A Brief Prehistory Of Blockchain
By Till Antonio Mahler on ALTCOIN MAGAZINE
Hello there and welcome, its great that you’re here!
As the craze and hype about blockchain technology is gaining more and more traction all around the globe, it is of utmost importance to have a nuanced and fact-based understanding of this new technological paradigm.
“I’ve been at this 35 years, writing about the digital age. I’ve never seen a technology that I thought had greater potential for humanity.”
– Don Tapscott, Writer
In order to properly grasp the ongoing evolution of the blockchain space and it’s revolutionary potential to change and affect many different aspects across all kind of industries and sectors, it’s recommendable to hold on for a moment.
To halt the continuous journey forward for just a bit. Taking a break from the relentless pace racing us towards the future. Just relax
If you want to understand the future laying ahead of us, it’s indispensable to also take a look back- in order to thoroughly understand the root of all this, where it’s stemming from and the turbulent history it has undergone during the last couple decades.
Join me on a fascinating journey through the past and discover the mesmerizing history that led to the advent of blockchain technology.
Welcome to a Brief Prehistory Of Blockchain.
3000 BC | Origins
To fully grasp the importance and groundbreaking potential of the technological revolution that we’re experiencing, we have to go back all the way to 3000 BC.
Throughout the history of our species, there has been one distinct feature that enabled us to thrive and slowly establish our hegemony over the world. It’s definitely not due to any of our physical abilities, as there are countless animals that have way better sight, exceptional hearing, a superior sense for smells, etc…
It is rather our unique ability to create complex imaginary stories within groups, that enable us to cooperate with each other in a highly effective manner. The narratives that we tell each other create the web of stories that make up our modern world.
The narratives that we tell each other create the web of stories that make up our modern world — for example our notion of nation states, universal human rights, corporations and the value of money. For they are nothing more than mere stories and have no physical embodiment in our world, as they are not made up out of any atoms or molecules.
In order for these stories to function properly, there is a special kind of glue needed — trust. When we look at the great scheme of things, humans started to band together and over time formed ever larger groups of people. This works well up to a group size of about 150 people (this is called Dunbar’s number). When we stay inside the magical number of 150 people, the relations between the members and the gossip ensuring social cohesion is sufficient. As humans continued to live together in ever growing numbers, centralized institutions emerged as a way to establish trust in between all of these people. For example, we trust our government for identification (IDs, Passports, Driver licenses) and banks with our money (so that nobody double spends theirs).
By building upon these centralized institutions, we as a species were extremely efficient in conquering the planet (for the better or the worse) and create an effective system of cooperation.
And what’s the beauty that all these systems have in common and share?
Ledgers.
What’s so special about a ledger?
Well, ledgers have played and continue to play an extraordinarily important role in the development of modern societies. Without them, we wouldn’t be where we are today. They are literally the foundation of our civilisation.If you don’t believe me, just look at the archeological findings of some of the first written accounts that were found in Mesopotamia 3.200 B.C.
On these clay tables, the ancients Mesopotamians recorded taxes, payments, worker pay and private wealth. By recording all these types of events, many of which are out one’s own memory, things became less error prone and more efficient. These administrative records made the system seem fairer, more systematic and trustworthier. In combination with the advent of writing and money, ledgers enabled groups to conduct business with other groups and to from larger settlements. By keeping track of the exchange of goods and services, a rapid expansion of societies was spurred.
1982 | David Chaum — The Birth of Digital Cash
The dream of a digital currency has been dreamt by many people throughout the decades, but it all started to materialize and become a reality with the legendary cryptographer David Chaum.
For him, privacy was always at the core of his convictions and he foresaw the digital panopticon laying ahead of us.
“Current developments in applying technology are rendering hollow both the remaining safeguards on privacy and the right to access and correct personal data. If these developments continue, their enormous surveillance potential will leave individuals’ lives vulnerable to an unprecedented concentration of scrutiny and authority.”
— David Chaum 1991
In 1982, Chaum published a groundbreaking paper on “Blind Signatures”, an ingenious idea to enable anonymous transactions. Building on his idea, he founded the company DigiCash in the early 90s. His quest to enhance the privacy of us all in the digital age culminated in the invention of the first digital currency to ever exist — eCash.
With eCash, he created a system that allowed for anonymous and virtually untraceable transactions — banks had no chance of knowing what transactions belonged to which user.
While being able to sign some major banks (Deutsche Bank and others) for field tests, in the end it was the low adoption by merchants and users that led to its demise.
