Before Bitcoin – A brief history of how we got here

Before Bitcoin – A brief history of how we got here

The bitcoin whitepaper was released by Satoshi Nakamoto, the pseudonym used by bitcoin’s creator or creators, on October 28, 2008. Bitcoin’s mint date is said to be January 3, 2009 which represents the official launch date.

Bitcoin seemingly ”overnight success” is in fact been over 40+ years in the making.

You see, Bitcoin it’s NOT an overnight success story.

It’s the result of many technical advancements throughout the years slowly iterating towards the vision of digital version of money.

The prehistory is as fascinating as the post Bitcoin launch too.

I came across this amazing Bitcoin Prehistory timeline that sums up the many technical achievements that were required to be assembled together to create Bitcoin.

Each one of these played an instrumental part and creating Bitcoin.

Let’s explore some of these achievements

1974 – The TCP/IP protocol

The first major innovation of the information age was in 1974 with the invention of the TCP/IP protocol by Robert E. Kahn and Vinton Cerf.

They drew on the experience from the ARPANET (the internet’s predecessor) community and the International Networking Working Group to develop this new a four-layer model.

These two internet pioneers are responsible for the underlying protocol of the internet we know today. This is where IP addresses were created and became the baseline identifier for every node or computer on the internet.

TCP/IP and the internet provided the ecosystem and the eventual need for a way to transfer value across time and space,

1977 – RSA public Key Cryptosystems

RSA stands for Rivest–Shamir–Adleman which is the surnames of Ron Rivest, Adi Shamir and Leonard Adleman, who publicly described the public-key cryptosystem algorithm in 1977.

RSA is a public-key cryptosystem that is widely used to secure data being sent over a network. It is also one of the oldest algorithms. The three founders made several attempts over the course of a year to create a one-way function that was hard to invert and eventually succeeding with a patent granted to MIT on 20 September 1983.

U.S. Patent 4,405,829 “Cryptographic communications system and method“. From DWPI’s abstract of the patent:

The system includes a communications channel coupled to at least one terminal having an encoding device and to at least one terminal having a decoding device. A message-to-be-transferred is enciphered to ciphertext at the encoding terminal by encoding the message as a number M in a predetermined set. That number is then raised to a first predetermined power (associated with the intended receiver) and finally computed. The remainder or residue, C, is… computed when the exponentiated number is divided by the product of two predetermined prime numbers (associated with the intended receiver).

This innovation formed a good baseline for addtional algorithms like the SHA256 used in Bitcoin.

The NSA developed SHA256. It was the first Secure Hash Algorithm (SHA) and Bitcoin uses the SHA256 version. This algorithm is the puzzle maker. It’s a little program with a set of instructions for how to scramble up the data provided to it. This is what creates the encryption. Seed phrase input, scrambled/encrypted output.

For SHA256, the output is a 256-bit number.

1982 – The First Blockchain

David Lee Chaum is a pioneer in cryptography and privacy-preserving technologies, and most famously known as the inventor of digital cash.

In his 1982 dissertation called “Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups” is the first known proposal for a blockchain protocol.

Chaum’s DigiCash was an early form of electronic payment, which required user software to withdraw notes from a bank and designate specific encrypted keys before it can be sent to the recipient.

This was a huge advancement of public and private key cryptography at the time. It was the first time electronic payments could become untraceable by the issuing bank, the government, or a third party.

The DigiCash Blind Signatures system improved security using secured keys, which prevented third parties from accessing personal information through online transactions.

It was brilliant and a huge part of how Bitcoin works today.

1988 – Crypto Anarchist Manifesto & The Cypherpunks

In his 1988, Timothy C. May the founder of the crypto-anarchist movement introduced the basic principles of crypto-anarchism, encrypted exchanges ensuring total anonymity, total freedom of speech, and total freedom to trade in this message below.

The term “cypherpunk” is any individual advocating widespread use of strong cryptography and privacy-enhancing technologies as a route to social and political change. Originally communicating through the Cypherpunks electronic mailing list, informal groups aimed to achieve privacy and security through proactive use of cryptography. Cypherpunks have been engaged in an active movement since at least the late 1980s.

The Crypto Anarchist Manifesto pictured below was a wild prediction in the late 80s but was a huge part in the grassroots push closer to where we are with Bitcoin today.

These were the seeds to the decentralized technologies we have today.

