This year, 31st October was the fourteenth anniversary of the publication of one of the most influential white papers of this century, ie. Bitcoin: A Peer-to-Peer Electronic Currency System by Satoshi Nakamoto. Its publication in 2008 sparked a “revolution in finance”, and “heralded a new era for money. This value does not come from government decree, but from the skill and ingenuity of technology,” as NYDIG celebrated in its November 4th newsletter.
However, what many don’t know is that Satoshi’s nine-page white paper was initially met with some skepticism, even within the cypherpunk community where it first appeared. This reluctance may be understandable since previous attempts to create a cryptocurrency, David Chaum’s Digicash in the 1990s, for example, have failed, and where, at first glance, Satoshi seemed to have nothing new from in terms of technology.
“It was technically possible to develop bitcoin in 1994,” Jan Lansky, head of the department of computer science and mathematics at the University of Finance and Administration of the Czech Republic, told Cointelegraph, explaining that bitcoin is based on three technical improvements available at the time: Merkle trees (1979), the blockchain data structure (Haber and Stornetta, 1991), and Proof-of-Work (1993).
Peter Vessenes, co-founder and chief cryptographer of Lamina1, a Tier 1 blockchain, wholeheartedly agrees: “We definitely could have achieved bitcoin” in the early 1990s, at least from a technical point of view, he told Cointelegraph. The necessary cryptography was in place:
“Bitcoin’s ellipse curve technology is a technology from the mid-1980s. Bitcoin does not need to have in-band encryption like SSL; the data is unencrypted and easy to transfer. »
Satoshi is sometimes credited with establishing the Proof-of-Work (PoW) protocol used by the Bitcoin blockchain and other networks (but mostly Ethereum) to secure digital ledgers, but he also had precedents there. “Cynthia Dwork and Moni Naor proposed the idea of Proof of Work to fight spam in 1992,” says Vessenes.
PoW, which is also effective in preventing Sybil attacks, sets a high economic price for any modification of the digital ledger. As Arvind Narayanan and Jeremy Clark explain in a 2017 article on the origins of bitcoin, “in Dwork and Naor’s design, email recipients would only process emails accompanied by proof that the sender had done a modest amount of computational work – hence the term” Proof. -of-Work”. As the researchers further note:
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“It might take a few seconds for a normal computer to calculate the proof. So, this would not be a problem for regular users, but a spammer who wants to send a million emails, using equivalent hardware, would need several weeks. »
Also, “Ralph Merkle invented Merkle trees in the late 1980s – so we had safe hashing functions for the time being,” says Vessenes.
So why did Satoshi succeed while others failed? Wasn’t the world ready for a decentralized digital currency sooner? Were there still technical limitations, such as accessible computing power? Or maybe true bitcoin customers had not yet matured, a new generation distrusting centralized authority, especially in light of the Great Recession of 2008?
Establish systems without trust
David Chaum has been approached as “perhaps the most influential person in cryptocurrency”. His 1982 doctoral thesis, entitled Computer Systems Established, Maintained and Trusted by Mutually Suspicious Groups (Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups), anticipating many of the things that could eventually find their way into the Bitcoin network. He also presented the main challenge to be solved, namely:
“The problem of establishing and maintaining computer systems that can be trusted by those who do not need to trust each other. »
In fact, an academic review of the origins of blockchain technologies by four University of Maryland researchers suggested “the 1979 work of David Chaum, whose dome system includes many aspects of blockchain.”
In an interview with Cointelegraph last week, Chaum was asked if bitcoin could really have been launched 15 years earlier, as some claim. He agreed with researchers at the University of Maryland that all of the main features of blockchain were already present in his 1982 thesis, with one exception: Satoshi’s consensus mechanism:
“Specifications of the consensus algorithm [c’est-à-dire de Satoshi] different, as far as I can tell, from those in the consensus algorithm literature. »
When pressed for details, Chaum wouldn’t say much else, except that a 2008 white paper described a “somewhat ad hoc…and rudimentary mechanism” that could, in fact, “work – more more or less”.
