The Amazing History of the Internet of Money — Bitcoin
Most people today get stuck staring at Bitcoin’s price.
True, it’s kind of hypnotizing lately. But it’s only one bit of the coin.
It takes a little bit more effort to really understand Bitcoin’s potential. It is not too difficult, it doesn’t have to be too technical. Everybody can understand when we use the right metaphors and keep it simple.
The fun of it?
Learning about Bitcoin’s and a little bit of tech history will make you value it even more. And you’ll see the enormous potential.
Bitcoin and Cryptocurrencies are revolutionizing money as we speak.
Let’s look how Bitcoin came into being, so we know also better where digital cash will bring us.
When you are new to Bitcoin, this is a good place to start.
The Change is Here
Bitcoin, Crypto and Blockchain technology beholds an amazing gift for humanity. I just can’t get enough to write about it, speak about it and read about it.
It feels like back in the days that the Internet just got invented.
And in fact, it is about the same. I am not a techie at all, but I can sense that technology is paving the way for something great, evolutionary and good to happen. And this won’t happen without ‘disrupting’ the old system of money. But hey, that’s all in the game.
Don’t fear change. You may lose something good. You also might gain something great.
Our old system of money has been good for the ones that are lucky enough to be banked. Bitcoin will be great for potentially all of us, including the 1.7 billion unbanked people in the world. But there is more, much more.
From Byzantine Armies to the Blockchain
Bitcoin, and I almost would say the faith of humanity, comes from a bunch of mathematicians that solved some very important puzzles. Two of these problems stood out. The Byzantine general’s problem and the double-spending problem.
Now picture this
In Byzantine times, a city was under siege by 4 armies from 4 different directions. How can the generals of the 4 armies coordinate that the attack takes place at the same time? When they sent a courier from army 1 to army 2, he could be killed or corrupted because army 2 might have a different agenda. Then how would he even get to army 3 and 4 and make it back safe to army 1 again? The messenger can also be captured by warriors from the city and an imposter can carry further a false time of the attack.
I hear you thinking about how this possibly can have anything to do with Bitcoin? Hold on for a second.
Translated to computer science, this Byzantine Generals problem when solved, would bring the solution for the main issue of state synchronization in distributed systems. Don’t worry, I am not going technical here.
The underlying mechanism is trust.
When the generals and the couriers could all trust each other 100%, there would be no issue here. But they can’t. So a trustless system needed to be invented, meaning that the different parties don’t need to know or trust each other, but they still reach a consensus at the same time.
Now imagine the 4 armies are servers that execute programmable assignments. When all 4 of them would receive simultaneously the assignment to attack at a specific time, and they would agree that this assignment is valid, the problem would be solved.
The Blockchain can be seen as thousands of small Byzantine armies that are connected, they all receive the same information at the same time, and they all validate a certain action at the same time.
When the message would be changed by one of the servers, all others would see this. When the change would be correct according to the mathematical rules that all servers know than all servers would amend their strategy. They would not attack at dawn, but at sunrise for example.
In a distributed system of consensus like the Blockchain, the attack is replaced by validating transactions in the case of digital currencies.
Thank you for sticking this far. Tech can be fun too!
A Short History of the Emergence of Data
When you lived before the age of data and the internet, you probably remember what a huge impact digitalization made. Before, you bought an album of Pink Floyd, and friends could only listen when you borrowed the album, the songs where played on the radio, or you went to a live concert.
Bless you, when you did.
With the coming of zero’s and one’s, everything changed. Magically, information could be transformed to something invisible and non tangible: data
Music, videos and movies were brought to you through wires under the ground, they appeared on your screen after a small box made weird noises when you dialled into “The Network”. The first pictures on the first websites, downloaded with 56K modems, would take forever to build on your screen.
There were a lot of naked women being undressed very slowly.
A huge new possibility occurred. The digital copy. You could burn your Pink Floyd album on a CD and give it to your friend. Or burn your holiday photos on a CD or important other data that you needed to copy for security reasons.