Nevertheless, eCash constituted a major milestone in the history of digital money. With privacy at its core, it set the stage for a lot of innovation and research in the coming decades. It’s interesting to point out though, that from a decentralization aspect there were still major issues, since DigiCash was indispensable as an intermediary that ensured the validity of each digital signature.
Te read the full story on this fascinating story, just click here.
1996 | An oncologist’s dream of digital gold
Douglas Jackson, an oncologist by day and self-taught programmer by night, had a dream.
A dream of creating a digital currency that would be independent of governmental control and completely backed by gold.
In 1996 he created e-gold and by the early 2000s his idea was growing and expanding at an ever increasing pace. At the time people thought it was an insanity to create a gold-backed currency, yet the success he had put his critics in their place.
“Encountering 141 solid bars’ worth of gold-backed currency circulating on the Internet, therefore, is a little like hauling a wriggling, gasping coelacanth up from the bottom of the sea: It’s a financial fossil come to life, calmly going about its existence despite decades of expert consensus that it couldn’t be anything but dead.”
— Julian Dibbell
Having over 3,5 million account in 165 countries, his digital currency was only second the payment provider PayPal at the time.
The ease of use and pseudonymity of his system led to some nasty consequences though. It turned out, that Eastern European hackers had found their perfect tool for transferring and laundering their dirty money.
Eventually, the immense pressure exerted by the Secret Service and the Department of Justice led to the bankruptcy of his ambitious idea.
E-gold gained an iconic status as a controversial alternative currency system loved by cypherpunks and libertarians. While being a centralized system, it was crucial in mass adoption and usage of digital currency though, as it gained real traction and adoption among users and merchants.
1997 | Adam Back and Hashcash
The prolific cryptographer Adam Back played an essential role in the history leading up to the advent of blockchain technology.
In 1997 he came up with an ingenious solution to a problem that began to annoy everyone using the nascent internet — spam. As it got easier and easier to send out this annoyance in huge numbers to email users all around the world, he found a way to potentially get rid of this. He named his creation hashcash.
Hashcash builds on the idea that some sort of cost should be introduced to use unmetered services online, such as emails. The way Hashcash worked was by obliging the sender of an email to solve a cryptographic puzzle.
If you simply send one or a few emails, this process is almost unnoticeable to you. But if you’re a malicious spammer, who want to send millions upon millions of spam emails, suddenly the time and the processing power it takes, is immense. And all this computing power needs electricity. Electricity that you’ll need to pay for. Voila, Proof of Work was born.
On a little side note, I think it is important to highlight that Hashcash wasn’t the first idea on this issue to be postulated. In 1992, Dr. Cynthia Dwork and Dr. Moni Naor published their research on how to combat junk-mail. Their proposed system used a different mathematical approach though. Adam Back’s idea was the one being used by Satoshi Nakatomo.
1998 | Wei Dai and b-money
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-anarchy 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).
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
He called is idea b-money and it was truly an exceptional one. He designed a decentralized and distributed system, in which every user was keeping a copy of the common ledger and he devised a couple of different ways in which his digital money would be created.
All of this was based on Adam Back’s aforementioned hashcash (Proof of Work) and he ended up being one of the few people being cited directly by Bitcoin’s mysterious founder Satoshi Nakamoto.
Explore the whole history and an explanation of b-money here.
1998 | Nick Szabo and Bit Gold
The best way for you to understand the importance and magnitude of this man and his ideas regarding the advent of blockchain technology is the following quote by the legendary and mysterious Satoshi Nakamoto herself (or himself/themselves):
“Bitcoin is an implementation of Wei Dai’s b-money proposal […] on Cypherpunks […] in 1998 and Nick Szabo’s Bitgold proposal,”
— Satoshi Nakamoto
A avid autodidact and studious learner, Szabo is well versed in economics, law and computer science. The conclusions he has drawn from his intensive studies about the origin of money and the problematic nature of third parties, led him to create his own concept for a digital currency which he proposed in 1998 — Bit Gold.
With the unique characteristics of gold in his mind, Szabo wanted to create something that was both scarce and digital, without this scarcity depending on any third party trust. In short, he wanted to create digital gold.
Bit gold was an attempt to replicate the economic properties of gold (gold’s unforgeable value) while improving its security properties.
In order to make his digital money scheme work, he used a combination of different concepts and ideas. At the core was Adam Back’s proof of work that was powering Back’s proposed hashcash, a process which brought a real world resource into the whole game — energy (for which you have to pay if you want to use it).
As if successfully proposing a revolutionary new digital currency system hasn’t been enough, Nick Szabo is also the father of smart contracts.
