single-image

Planting Bitcoin  Part Three: Soil

Dan Held is the founder of crypto portfolio service Picks & Shovels. He previously founded data service ZeroBlock, which sold to Blockchain, and served as VP of product at ChangeTip. 

This exclusive opinion piece is part of CoinDesk’s “Bitcoin at 10: The Satoshi White Paper” series.


In my last article, “Seasons,” I covered the precise moment in which Satoshi planted Bitcoin, the 2008 Financial Crisis. In this article, I cover the Cypherpunks or the “Soil” in which he planted the Bitcoin seed giving it the best chance for success.

 (I’ve paired this song to “Soil” because I think it fits the feel of the piece and adds additional depth. If you enjoy listening to this, please follow my playlist on Spotify.)

Cypherpunks

Sending the Bitcoin white paper to the cryptography mailing list on October 31, 2008 was the obvious choice.

This was the right group to gather feedback from, the right channel to engage with. The list was predominately populated by the Cypherpunks* who were activists advocating widespread use of strong cryptography, as a route to social and political change.

*”Cypherpunks” is a play on the word ‘cipher’ or ‘cypher’, for encryption; and cyberpunk a genre of sci-fi.

The group was originally comprised of Eric Hughes, Tim May and John Gilmore. At first, the meetings were in-person meetings in the San Francisco Bay Area, but they decided to expand the group via the cryptographer mailing list which would allow them to reach other Cypherpunks.

The mailing list was a place to exchange ideas freely through the use of encryption methods, such as PGP, to ensure complete privacy. The basic ideas behind this movement can be found in the Cypherpunk manifesto written by Eric Hughes in 1993. The key principle which underpins the manifesto is the importance of privacy and finality in transactions — PetriB

“Therefore, privacy in an open society requires anonymous transaction systems. Until now, cash has been the primary such system.” — A Cypherpunk’s Manifesto

We want the ability to ensure that others cannot use the information in the history of our transactions against us. For example: a purchase indicating that someone is wealthy, an embarrassing purchase, or one that would make you subject to spam or harassment. We do not want our financial purchase to haunt us further down the road. We want an endpoint beyond which we do not have to worry about further contingencies.

In the world of payments, this is closely related to the concept of “finality” — ideally we want to be able to state with certainty that at some point the payment has been made, the debt has been cleared, and the funds are secure. But recent developments have increased the ability for more powerful parties to clawback funds (via trusted third parties, legal funds, etc).

We hope that existing laws would provide protection against these difficulties. However, we can remove that moral hazard by not having to trust third parties or more powerful adversaries which can revert transactions solely based on their capabilities. This is what the Cypherpunks were fighting for with cryptography.

They were the “Men of words,” or anti-establishment intellectuals that laid the foundation for individuals like Satoshi to come along.

“The words of anti-establishment intellectuals sow the seeds for revolution. They present ideas and sometimes discredit the establishment, paving the way for a charismatic leader to package their thinking into a movement.” — Tony Sheng

Elliot Alderson, the “Cypherpunk” in the fictional show “Mr. Robot.” He joins a group that aims to destroy all debt records by encrypting the financial data of the largest conglomerate in the world, E Corp.

The first attempts at making an anonymous transacting system were made by Cypherpunks on that cryptographer mailing list, including:

  • Adam Back, the inventor of hashcash, the proof-of-work (PoW) system used by several anti-spam systems. A similar PoW system is used in bitcoin
  • Nick Szabo, designed a mechanism for a decentralized digital currency he called “bit gold.” Bit gold was never implemented, but has been called “a direct precursor to the Bitcoin architecture”
  • Wei Dai, who published “b-money”, an “anonymous, distributed electronic cash system”
  • Hal Finny, who created the first reusable proof of work system before Bitcoin (And in January 2009 he became Bitcoin network’s first transaction recipient). He was also a developer of the secure communication method known as Pretty Good Privacy (PGP)
  • David Chaum, founded DigiCash (1989) as a form of centralized “electronic money” that deployed the same kinds of cryptographic protocols — public key cryptography — that support the nature of bitcoin transactions. It is often called “Chaumian eCash.”

Satoshi cites many of these Cypherpunks in the Bitcoin whitepaper and references their influence on Bitcoin’s development in public statements made post code launch.

“Bitcoin is an implementation of Wei Dai’s b-money proposal… and Nick Szabo’s Bitgold proposal” — Satoshi Nakamoto

In fact, Satoshi thought he was late to cryptocurrency! While the Cypherpunks had attempted many times to genetically code a species of money that would survive, none had been successful.

