Could Bitcoin Have Launched in the 1990s – Or Was Satoshi Waiting?

This year, October 31 marked the 14th anniversary of the publication of one of the most important white papers of this century – “Bitcoin: A Peer-to-Peer Electronic Cash System” by Satoshi Nakamoto. Its 2008 publication sparked a “revolution in finance” and “heralded a new era for money, an era that derived its value not from government decree but rather from technological skill and ingenuity” , as NYDIG celebrated in its November 4 newsletter.

However, many are unaware that Satoshi’s nine-page white paper was met with some initial skepticism, even among the cypherpunk community where it first surfaced. This reluctance may be understandable since previous attempts to create a cryptocurrency have failed – David Chaum’s Digicash effort in the 1990s, for example – and at first glance it didn’t seem like Satoshi was bringing anything either. something new in terms of technology.

“It was technically possible to develop Bitcoin in 1994,” Jan Lansky, head of the Department of Computer Science and Mathematics at the University of Finance and Administration in the Czech Republic, told Cointelegraph, explaining that Bitcoin is based on three technical improvements that were available at that time: Merkle trees (1979), blockchain data structure (Haber and Stornetta, 1991) and proof of work (1993).

Peter Vessenes, co-founder and chief cryptographer at Lamina1 – a layer 1 blockchain – basically agreed: “We certainly could have mined Bitcoin” in the early 1990s, at least from a technical standpoint, said. he told Cointelegraph. The necessary cryptography was in hand:

“Bitcoin’s elliptic curve technology is a technology from the mid-1980s. Bitcoin doesn’t need in-band encryption like SSL; the data is unencrypted and easy to transfer.

Satoshi sometimes gets credit for establishing the proof-of-work (PoW) protocol used by Bitcoin and other blockchain networks (but most Ethereum) to secure digital ledgers, but there too he had a track record. “Cynthia Dwork and Moni Naor suggested the idea of ​​proof-of-work to combat spam in 1992,” Vessenes added.

PoW, which is also effective in thwarting Sybil attacks, sets a high economic price for any modification to the digital ledger. As explained in a 2017 article on Bitcoin’s origins by Arvind Narayanan and Jeremy Clark, “In Dwork and Naor’s design, email recipients would only process emails accompanied by proof that the sender had done a moderate amount of computational work – hence, ‘proof of work.’” As the researchers further noted:

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“Computing the proof might take a few seconds on an ordinary computer. Thus, this would pose no difficulty for regular users, but a spammer wishing to send a million e-mails would require several weeks, using equivalent hardware.

Elsewhere, “Ralph Merkle invented Merkle trees in the late 1980s – so we had hash functions that were secure for the time,” Vessenes added.

So why did Satoshi succeed while others failed? Wasn’t the world just ready for a decentralized digital currency earlier? Were there still technical limitations, such as accessible computing power? Or perhaps Bitcoin’s true constituency had yet to come of age – a new generation wary of centralized authority, especially in light of the Great Recession of 2008?

Establish “trustless” systems

David Chaum has been called “perhaps the most influential person in cryptocurrencies”. His 1982 doctoral thesis, Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups, anticipated many of the things that would eventually find their way into the Bitcoin network. He also presented the key challenge to be solved, namely:

“The problem of establishing and maintaining computer systems that can be trusted by those who do not necessarily trust themselves.”

Indeed, an academic exploration of the origins of blockchain technologies by four University of Maryland researchers hailed “the 1979 work of David Chaum, whose vault system embodies many elements of blockchains.”

In an interview with Cointelegraph last week, Chaum was asked if Bitcoin really could have been launched 15 years earlier, as some claim. He agreed with researchers at the University of Maryland that all of the key elements of blockchain were already present in his 1982 thesis – with one exception: Satoshi’s consensus mechanism:

“The specifics of [i.e., Satoshi’s] the consensus algorithm is different, as far as I know, from those in the consensus algorithm literature.

When asked for specifics, Chaum was reluctant to say much more beyond the fact that the 2008 white paper described a “somewhat ad hoc… crude mechanism” that “might actually work – more or less.”

In a recently published book, Oxford University social scientist Vili Lehdonvirta also focuses on the uniqueness of this consensus mechanism. Satoshi rotated the cryptocurrency custodians/validators – better known today as “miners” – approximately every 10 minutes.

