non-technical factors? Maybe Bitcoin was waiting for a demographic cohort that grew up with computers/cell phones and unreliable banks and centralized finance in general? Was a new socio-economic consciousness required for BTC to flourish?
Alex Tapscott, a representative of the millennial generation, writes in his book The Financial Services Revolution:
“For many of my generation, 2008 ushered in a lost decade of structural unemployment, sluggish growth, political instability, and the erosion of faith and trust in many of our institutions. The financial crisis exposed the greed, abuse and outright incompetence that brought the economy to the brink of collapse, and some asked, “How deep has the rot gone?” asked the question”.
In a 2020 interview with Cointelegraph, Tapscott was asked if Bitcoin could have happened without the 2008 financial crash. leading many to view decentralized systems like blockchain more positively,” he replied.
Lansky agreed. In the 1990s, there was no social need or demand for a decentralized payments solution, “because we didn’t have enough experience with centralized solutions not working,” Cointelegraph said.
“Bitcoin was undeniably a cultural product of its time,” Wessenes added. “Without the DNA of mistrust of central government control of technology, we wouldn’t have the decentralization push.”
Pulling it all together
In general, one can argue about who contributed what and when. Most agree that most of the pieces were in place by 2008, and Satoshi’s real gift may have been how he was able to put it all together—in just nine pages. “No part of the underlying mechanics of Bitcoin is new,” Gupta reiterated. “The genius is in the combination of these three existing components – Merkle trees, hash cash, and distributed hash tables for a whole new network.”
But sometimes the historical environment should be favorable. According to Lansky, Chaum’s project failed because, among other reasons, there was “not enough interest in this service” at the time. In comparison, Satoshi Nakamoto had perfect timing. “He came up with Bitcoin in 2008, at a time when the classical financial system was failing,” and the founder’s disappearance from the scene in 2010 “only strengthened Bitcoin, as the development was captured by its community.”
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It’s also important to remember that technological progress is almost always a collaborative effort. Narayanan and Clark wrote that Satoshi’s system is “radically different from most other payment systems today,” and that “these ideas are quite old and belong to David Chaum, the father of digital money.”
Satoshi clearly had pioneers – Chaum, Merkle, Dwork, Naor, Haber, Stornetta and Back, among others. Gupta said: “Credit where credit is due: Satoshi stood on the shoulders of giants.”