1993 – Concept of Proof of Work Invented

The concept of Proof of work was invented by Cynthia Dwork and Moni Naor as a way to deter internet denial-of-service attacks and other challenges like spam. Their concept required some work to be performed from a service requester, usually meaning in the form of processing time by a computer.

Proof of work is the foundation for consensus in the Bitcoin permission-less decentralized network.

Source: Ledger

1994 – Cybercash Internet Payments

CyberCashwas an internet payment service for ecommerce launched in 1994. The system provided an online wallet for consumers and provided software to merchants to accept credit card payments.

They also eventually offered “CyberCoin,” a micropayment system modeled after the NetBill research project.

1996 – E-gold

E-gold was a digital gold currency operated by Gold & Silver Reserve founded by Douglas Jackson and Barry Downey in 1996. They backed the e-gold services accounts with physical gold stored in a bank safe deposit box.

It was the first successful digital currency system to gain a widespread user and merchant adoption and it was also the first non-credit-card payment service provider to offer an API for external integrations.

E-gold’s capability of immediate settlement was a key proof of concept for peer-to-peer transfers of digital rights such as “smart contracts”.

1996 – “How To Make A Mint: The Cryptography of Anonymous Electronic Cash”

A report, written and published by the NSA in 1996 describes a model for anonymous electronic cash.

The report goes into details about the basic concepts surrounding electronic payment systems and electronic cash and provides a high level cryptographic description of electronic cash protocols in terms of basic authentication mechanisms and possible security issues.

1997 – Hashcash, DOS Counter measures with Proof of Work

Hashcash is a proof-of-work system originally invented to limit email spam and denial-of-service attacks. In 1997 creator Adam Back proposed that it should be used in the Bitcoin mining process as part of the algorithm.

The Bitcoin network employs a different hash-based proof-of-work challenge than Hashcash where the Bitcoin miner runs a computer program that collects unconfirmed transactions from users on the network to form a “block” and earn a reward if the block is accepted by the network.

Hashcash was a major stepping stone on the road to Bitcoin’s implementation.

1998 – Bit Gold

Nick Szabo designed a decentralized digital currency called “bit gold” that was never implemented. Many people consider this design as the direct precursor to the Bitcoin.

With Bit Gold, a user would dedicate their computing power to solving cryptographic puzzles by sending them to a public registry and assigning each with a public key of the solver.

Each solved puzzle would become part of the next cryptographic puzzle, creating a growing chain and most importantly a way for the network to verify and time-stamp new coins. If the majority of the parties agreed to accept new solved puzzle, they couldn’t start on the next puzzle.

Nick was focused on solving the “double-spending problem” where data can be reproduced by simply copying and pasting. Most currencies solve this problem with a centralized third party to control and keeps track of each account’s balance.

“I was trying to mimic as closely as possible in cyberspace the security and trust characteristics of gold, and chief among those is that it doesn’t depend on a trusted central authority,” Nick Szabo

2004 – Reusable proof of work

Hal Finney built on the proof-of-work idea, creating a new system that exploited reusable proof of work which laid the foundation to token money.

Just like real gold’s value is linked to work involved and the gold mining cost, the value of an reusable proof of work token is guaranteed by the value of the real-world resources required to ‘mint’ a PoW token.

2004 to 2007

The mid-2000s brought a whole bunch of innovation on the internet including companies like PayPal that allowed you to transact online and buy good all over the world using the traditional financial system.

This led to a huge growth in e-commerce and a great shift in consumer behavior.

This was also the time that Amazon started to gain greater market share over the retail sector, aiding in the massive shift in consumer adoption to buying online.

All of this helped pave the way to the need for a digital currency like Bitcoin.

2008 Bitcoin launches

On 18 August 2008, was registered and then on 31 October 2008, a link to a paper authored by Satoshi Nakamoto titled Bitcoin: A Peer-to-Peer Electronic Cash System was posted to a cryptography mailing list.

Satoshi released the open-source bitcoin software source code in January 2009 and still to this day, his identity remains unknown.

I hope you enjoyed this prehistory of Bitcoin as much as I did researching and learning more about it I had a lot of links out to Wikipedia and other white papers and documents throughout this article in the event you want  go further down the rabbit hole.

Nick Szabo goes down deeper into the history of Bitcoin in this Bitcoin 2022 conference presentation.

Want to go even further back before Bitcoin, check out this “Before the web” video for some nostalgia..

Here’s another great Bitcoin Prehistory timeline.

As usual if you have a question leave it in the comment below and I would be delighted if you gave this a like and share it out to your network.

Take care and have a great!

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