’04 | Use me baby, one more time

Photo by Karim Ghantous

Well hello there, it’s a pleasure to welcome you here at blockwhat?, awesome that you’re here!

In today’s story we will get to know Hal Finney, a legendary cryptographer and prolific privacy advocate. Throughout his career, he made indispensable and fundamental contributions to the practical application of privacy-enhancing cryptographic concepts and tools, such as Pretty Good Privacy for example. We will also talk about his marvelous idea Reusable Proofs Of Work, and his utmost importance to the emergence of Bitcoin. (He received the first Bitcoin transaction ever!)

A fascinating account about a unique human being. Are you ready to get going?



Hal Finney was a renowned and extremely active cryptographic activist, whose core values were centered around strengthening the digital privacy of us all.

Hal Finney

His mission to see the privacy of individuals protected has led him to write some of the most important code in the history of cryptography, especially in the field of providing effective encryption tools.

The one thing that his name is irrevocably linked to, is the groundbreaking encryption software Pretty Good Privacy , which was and continues to be one of the cornerstones for enabling private individuals to securely encrypt their messages. Hal Finney was one of the earliest programmers for this company and contributed an enormous amount of code to the project.

Pretty Good Privacy makes use of our good old friend public key encryption and ensures a safe transfer of information. It was created by Phil Zimmermann in 1991 and quickly made a lot of furor. Why you might ask?

Well, it turned out that it was the first freely available encryption program strong enough that not even government intelligence agencies could break it! The US government deemed this technology so dangerous, that it put it on a list banning it from being exported abroad or being seen by foreign citizens. (If you feel like exploring a fascinating twist to this, check out this article about Adam Back, a cryptographic activist turned international weapons dealer)

Finney was the first to also integrate this encryption standard into remailers, which eventually led to the development of the famous privacy software TOR.

“The work we are doing here, broadly speaking, is dedicated to this goal of making Big Brother obsolete,” — Hal Finney
Photo by ev

He was also a very active contributor to the legendary Cypherpunk email list, a community of cryptography and privacy activists who advocated encryption tools as a means to shift power from the government and to individuals.

Through his active participation in the cypherpunk community he eventually got into contact with the fellow cryptography experts Wei Dai and Nick Szabo, two highly influential and highly respected members of the tightly knit community.

(To explore the fascinating story of Wei Dai and his revolutionary idea b-money, just click here.)

(And if you want to explore Nick Szabo’s groundbreaking idea Bit Gold, one click here is enough.)

Inspired by the groundbreaking work that he has seen throughout the years by different prestigious members of the group, he was inspired to contribute his own ideas to solve the cypherpunk’s dream of creating a truly decentralized and privacy-enhancing digital currency.

It all began in 1992, when he was profoundly impressed by the fellow cryptographer and computer scientist David Chaum, who created the first truly digital currency system to ever exist.

“Here we are faced with the problems of loss of privacy, creeping computerization, massive databases, more centralization — and Chaum offers a completely different direction to go in, one which puts power into the hands of individuals rather than governments and corporations. The computer can be used as a tool to liberate and protect people, rather than to control them.” — Hal Finney

The ideas introduced to the community by Wei Dai with his b-money proposal and by Nick Szabo with his concept for Bit Gold, led him to envision his own, more practical solution.


Reusable Proof Of Work

Photo by Austin Chan

On august the 15th 2004 Hal Finney was ready and sent his idea to the cypherpunk community.

Lacking a sexier name, he called his invention Reusable Proof Of Work.

Inspired by Nick Szabo, he had invented a form of digital cash that is limited in supply and provably difficult to create — based on Adam Back’s Hashcash (you can explore his fascinating story here).

Let’s take a look at how it works.

Hashcash is the concept of forcing a computer to first provide some kind of work, in this case solving a cryptographic puzzle, before another resource can be used. For example, before you can send an email your computer first needs to solve a little puzzle (proving that it has worked), before that email will be sent. This ensures that it would get extremely costly for spammers to send out huge amounts of junk mail. While time consuming to produce, these types of solutions can be quickly verified.

The shortcoming with Adam Back’s hashcash concept was the usability of the resulting Proof-of-Work token though — it could only be used once and after that, all the work that was put into creating it was gone.

This is where Hal Finney started to design and to create an extraordinary solution to make these Proof-of-Works (POW) reusable and therefore durable — ergo Reusable Proof Of Work (RPOW).

The second essential cryptographic concept that his idea incorporates, apart from hashcash, is so called public key encryption. We’ve covered this in a former post, here is a quick explainer:

Public key cryptography, or asymmetric cryptography, is an encryption scheme that uses two mathematically related, but not identical, keys — a public key and a private key. Unlike symmetric key algorithms that rely on one key to both encrypt and decrypt, each key performs a unique function. The public key is used to encrypt and the private key is used to decrypt.

His idea essentially built a second layer on top of the existing hashcash concept. Once a POW has been created, your computer would connect to a server which would then go on to exchange that token for a RPOW. This token is created at equal value, therefore ensuring a conversation of the invested computational work (and ergo energy) — this also prevents inflation from happening.

Once created and exchanged, these fancy new RPOWs can now easily be traded from person to person. Everytime a transfer from one person to the other takes place, on a technical layer the used RPOW gets exchanged for a newly created RPOW. So while only used once technically, for the user it feels like you simply pass them on.

