’98 | Wei Dai — Who dat?
With each story here at blockwhat? we come closer to the end of our journey — but there is still some ground to cover. The pristine peak of Mount Blockchain is visible by now and looking back, we see the long way we’ve already come. Stay strong and stay curious!
In today’s article we will explore the fascinating idea brought into the world by the talented cryptographer and privacy-focused Wei Dai — b-money. Which was pretty much a blueprint for Bitcoin. Oh, and he came up with Proof-of-Stake as well. Just saying.
Let’s get rolling, it’ll be a mesmerizing ride!
This article is part five of our journey. If you’re new here and want to understand what’s going on, just click here.
- 3000 BC | Hiking Up Mount Blockchain
- ’82 | The Birth Of Digital Cash
- ’96 | Oncologist + Gold = Revolution?
- ’97 | Anybody interested in some hash(cash)?
- ’98 | Wei Dai — Who dat? (This article)
- ’98 | Make It Rain (Bit) Gold!
- ’03 | It’s Karma
- ’04 | Use me baby, one more time
- ’08 | Bit what? Bitcoin! — Hello world.
- ’13 | Ethereum — The World Computer
The man in the focus of our story today is this lovely chap below, Wei Dai.
Wei Dai is a world-renowned computer scientist and cryptographer (surprise, surprise). One of the most important aspects all throughout his studies and career has always been privacy.
During his studies he became fascinated with the crypto-anarcho scene and it was only natural that he quickly became a part of the legendary cypherpunk scene (read the explainer at the end of this article if you want to know more about this super duper important mailing list)
You might just find yourself asking right now “What the hell is crypto-anarchy?!”. Let me reassure you that this isn’t the digital equivalent of anarchist who want to get rid of the government and replace it with cryptographic technology.
Rather, it can be understood as a set of ideas that help individuals to maintain their privacy.
Crypto-anarchists are individuals who utilize cryptographic software and privacy-enhancing technologies to evade persecution while propagating their political freedom, financial sovereignty, and perpetuating their privacy.
— Usman Chohan
For a thorough explainer on the ideas behind crypto-anarchy, check out this interesting blog post!
But back to Dai now.
He was not only drawn to broad range of cryptographic and privacy-focused subjects of the mailing list, but also became one of the most active and important contributors to it!
And in 1998 he eventually sent a truly ingenious idea out into the group of crypto-anarchists:
“…a scheme for a group of untraceable digital pseudonyms to pay each other with money and to enforce contracts amongst themselves without outside help”. — Wei Dai
If you’re thinking “Hmm, that sounds pretty much like every cryptocurrency out there today.” then you’re not mistake. Wei Dai’s proposal for b-money was the first postulation of a truly decentralized digital currency ever made.
It doesn’t come as a surprise then, that Wei Dai is also one of the few people referenced by Bitcoin’s mysterious creator(s), Satoshi Nakamoto, in his whitepaper in Bitcoin.
Dai actually didn’t propose only one, but two ideas of how b-money could look like. We will go through each one together below.
B-money | Take one: “Everybody Is A Bookkeeper”
Since b-money is basically a proposed way of collective bookkeeping, let’s imagine the following scenario. A bookkeeper will be used synonymous for a user (aka a computer).
You are a bookkeeper now — yay!
As it turns out, all your other friends happen to be bookkeepers as well.
You’re all part of this new exciting new thing called b-money. It’s a new currency system in which instead of just one central bookkeeper, who used to keep track for everyone before, now everybody of your friends and you will have to keep track together. Everybody now has a copy of the whole ledger.
If you make a transaction to your bookkeeper-friend Bob, everybody of the group now updates their respective ledger. But how exactly does this work?
Well, the system is based on our good old friend public key encryption — remember him? Basically the whole system consists of public keys with certain amounts attached to them.
You can find a full fledged post about this fascinating technological marvel here:
One day, as you’re strolling down Accountant Street, you stop and see something absolutely fascinating in the window of this awesome new store “Are You Bookkeeping Yet?”.
The new VR headset for immersive bookkeeping!
Damn, you definitely need this little piece of bookkeeping-magic. So you decide to go ahead and buy it, saying goodbye to 42 b-money in the process. The store owner sends you his public key.