In a recently published book, the social scientist from Oxford University, Vili Lehdonvirta, also emphasizes the uniqueness of this consensus mechanism. Satoshi rotated the cryptocurrency / validation ledger, better known today as miners, every 10 minutes or so.
Then, “the next randomly named administrator takes over, checks the previous block of records and adds his own block, creating a block chain,” Lehdonvirta writes in Cloud empires.
The need for miner rotation, according to Lehdonvirta, was to prevent system administrators from becoming too rooted and, therefore, avoid the corruption that accompanies the inevitable concentration of power.
Although PoW protocols were well known at the time, the details of Satoshi’s algorithm “really didn’t come out of nowhere… they weren’t planned,” Chaum told Cointelegraph.
Three basic ones
Vinay Gupta, founder and CEO of startup Mattereum, who also helped launch Ethereum in 2015 as a release coordinator, agreed that most of the key parts of the Bitcoin network were available for construction when Satoshi arrived, although it is different on part of the timeline. “The elements themselves weren’t ready until at least 2001,” he told Cointelegraph.
“Bitcoin is a combination of three fundamentals above public key cryptography – Merkle trees, Proof of Work and distributed hash chains. ”, all developed before Satoshi, Gupta said. In the 1990s there were also no problems with network hardware and computing power. “The core algorithms were the slow part […]. We didn’t have all the building blocks of bitcoin until 2001. Cryptography was first, and the super-smart network layer was last. »
Garrick Hileman, a research associate at the London School of Economics, also mentioned a later date regarding the technical feasibility of the Bitcoin network:
“I’m not sure the early 1990s is a firm claim, as some of the earlier work referenced 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. . “.
Waiting for a favorable social climate
What about non-technical factors? Maybe the Bitcoin network was waiting for a demographic cohort that grew up with computers/mobile phones and unreliable banks and centralized finance in general? Did bitcoin need a new socio-economic consciousness to flourish?
Alex Tapscott, a member of the millennial generation, writes in his book The Financial Services Revolution :
“For many of my generation, 2008 marked the beginning of a lost decade of structural unemployment, slow growth, political instability and an erosion of confidence in many of our institutions. The financial crisis barely put an end to the greed, misdirection and outright incompetence that had driven the economy to collapse, and some asked, “How long has the rot gone?”. »
In an interview with Cointelegraph in 2020, Tapscott was asked if bitcoin would have been possible without the change in finance in 2008. ‘Italy, there is no doubt that many people are looking at decentralized systems like blockchain in a more favorable because of the resulting lack of confidence in institutions,’ he replied.
Lansky seemed to agree. There was no need or social demand for a decentralized payments solution in the 1990s “because we didn’t have enough experience with centralized solutions that don’t work,” he said.
“Bitcoin was definitely a cultural product of its time,” Vessenes added. “We wouldn’t have a decentralization push without this DNA of distrust in central government technological controls. »
Bring it all together
All in all, one can argue endlessly about who contributed how much and when. But most people would agree that most of the pieces were in place in 2008, and perhaps Satoshi’s real gift was that he managed to cram it exactly into nine pages. “No element of the basic mechanics of bitcoin is new,” Gupta reiterated. “The genius is to combine the three existing components – Merkle trees, hash species and distributed hash chains for networking, into a fundamentally new whole. »
But sometimes the historical environment has to be favorable too. Chaum’s project failed “because there wasn’t enough interest in the service” at the time, among other reasons, according to Lansky. In comparison, Satoshi Nakamoto enjoyed perfect timing. “It hit bitcoin in 2008, when the mainstream financial system was collapsing. ”, and the fact that the founder left the platform in 2010 “only strengthened bitcoin, because its community has embraced development”.
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It should also be remembered that technological progress is almost always a collaborative effort. Although Satoshi’s system looks very different from most other payment systems today,” write Narayanan and Clark, “these ideas are quite old, dating back to David Chaum, the father of digital currency.”
Satoshi, Chaum, Merkle, Dwork, Naor, Haber, Stornetta and Back clearly had predecessors. Gupta said, “We must give credit where credit is due: Satoshi stood on the shoulders of giants. »
