5 Guys Who Inspired the Creation of Bitcoin
Crypto projects that preceded the Age of Cryptocurrency
Crypto freaks and geeks know Satoshi Nakamoto as that mysterious anonymous inventor of bitcoin. But did you know that none of the ideas he used to create bitcoin were his own? None of them were unique. In fact, they had all been discussed and experimented with by others before bitcoin saw the light of day. What the famed BTC creator did was bring them all together to change the world. Here are five digital currencies, and the people behind them, that inspired Satoshi to create the world's first super-powerful cryptocurrency, which has now hit an all-time high.
Digital Currency Precursors to Bitcoin
Each of these primitive digital currencies had a brilliant mind behind them, but they all fell short in some way that prevented them from catching on. Let’s discuss their strengths and weaknesses and then we can see how each development contributed to the making of bitcoin.
DigiCash
The first attempt to create a digital cash system was in 1989. The World Wide Web was still in the womb of its creator, British computer scientist Tim Berners-Lee, and wouldn’t come to fruition until 1990.
On the other side of the Atlantic, an American computer scientist named David Chaum was working on a security protocol based on a public-private key system intended to keep private communications from public view. He created what was called Blind Signature Technology and set up a company called DigiCash to allow individuals to send and receive electronic payments using his technology. At the time, of course, anyone who had large amounts of money kept it in a bank. Chaum was only able to get one U.S. bank and one bank in Germany, Deutsche Bank, to adopt his technology.
Unable to grow DigiCash, the company filed Chapter 11 bankruptcy in 1998.
E-gold
While DigiCash didn’t get too far, e-gold made great strides. Launched in 1996 by a company set up in Saint Kitts and Nevis, its U.S. operations were headquartered in Florida. By 2004, the company had a million accounts, and by 2006 the online company was processing more than $2 billion per year.
There were several key components that helped e-gold establish some early success. First, it received some great press. Both Barron’s and Wired wrote positively about the service. The Financial Times described it as “the only electronic currency that has achieved critical mass on the web." They also provided a means for e-commerce transactions to build on top of it through the use of an application programming interface (API), the first non-credit-card payment service to do so.
Many different types of businesses supported e-gold, including the Libertarian Party in California, the Electronic Frontier Foundation, and the Mozilla Foundation.
E-gold was backed by real gold coins held in a bank deposit box in Florida. But because of its early success and its ability to store value, it quickly became a target for all sorts of financial scams. The service is notorious for inspiring the first known phishing attack against a financial service online in June 2001.
Another problem e-gold faced was hackers. Many users thought the service allowed for anonymous transactions, however, even though users could create accounts with fake names, hackers could data mine login attempts and reverse engineer account ownership. In fact, law enforcement agencies used these techniques to catch criminals using the service.
There were other issues too. Fraud was rampant. Because the banking system at the time was not set up for digital transactions over the internet, there was a high degree of identity theft and check fraud overall. E-gold was not immune. Plus, cybercrime in general was increasing. E-gold came to be associated with the payment system of choice for financial criminals, child pornographers, and terrorists.
In 2006, the U.S. Treasury Department redefined what constitutes a money transmitter service and the U.S. Department of Justice indicted the founders of e-gold. Two years later, the founders settled with the DOJ and closed shop.
Hashcash
Adam Back wanted a stronger encryption protocol for email. In 1997, like most people, he was annoyed with the volume of email spam flooding his inbox, so he sought a solution. That solution turned out to be hashcash.
In a nutshell, the sender of an email message could use some of their computing power to solve a mathematical computation, which would in turn create a header line in the email consisting of some code that would require the recipient of the email to verify. Back theorized that spending the small amount of computing energy to send an email would be counterproductive since spammers tend to send many emails at once. The cost of each hash process adding up incrementally would deter the effort.
Hashcash never caught on for fighting email spam, but it did become the basis for bitcoin mining.
B-money
I’ve found no evidence that b-money was ever implemented, but its proposer, a computer engineer by the name of Wei Dai, offered two proposals for a digital currency based on creating money by solving a computational problem. The year was 1998.
Dai’s proposed system would rely on three primary values:
Two people who would agree on the cost of computing power used to solve the computational problem;
The ability to enforce the contract between them through an arbitrator;
And the ability for the two parties to operate and transact anonymously.
While Dai never implemented the protocols he proposed, his proposal was referenced in the bitcoin whitepaper published by bitcoin’s mysterious creator.
Bit gold
Another development in 1998 that led to the development of bitcoin is a proposal by Nick Szabo, another computer scientist. Like b-money, Bit gold was never implemented, but its central idea was adopted by Satoshi Nakamoto for the implementation of bitcoin.
Szabo wanted to mimic the decentralized nature of gold as an asset with security and trust characteristics.
Gold is a natural resource. As such, it isn’t controlled by any central authority. Gold investors can buy and sell and trade gold as a commodity. What’s more, gold has the ability to store and hold value. Szabo reasoned that if these qualities could be duplicated with a digital currency, then anyone could buy, sell, or trade freely without the need for an intermediary.
Szabo’s bit gold would use a similar proof-of-work system as Back’s hashcash. The problem Szabo couldn’t solve was the double-spend problem. How would users prevent transactions from going through twice, or being hijacked by a third party and duplicated with the duplicated currency going to an unknown wallet address with no traceability? Nakamoto solved the problem when he introduced bitcoin ten years later.
Who Would You Call Satoshi Nakamoto's 12 Disciples?
In a previous post, I mentioned I got a book deal. In fact, I'm writing a book on the intersection between blockchain technology and social media. One chapter of the book, currently titled "The Rise and Rise of Cryptocurrencies," will deal with the history of bitcoin and cryptocurrencies. One section of that chapter will discuss some of Satoshi Nakamoto's most important torch bearers after he exited stage left. This is where I could use your help. Who would you name among Satoshi's 12 disciples?
In other words, what 12 blockchain and cryptocurrency pioneers after Satoshi's disappearance have had the most influence on the development of blockchain technology?
Thanks for reading, see ya soon!
Allen Taylor is a freelance writer honed in on the cryptocurrency, blockchain, and fintech sectors.