The first floppy disks stored 80 kilobytes. Why they were called floppy disks is still a miracle to me. Then the CD-ROMs came. The first CD-ROM's could store around 700MB. Now there are USB sticks of 2TB, which is 2 million MegaBytes. Roughly 2.857 old Burnable CDs fit in there.
Digitalization took a big spurt. From cultural heritage to medical records, from books to games, from analogue to digital phone connection, all the way to streaming video, YouTube and Netflix.
And finally to money. That’s where we are at right now. Bitcoin is the Internet of Money.
The First Digital Money
It didn’t take long until some clever programmers came up with the first use-case of digital money. The advantages appeared clear from the start. You can send this data-money super fast from A to B with disregard of borders. Users can stay anonymous. And most of all, a government is not needed to create it.
A company with some smart developers and great marketing could now be in the business of money
But how would this new data-money be prevented from being copied?
When we look at the first medical data for example, how did we prevent the highly privacy-sensitive records not to be copied and spread over the Internet for sale for anyone interested?
Here is where cryptography comes in. Files got encrypted and heavily secured. Top hackers were bought by companies to bring the cure to the attack they themselves had imposed. Skype was one of the first online messengers that used encryption for its users.
The same as with the first digital money. The inventors needed to secure this data-cash to be spent only ones. Multiple copies of it would destroy its value.
They needed to find a solution for the second biggest problem for digital money: The double spending issue
Their solution apart from encryption was centralization. Centralized servers would secure the hashtags, the series of digital numbers that represent money, to not be copied. This created the essential condition of money, its scarcity. The impossibility to double spent, to be copied. And in this was their weakness.
If you can only coordinate from central authority, that becomes a single point of failure. And easy to trace.
Digicash in the mid-nineties created one of the first digital currencies.
Problem is that they issued the digital currency from a centralized model. Imagine creating, back in the days, a new form of money, outside of the formal Federal Reserve, outside of the REAL central authority with the power to issue money, protected by law.
The mouse was challenging big Uncle Sam. They smashed it with the tip of their finger.
And they could because DigiCash was centralized. One headquarter, a bunch of centralized servers that were easy to trace and shut down.
From this history, it is not that difficult to make the next step. The solution for digital money 2.0 would be:
A decentralized distributed network that could issue the digital money, and validate transactions, without knowing each other or having to trust each other
It did take up to 2008 for the first architecture of this solution to be manifested. It appeared out of nowhere in a whitepaper published by a guy named Nakamoto. A whitepaper is a resume bringing a solution to a technological problem. It was called: “Bitcoin: A Peer-to-Peer Electronic Cash System”
This open-source ‘piece the resistance’ of the century included a practical solution for the Byzantines General problem.
A dozen brave digital currencies had tried like sperm to infiltrate in the apparent niche of the Internet of money. They had all denied access, seized, brought down or otherwise stopped by the big condom of centralized money printing by law. Because of the single point of failure, their centralized design.
Not until January 3rd, 2009 when the first true decentralized network was trusted into the ether. And now there was nothing to shut down.
The workable internet of money arose out of a unique mix of events. As a result of solving the byzantine general's problem, because of the birth of the internet and not to forget because of an imminent economic crisis in 2008 that created a huge incentive for an alternative system of money to arise.
Technology Bringing the Change
With the creation of a truly decentralized distributed system of consensus, a seed was born not only for a digital currency that now actually would work but for a deep-rooted change for humanity, for empowerment, for a change of history through technology.
Within this technology is an enormous promise for economic inclusion for billions of people. A huge opportunity for connection and banking the unbanked. They will have free and immediate commercial access to anyone and everywhere. The possibility to create an interconnected economy that is completely peer-to-peer, completely flat and that builds further on the flaws of the past.
Technology has shifted money from its physical centralized implementation and turned it into an internet content type.
And money is just the beginning. The money of the internet means that any digital form on a Blockchain network can be used to transfer value, or even to create new systems of governance using smart contracts.
Money as an application, money as emojis, money as nano payments for a self-driving car that you ordered, money as a digital language that can be sent within seconds to a farmer in Kenya that will send you coffee directly.
The possibilities are endless.
And we are only at the beginning of the revolution of money.