by George Agathangelou

Understanding really something means that you need to look at how it was created and how it has evolved.

Blockchain technology was not created out of nowhere or overnight from an anonymous crazy inventor called Satoshi Nakamoto, as some may believe. It was the outcome of collective human innovation through a very strange set of circumstances that would set the setting stone for a new decentralized movement and a new and better concept of money. To grasp ahold of the origin of Bitcoin and the Distributed Ledger Technologies, or plainly laid out “Blockchain” in modern online literature, one has to look at the history and the combined influence of 4 elements, Cryptography, Open Source Software, Peer to Peer Sharing Networks, Crypto-Economics.

Part 1 - Introduction to Cryptography

Cryptography is about solving the problem of transmitting information fast, securely and covertly to an audience. The problem arose as new technology increased the potential of communication and the danger from information being stolen. In the 1930s and during the World War II encryption and cryptography boomed as a result of military research and development, that would provide a competitive advantage and eventually greatly assist by breaking almost every German and Japanese code. Formal information security and electronic surveillance organizations would then be born and continue to this day, such as the NSA.

Military Enigma machine, model "Enigma I", used during the late 1930s and during the war; displayed at Museo scienza e tecnologia Milano, Italy.

Pioneering cryptographers were James Ellis and Clifford Cocks with their public key encryption idea. An encrypted message would contain the key that would enable unlocking the encryption, however the idea was not at that point feasible as it entailed a public communications network such as the internet as a foundation. These systems were not yet available to the public in the 1970s.

Additionally, David Chaum, was the first to propose cryptocurrency in 1983, in a paper called “Numbers can be a better form of cash than paper” as well as other ideas like untraceable electronic mail, digital signatures and digital secret identities.

The Rise of the Cypherpunks

With the emergence of the internet, by the 1990s’ a new movement called Cypherpunks was born. These people wanted to use the encryption tools developed by the military-industrial complex to protect individuals and their privacy.

In early 1991, a U.S. Senate legislation had a proposal that would force electronic communications service providers to hand over individuals’ private messages. A little known programmer called Phil Zimmerman decided to develop a tool that would help individuals freely communicate on the internet. Concerned that the American government would soon require service providers to turn over its users’ communications, Phil developed the free software known as Pretty Good Privacy, or PGP, so that individuals could encrypt the contents of their own messages, texts and files. PGP quickly became the world’s most popular email-encryption software and one of the world’s first examples of public key encryption to gain any kind of widespread adoption. It was notably used by Edward Snowden to secretly transfer classified documents from the NSA to journalist Glenn Greenwald in 2012.

NSA whistle-blower Edward Snowden in a still image taken from video during an interview.

In late 1992, Eric Hughes, Tim May and John Gilmore invited twenty of their closest friends to an informal meeting to discuss programming and cryptographic issues. This meeting was then held monthly at John Gilmore’s company, Cygnus Solutions and as the group grew they decided to setup a mailing list to reach other people elsewhere and the Cypherpunks were already growing in numbers. The ideas and concepts shared in this mailing list varied from cryptography, mathematics, computer science and political as well as philosophical debates, with privacy being one of the main founding principles.

“Privacy is necessary for an open society in the electronic age. Privacy is not secrecy. A private matter is something one doesn’t want the whole world to know, but a secret matter is something one doesn’t want anybody to know. Privacy is the power to selectively reveal oneself to the world.”

Early attempts of anonymous transaction systems that would introduce game theory and incentivised behaviour, was the Hashcash in 1997, by Dr. Adam Back, which was a system to prove that some computational power was spent to create a stamp in the header of an email, acting as an anti-spam mechanism, a concept that might sound familiar to the proof of Work use in Bitcoin.

In 1998, Wei Dai published his proposal for B-Money, which included two methods of maintaining transaction data, one in which all participants hold a separate database or ledger and a second in which a specific group only holds the database and are incentivized to act honestly as they have deposited their own money into a special account and stand to lose it by acting dishonestly, also known as the “Proof of Stake” method. Ethereum is one of the cryptocurrencies considering to move to this method of transaction verification since it provides efficiency benefits.

In 2004, Hal Finney created the Reusable Proofs of Work based on the principles of Hashcash, which were unique cryptographic tokens you could only spend once, but were limited to validation and protection against double spending from a central server. In 2005 Nick Szabo gave his own proposal for BitGold, a system which units would be valued differently based upon the amount of computational work performed to create them.

Finally, in 2008, Satoshi Nakamoto, a pseudonym for a still-unidentified individual or individuals, published the bitcoin whitepaper, citing both hashcash and b-money, addressing many of the problems that the earlier developers had faced, including double spending. The bitcoin white paper attracted a lot of criticism from sceptics, but Satoshi moved on despite the critics and mined the genesis block of Bitcoin on 3rd of January 2009.