Bitcoin was “technically possible” in 1994, thanks to the Internet, elliptic curve cryptography, Merkle trees, and PoW protocols.

This year marks the 14th anniversary of Satoshi Nakamoto’s “Bitcoin: A Peer-to-Peer Electronic Cash System,” one of the most influential white papers of the twentieth century. According to NYDIG’s Nov. 4 newsletter, its 2008 publication sparked a “revolution in finance” and “heralded a new era for money, one that did not derive its value from governmental edict but rather from technological proficiency and ingenuity.”

Many people are unaware that Satoshi’s nine-page white paper was initially met with skepticism, even among the cypherpunk community, where it first surfaced. This reluctance is understandable given that previous attempts to create a cryptocurrency, such as David Chaum’s Digicash effort in the 1990s, failed, and it did not appear that Satoshi was bringing anything new to the table in terms of technology.

“It was technically possible to develop Bitcoin in 1994,” Jan Lansky, head of the computer science and mathematics department at the Czech Republic’s University of Finance and Administration, told Cointelegraph, explaining that Bitcoin is based on three technological advances that were available at the time: Merkle trees (1979), blockchain data structure (Haber and Stornetta, 1991), and proof of work (1993).

Co-founder and chief cryptographer at Lamina1 — a layer-1 blockchain — Peter Vessenes basically agreed: “We definitely could have been mining Bitcoin” in the early 1990s, he told Cointelegraph. The required cryptography was available:

“Bitcoin’s elliptic curve technology is mid-1980s technology. Bitcoin doesn’t need any in-band encryption like SSL; the data is unencrypted and easy to transfer.”

Satoshi is sometimes credited with inventing the proof-of-work (PoW) protocol, which is used by Bitcoin and other blockchain networks (though no longer Ethereum) to secure digital ledgers, but he had precedents in this as well. “In 1992, Cynthia Dwork and Moni Naor proposed the idea of proof of work to combat spam,” Vessenes added.

PoW, which is also effective against Sybil attacks, imposes a high economic cost on any changes to the digital ledger. According to Arvind Narayanan and Jeremy Clark’s 2017 paper on Bitcoin’s origins, “in Dwork and Naor’s design, email recipients would process only those emails that were accompanied by proof that the sender had performed a moderate amount of computational work — hence, ‘proof of work.'” As the researchers went on to say:

“On a standard computer, computing the proof would take only a few seconds.” Thus, regular users would have no difficulty, but a spammer wishing to send a million emails would need several weeks using equivalent hardware.”

“Ralph Merkle invented Merkle trees in the late 1980s — so we had secure hashing functions for the times,” Vessenes added.

So, what made Satoshi succeed while others failed? Was it simply that the world was not ready for a decentralized digital currency earlier? Were there still technical constraints, such as available computer power? Perhaps Bitcoin’s true constituency hadn’t yet matured — a new generation wary of centralized authority, especially in the aftermath of the 2008 Great Recession?

Establishing ‘trustless’ systems

“Perhaps the most influential person in the cryptocurrency space,” according to David Chaum. Many of the elements that would eventually make their way into the Bitcoin network were predicted in his 1982 doctoral dissertation, Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups. It also presented the main problem to be solved, which was:

“The problem of establishing and maintaining computer systems that can be trusted by those who don’t necessarily trust one another.”

Indeed, four University of Maryland researchers lauded “the 1979 work of David Chaum, whose vault system embodies many of the elements of blockchains” in their academic exploration of blockchain technologies’ origins.

In a recent interview with Cointelegraph, Chaum was asked if Bitcoin could have been launched 15 years earlier, as some claim. He agreed with the researchers at the University of Maryland that all of the key blockchain elements were already present in his 1982 dissertation, with one major exception: Satoshi’s consensus mechanism:

 “The specifics of the [i.e., Satoshi’s] consensus algorithm is unlike, as far as I know, those in the literature on consensus algorithms.”

When pressed for specifics, Chaum would only say that the 2008 white paper described a “somewhat ad hoc… crude mechanism” that “could be made to work — more or less.”

Vili Lehdonvirta, a social scientist at the University of Oxford, focuses on the uniqueness of that consensus mechanism in a recently published book. Satoshi rotated the cryptocurrency’s record-keepers/validators — better known today as “miners” — every 10 minutes.