Then, “the next randomly named admin would take over, recheck the previous block of records, and add their own block to it, forming a blockchain,” writes Lehdonvirta in cloud empires.

The reason for the rotation of miners, according to Lehdonvirta, was to prevent system administrators from becoming too entrenched and, thus, to avoid the corruption that inevitably accompanies a concentration of power.

Even though PoW protocols were well known at this point, the specifics of Satoshi’s algorithm “really came out of nowhere…it wasn’t planned,” Chaum told Cointelegraph.

“Three Fundamental Breakthroughs”

Vinay Gupta, founder and CEO of startup Mattereum, who also helped launch Ethereum in 2015 as release coordinator, agreed that most of Bitcoin’s key components were available when Satoshi arrived, although it differs on part of the timeline. “The coins themselves just weren’t ready until at least 2001,” he told Cointelegraph.

“Bitcoin is a combination of three fundamental breakthroughs in addition to public key cryptography – Merkle trees, proof of work and distributed hash tables,” all developed before Satoshi, Gupta said. There were also no problems with network hardware and computer power in the 1990s. “It was the basic algorithms that were the slow part […]. We just didn’t have all the basics of Bitcoin until 2001. Cryptography was first, and the super-smart network layer was last.

Garrick Hileman, visiting scholar at the London School of Economics, also cited a later date for the technical feasibility of Bitcoin:

“I’m not sure the early 1990s is a strong statement because some of the earlier work referenced in Satoshi’s white paper – e.g. Adam Back’s hashcash/proof-of-work algorithm – was developed and/ or published in the late 1990s or later.”

Waiting for a favorable social climate

What about non-technical factors? Maybe Bitcoin was waiting for a demographic cohort that grew up with computers/cellphones and suspicious banks and centralized finance in general? Did BTC need a new socio-economic consciousness to flourish?

Millennials Alex Tapscott writes in his book Financial Services Revolution:

“For many of my generation, 2008 marked the start of a lost decade of structural unemployment, sluggish growth, political instability and the erosion of trust in many of our institutions. The financial crisis exposed the greed, malfeasance and outright incompetence that had driven the economy to the brink of collapse and led some to ask, “How far has the rot gone?” »

In a 2020 interview with Cointelegraph, Tapscott was asked if Bitcoin could have happened without the financial upheaval of 2008. Given “historically high unemployment rates in countries like Spain, Greece and Italy, there is little doubt that the resulting lack of trust in institutions has led many to view decentralized systems like blockchain more favorably,” he replied.

Lansky seemed to agree. There was no social need or demand for a decentralized payment solution in the 1990s “because we didn’t have enough experience with centralized solutions not working,” he said. he told Cointelegraph.

“Bitcoin was undeniably a cultural product of its time,” Vessenes added. “We wouldn’t have a decentralized push without that DNA of distrust of central government technological controls.”

Bring it all together

All in all, you can come and go arguing over who contributed what and when. Most agree, however, that most of the pieces were in place in 2008, and Satoshi’s real gift may have been how he was able to pull it all together – in just nine pages. “No part of Bitcoin’s fundamental mechanics is new,” Gupta reiterated. “The genius lies in combining these three existing components – Merkle trees, hash money and distributed hash tables for networking into a fundamentally new whole.”

But sometimes the historical environment must also be conducive. Chaum’s project failed “because there wasn’t enough interest in the service” at the time, among other reasons, according to Lansky. Satoshi Nakamoto, by comparison, had perfect timing. “He invented Bitcoin in 2008, when the mainstream financial system was failing,” and the founder’s disappearance from the scene in 2010 “only strengthened Bitcoin, as development was taken over by his community.”

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It should also be remembered that technological progress is almost always a collaborative effort. While Satoshi’s system looks “radically different from most other payment systems today,” Narayanan and Clark wrote, “these ideas are quite old, dating back to David Chaum, the father of digital money.”

Satoshi clearly had precursors – Chaum, Merkle, Dwork, Naor, Haber, Stornetta and Back, among others. Says Gupta: “Credit where credit is due: Satoshi stood on the shoulders of giants.”

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