Once you have received it, you now create a transaction about 42 b-money from your wallet (aka public key) and sign it with your private key.
This transaction is now sent to all the other diligent bookkeepers, who can now easily verify that you indeed are ok with this transaction — since you’ve signed it with your private key! Now everybody updates their own copy of the ledger with the new amounts that everybody has.
Once one of your bookkeeping-buddies decides to go through with a transaction by cryptographically signing a transaction, a blocking of that transaction becomes impossible.
Sounds a hell lot like Bitcoin, doesn’t it? Well, 10 more years will have passed until the world saw Nakamoto’s whitepaper for the first time.
B-money | Take two: “Of Bookkeepers And Servers”
There was one fundamental flaw with the first proposal of b-money where every user kept a copy of the ledger and could confirm the transactions passing through.
Turns out that if Roger, that one bookkeeper who liked to cheat already before b-money, mischievously sends a transaction to two people at the same time, half of the other bookkeepers update their ledger with one of the transactions and the other half update their copies with the other transaction. This turns out to be a grave problem, since Roger now has essentially double-spent money. Naughty guy!
Wei Dai foresaw that kind of behaviour and went right ahead, proposing a potential solution.
In his seconds proposal for b-money, so called trusted servers are playing an important role now. You and all your bookkeeping friends, who are part of the b-money systems, now don’t each have a copy anymore. Instead, there are some new big boys who now run the show — the servers.
As you walk down Accountant Street another beautiful sunny day, you pass by “Fly Accountant”, the awesome store for all kind of fun accounting gadgets.
And what do your eyes see in wide awe?
The new drone “Accountant 9000” — the first automated drone that lets you fly through your archives at a never-before seen pace, awesome!
You decide that this is exactly what you need and proceed to pay 100 b-money to Caroline, the nice store owner (that you always had a little crush on).
Once the transactions is signed by you, it goes to a couple of randomly selected servers. Only these servers keep a copy of the ledger and can confirm transactions.
There is a really interesting and important thing about servers though, they all are required to deposit a certain amount of money into a special contract, in case they need to pay fines for misconduct. (Proof-of-Stake anyone?)
They are also forced to cryptographically verify from time to time that their copies of the ledgers are indeed legit. This is done to prevent an uncontrolled expansion of the money supply by rogue servers!
One more thing — Wei Dai also proposed smart contracts for the first time ever (even though they were rudimentary!), in b-money they were supposed to be a tool of dispute settlement.
After all talk about bookkeepers, they awesome new gadgets and the way they paid for it there may be still a central questions lingering somewhere in head right now — where is all that b-money coming from and how do we know what its value is?
Great question, and for which one Wei Dai had of course not only one, but two answers.
Dai had understood how important a stable coin value was for a currency and therefore he proposed the link the value of b-money to the value of a given basket of goods. B-money would always have the value corresponding the value of that basket. This would ensure that in the past, present and future the value would be stable. (e.g. if the basket of goods was worth 80€ last year and 100€ this year, the value would stay accordingly).
According to his first idea, new b-money could be produced by providing a Proof-of-Work (read her how that works) worth the same as the given basket (ergo a PoW worth 80€ for 80 b-money). This meant that only people who really want to use it, would produce it.
His second idea revolved around auctioning away new b-money. In order for this to work, the system first determines what the optimal increase of the money supply would be. The person who is willing to contribute the most Proof-of-Work then gets it.
So far so good.
In a fascinating little last note I’d love to tell you the following anecdote.
While writing his Bitcoin whitepaper, Satoshi Nakamoto reached out to Adam Back, who then recommend him to talk to Wei Dai about his b-money concept (which by the way was never actually realized).
Satoshi wanted some advice and feedback from Dai about his new Bitcoin idea, but Dai actually never responded. Which is a bummer, because Dai knew very well that Bitcoin’s money supply system was designed in a rather bad way if it should function as an actual currency. You can read an insightful blog post by Wei Dai about this here.
You’ve powered through the article, I’m proud of you — we’re done now, I promise!
As always I hope you’ve enjoyed the read and if you have any questions, comments or anything else you could think of, just let me know.
See you soon
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!