Then “the next randomly appointed administrator would take over, double check the previous block of records, and append their own block to it, forming a chain of blocks,” Lehdonvirta writes in Cloud Empires.

According to Lehdonvirta, the reason for rotating miners was to keep the system’s administrators from becoming too entrenched, and thus to avoid the corruption that inevitably comes with a concentration of power.

Even though PoW protocols were well known at the time, the specifics of Satoshi’s algorithm “really came out of nowhere… it wasn’t anticipated,” Chaum told Cointelegraph.

‘Three fundamental breakthroughs’

Vinay Gupta, founder and CEO of startup Mattereum, who also helped to launch Ethereum in 2015 as its release coordinator, agreed that most of Bitcoin’s key components were available for the taking when Satoshi came along, though he differs on some of the chronology. “The parts themselves were simply not ready until at least 2001,” he told Cointelegraph.

“Bitcoin is a combination of three fundamental breakthroughs on top of public key cryptography — Merkle trees, proof-of-work and distributed hash tables,” all developed before Satoshi, said Gupta. There were no problems with network hardware and computer power in the 1990s either. “It’s the core algorithms that were the slow part […]. We just didn’t have all the core building blocks for Bitcoin until 2001. The cryptography was first, and the extremely clever networking layer was last.”

Garrick Hileman, a visiting fellow at the London School of Economics, also cited a later date for Bitcoin’s technical feasibility:

“I’m not sure the early 1990s is a strong claim because some of the prior work cited in Satoshi’s white paper — for example, Adam Back’s hashcash/proof of work algorithm — was developed and/or published in the late 1990s or later.”

Awaiting a favorable social climate

What about non-technical factors? Maybe Bitcoin was waiting for a demographic cohort that had grown up with computers/cell phones and distrusted banks and centralized finance generally? Did BTC require a new social-economic consciousness to flourish?

Alex Tapscott, a member of the Millennial generation, writes in his book Financial Services Revolution:

“For many of my generation, 2008 marked the start of a lost decade of structural unemployment, sluggish growth, political insecurity, and a deterioration of trust in many of our institutions.” The financial crisis exposed the avarice, malfeasance, and plain incompetence that had brought the economy to its knees, prompting some to wonder, “How deep did the rot go?”

Tapscott was asked in a 2020 interview with Cointelegraph if Bitcoin could have happened without the 2008 financial crisis. Given “historically high unemployment rates in countries like Spain, Greece, and Italy,” he responded, “there’s little doubt that the resulting lack of trust in institutions led many to view decentralized systems like blockchain more favorably.”

Lansky appeared to concur. In the 1990s, there was no social need or demand for a decentralized payments solution, he explained, “because we did not have enough experience with the fact that centralized solutions do not work.”

“Bitcoin was undeniably a cultural product of its era,” Vessenes added. “Without this DNA of mistrust of central government technology controls, we wouldn’t have a decentralized push.”

Pulling it all together

Overall, one can go back and forth arguing about who contributed what and when. Most agree, though, that most of the pieces were in place by 2008, and Satoshi’s real gift may have been how he was able to pull it all together — in just nine pages. “No single part of Bitcoin’s fundamental mechanics is new,” Gupta reiterated. “The genius is in the combination of these existing three components — Merkle trees, hash cash and distributed hash tables for the networking into a fundamentally new whole.”

But sometimes, the historical environment has to be propitious too. Chaum’s project failed “because there was not enough interest in this service” at the time, among other reasons, according to Lansky. Satoshi Nakamoto, by comparison, had perfect timing. “He came up with Bitcoin in 2008, when the classical financial system was failing,” and the founder’s vanishing from the scene in 2010 “only strengthened Bitcoin, because the development was taken over by its community.”

It should be remembered, too, that technological progress is almost always a collaborative effort. While Satoshi’s system seems “radically different from most other payment systems today,” Narayanan and Clark wrote, “these ideas are quite old, dating back to David Chaum, the father of digital cash.”

Satoshi clearly had forerunners — Chaum, Merkle, Dwork, Naor, Haber, Stornetta and Back, among others. Said Gupta: “Credit where credit is due: Satoshi stood on the shoulders of giants.”

Buy virtual Visa card with Bitcoin, Buy VCC with Bitcoin

No comment

Leave a Reply

Your email address will not be published. Required fields are marked *

fifteen − three =