The original POW therefore starts a chain of RPOWs. (Blockchain, is that you?)

Photo by Kaley Dykstra

In order to prevent someone from exchanging their original POW more than once, there is a central RPOW server to keep track of all the POW that have been exchanged.

So to sum it up, this system is pretty much designed like hashcash, but unlike hashcash it is reusable. (And splittable as well).

This explanation shall suffice — if you want to do a deep dive into the theoretical world of RPOW though, be my guest.

Hmm, now you might say that a centralized server isn’t really fitting in the overall theme of stressing the importance of decentralization that we have seen all throughout the history we’ve covered so far. And you would be certainly right to think so.

Yet, there is a special security sauce to all of this.

You see, all the RPOW that are created are unforgeable and not even the owner of the servers that exchange one token for the other can violate the system’s rules. How is that possible?

Hal Finney’s work utilizes a special breed of high security servers that were produced by IBM, namely the processor cards IBM 4758. These high security servers have embedded systems that make it virtually almost impossible to hack into them or to even change the content on them. If you want to read the gritty-nitty details of this, just click here.

But wait, what in the world would we even use the Reusable Proofs Of Work for?

Good question and one that Hal Finney himself had the following applications in mind: Possible uses for RPOW include anti-spam tokens, “play money” for use in online games and fun bets, an aid to load balancing in Peer-to-Peer and file-exchange systems, and many more.

Keep in mind that this was not money and is not intended to be a stable store of value, but rather an easy-to-exchange representation of computer effort.

Just in case you were wondering, his proposed system was able to handle 8 exchanges per second. (Take that Bitcoin)


World of RPOW

Photo by 2Photo Pots

But Hal Finney didn’t stop just there. He wanted his creation to be well prepared for an eventual mass adoption and thought all eventualities through.

Knowing that his proposed system would need to be stable and relatively mature in order to expand, he had a plan for all possible requirements for expansion and maintenance already at the initial deployment.

Hal Finney nicknamed this aspect of his idea World of RPOW and it was comprised of three components.

The first one was Key Rollover. Periodically the system would switch to a new set of keys. This was due to mainly two aspects: cryptographic security (just like occasionally changing your password is a good idea) and an ever increasing RPOW database (at some point it would simply grow too big).

The second aspect was so called Clustering. This idea would allow a server owner to add more servers and therefore enhance the performance of the now cooperating RPOW servers.

The third thing he foresaw was Worldwide Sharing. Broken down, this simply refers to the ability for multiple servers to be run by multiple entities on multiple computers.

If you want to further your understanding of this part, just click here and read Hal Finney’s own explanation.

Fun fact: Hal Finney actually coded up a working version of this system and it remains the only digital collectible to ever function as a piece of software in the history up till bitcoin.


Hal Finney And Bitcoin

Photo by Andre Francois

Hal Finney was not only one of the most important contributors of Pretty Good Privacy, an active contributor to the Cypherpunk community, but also played a fundamental part in helping Bitcoin getting of the ground.

He was one of the first people to have downloaded the Bitcoin software the day it was released.

While many people originally didn’t think too much of Satoshi’s idea, Hal Finney was supportive from the very start.

“I have always loved crypto, the mystery and the paradox of it.”
— Hal Finney

Being one of the earliest Bitcoin users, he is also the first person to have received a Bitcoin transaction — in the whole history of Bitcoin — from no other that Satoshi him/herself!

He left the Bitcoin software running in his computer for a couple of days and helped Satoshi with finding bugs and fixes. After a couple of days, and about 1000 mined Bitcoins, he decided to turn his computer off though — it was heating up too much.

Hal would continue to be an essential contributor the the early evolution of Bitcoin, at one point he wrote up an improvement to its elliptic-curve cryptography that would speed up its transactions by as much as 20%. (I’ll explain and cover this terminology in the article series on the tech behind blockchain!)

In 2009 things took a turn for the worse for Hal Finney on a personal level though. He was diagnosed with ALS.

One year later, in 2010, he transferred the Bitcoins that he had mined to an offline wallet for his heirs and hoped, that they would one day be able to benefit from them. As Finney’s medical bills mounted, Finney sold the majority of the coins at an exchange rate of around $100 though.

Like the disease alone wasn’t already a heavy enough burden for him and his family, he spend the last year of his life being extorted by someone who demanded Bitcoins in order to spare his family and him. It got so far, that they even became the victims swatting

When he finally died in 2014, he had his body cryopreserved by the Alcor Life Extension Foundation. (Click hear to read a super duper interesting article on cryonics and why it might just make sense to do it)

We will end this article with a quote from his friend and boss (at Pretty Good Privacy, where he had continued to work till 2011):

“Hal is a rare genius who never had to trade his emotional intelligence to get his intellectual gifts,” — Phil Zimmermann

Thank you very much for reading this whole article, I hope you’ve enjoyed it and walk away somewhat more knowledgeable about Bitcoins history.

As always, if you have any questions, comments or feedback, I’d be more than happy if you’d let me know about it!

Yours truly

Till

PS: if you’re looking for helpful and great resources to learn more about blockchain’s paradigm shifting technological potential, check out these awesome resources.