Contracts have always been at the heart of our economy. As a foundation of society, contracts have evolved and developed throughout history — yet, Szabo acknowledged that we needed a new type of contract for the digital age.
2003 | Emin Gün Sirer — It’s Karma
Emin Gün Sirer is a professor for computer science at the prestigious Cornell University and one of the most prolific contributors to both Bitcoin and ethereum.
He saw the enormous potential of decentralized peer-to-peer systems and was keen on finding a solution to the called freerider issue.
“It appeared that most people would just join the swarm of people sharing things. But they would take, and they would not give.”
— Emin Gün Sirer
The problem in the decentralized world was, that cooperation between the different participants in a given system was very difficult. Since the computers do not have a face and no reputation in the network, malicious activity that resulted in people using other people’s resources (only downloading files on LimeWire and not hosting any!) was the greatest challenge.
Starting in 2002, Emin Gün Sirer and two fellow students, Vivek Vishnumurthy and Sangeeth Chandrakumar, started working on their ingenious idea to solve this problem for good (pun intended) — an online currency, called Karma, to incentivise people to do good.
Their goal was to build one global currency, with no inherent monetary value, which could be used to download things. Sounds somewhat fuzzy and confusing? No worries, we’ll get to the explanation in a second!
What @Emin Gün Sirer and his two fellow students tried to ultimately achieve was a system which would nudge people into being good citizens by creating a nice environment, in which the participants would be encouraged to share their resources and to act on behalf of the system. (Blockchain anyone?)
And they did so by creating the first distributed mint based proof of work.
In the end Karma didn’t really gain a lot of traction, since it hasn’t really been actively pushed as a practical payment system by its creators and the circumstances were simply not the same like six years later, when Satoshi Nakamoto released his legendary whitepaper on Bitcoin in the midst of a tumultuous global financial crisis.
2004 | Hal Finney — Use Me One More Time
Hal Finney was a renowned and extremely active cryptographic activist, whose core values were centered around strengthening the digital privacy of us all.
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.
“The work we are doing here, broadly speaking, is dedicated to this goal of making Big Brother obsolete,”
— Hal Finney
Being an 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, 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.
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
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).
This is where Hal Finney started to design and to create an extraordinary solution to make these Proof-of-Works reusable and therefore durable — ergo Reusable Proof Of Work.
But 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 and also received the first Bitcoin transaction ever — directly from Satoshi.
2008 | Bit what? Bitcoin! — Hello world.
All of the people and ideas mentioned above helped to pave the way for the eventual creation of the first blockchain to exist.
In November 2008, the mysterious Satoshi Nakamoto published a whitepaper on a new digital, decentralized currency system — Bitcoin.
What is it that has libertarians, Wall Street professionals and Silicon Valley technologist equally excited throughout the past 10 years?
“Bitcoin is a peer-to-peer version of electronic cash that allows payments to be sent directly from one party to another without going through a financial institution. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work.”
– Satoshi Nakamoto
What Nakamoto managed to achieve is truly mesmerizing — he (we do not know what gender Satoshi has, but I’ll stick to the male pronoun for the ease of use) single handedly (there could also be more people behind the pseudonym) invented digital scarcity. Which is a pretty big deal.
“When I first heard about Bitcoin, I thought it was impossible. How can you have a purely digital currency? Can’t I just copy your hard drive and have your bitcoins? I didn’t understand how that could be done, and then I looked into it and it was brilliant.”
— Jeff Garzik
But an even bigger deal is that he invented a system which creates trust within people that don’t know each other. And that’s truly revolutionary.
Satoshi found a groundbreaking and mesmerizing solution to an old problem known as Byzantine Probleme. This problem describes the great challenge to coordinate resources among different participants and to find consensus. The problem is often described as a group of Byzantine generals who all besiege a city. Only if they attack at the same time, they will be able do win the battle — the only problem is that they need to find a way of how to trust each other to attack in a coordinated manner.
Bitcoin managed to achieve Byzantine Fault Tolerance and solved this problem elegantly. It does so by using a marvelous consensus mechanism known as Proof of Work (PoW).
If you’ve reached this point in the post I applaud you and thank you humbly to have read this article.
While only offering a glimpse into the fascinating history that led to the advent of blockchain technology, it can serve as a great starting point to further your journey into the blockchain space.
I thoroughly hope that you’ve enjoyed this article and walk away with a more nuanced and broadened understanding.
Yours truly
Till.
PS: If you want to further explore the mystic lands of blockchain, I`d love to invite you to check out my project blockwhat?, which tries to provide interested people with a sound understanding of everything blockchain.
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