“A lot of people automatically dismiss e-currency as a lost cause because of all the companies that failed since the 1990’s. I hope it’s obvious it was only the centrally controlled nature of those systems that doomed them. I think this is the first time we’re trying a decentralized, non-trust-based system.” — Satoshi Nakamoto

He had written the white paper to fit his target audience, the Cypherpunks. That’s why he uses the words “electronic cash,” “proof-of-work,” etc. which was previously used terminology in the other Cypherpunk white papers. He uses an e-commerce example to make it easier for everyone to comprehend.

He’s crafting a narrative that will resonate with the Cypherpunks, to get them interested and involved. Bitcoin was the holy grail — it had solved the problem of finality and provided a small measure of privacy. The source code implementation was his product spec.

“The functional details are not covered in the paper, but the sourcecode is coming soon.” — Satoshi Nakamoto

The following things not described in the whitepaper, but are included in the source code: 21M hard cap, 10 minute blocks, 1 MB block caps. Those were incredibly important components of Bitcoin. The whitepaper was merely a teaser.

“If the Bitcoin Whitepaper is the Declaration of Independence, the Source Code is the Constitution.” —  Pierre Rochard

In true Cypherpunk fashion, the publication of Satoshi’s white paper (October 2008) was quickly followed by code release in January 2009. The notion that good ideas need to be implemented, not just discussed, is very much part of the culture of the mailing list.

Cypherpunks write code. We know that someone has to write software to defend privacy, and since we can’t get privacy unless we all do, we’re going to write it. We publish our code so that our fellow Cypherpunks may practice and play with it. Our code is free for all to use, worldwide…We know that software can’t be destroyed and that a widely dispersed system can’t be shut down.” — A Cypherpunk’s Manifesto

Importantly, Satoshi didn’t pre-mine any Bitcoins. Satoshi gave the Cypherpunks a two month heads up before mining the Genesis block. To prove fairness, he included a proof of no premine timestamp in the Genesis Block of the Bitcoin blockchain.

It carried a strong political message. What he was trying to accomplish was clear — they were building a new financial system. Bitcoin wasn’t merely digital cash, it was an alternative to banks.

“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks” — Genesis Block

Part 4… “Gardening”

In Part 4, I will cover Satoshi’s involvement with the early software development and community or his “Gardening” of bitcoin.

Rows of plants via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Leave a Comment

You may also like

Bitcoin

$25 Million in 2 Weeks: BlockFi Booms as Bitcoin, Ether Investors Seek Interest

single-image

The Takeaway

  • BlockFi’s interest-yielding deposit accounts, launched in beta in January and fully live this month, have attracted more than $35 million in crypto. Most of it is being lent to institutional borrowers.
  • BlockFi’s terms of service give the company significant leeway over how it uses depositors’ funds and what interest rate it can pay them. This flexibility is needed for the company to grow fast, CEO Zac Prince says.
  • Institutional investors borrow crypto at individualized terms, at interest rates from 4 to 12 percent, and BlockFi can call in the loans at any time.
  • When crypto prices move dramatically, BlockFi manages risks by making borrowers put up more collateral or selling some of it.
  • BlockFi is planning to roll out new products every six months and raise more capital.

–––––––

BlockFi wasn’t the first lending startup in the cryptocurrency market, but it’s likely the one getting the most attention these days — including some heat from community…

View More Article
Bitcoin Blockchain

Winklevoss Capital Partner Sterling Witzke: Dollar Is Not Designed for the Internet, but Stablecoins Are

single-image

Sterling Witzke has been working at Winklevoss Capital — a venture capital firm set up by the famous Winklevoss twins — for five years now. As a professional investor, she is very interested in financing early stage crypto and blockchain projects. She believes that stablecoins are perfectly designed for the needs of internet payments and will steadily gain popularity as the industry evolves.

We talked to Sterling Witzke about the future of fiat-pegged cryptocurrencies, the necessity of proper legal frameworks and the future of the maturing crypto industry.

Clarity is always good for an ecosystem

Ana Berman: How do you think, what will 2019 bring in terms of regulation? The question is related to the ads that Gemini recently launched, which said, in particular, “Crypto needs rules.” Don’t you think it undermines the whole idea of decentralization?

Sterling Witzke: The short answer is no….

View More Article
Bitcoin

Cryptopia Crypto Exchange Resumes Trading on 40 Crypto Pairs

single-image

New Zealand-based cryptocurrency exchange Cryptopia has resumed trading on 40 trade pairs, according to a tweet from the firm on March 18.

In the tweet, the company announces that it has “resumed trading on 40 trade pairs that we have quantified as secure. We will continue to expand this list as we clear more coins.” The update follows the exchange’s recent announcement of the plans to reopen trading on its platform by the end of March, following a $16 million hack in mid-January.

In January, Cryptopia suspended services after detecting a major hack that reportedly “resulted in significant losses.” The platform had initially informed the public it was undergoing unscheduled maintenance, issuing several updates before officially disclosing the breach.

After the initial reports of the hack, further evidence reportedly surfaced that hackers were…

View More Article