While my focus in the years after the financial crisis was to climb as high as I could in the establishment, a group of zealots called the cypherpunks were challenging the establishment.
These computer scientists, political-edge cases, and contrarians were concerned about privacy and personal liberty. They believed that corporations and governments had become too powerful. They'd been communicating with one another for years through an email list that had been going strong since the first days of the Internet Bulletin Board System in the 1980s.
The cypherpunks considered cryptography to be an important tool for thwarting surveillance. They developed new ways for people to communicate using digital cyphers, which required the use of private keys.
In the mid-2000s, computer networks became exponentially more powerful, and social media introduced the world to new data-mining vulnerabilities. By that time, many of the cypherpunks had created organisations that were fighting for libertarian policies in the courts and on the Internet.
In Washington DC, cypherpunk Mitch Kapor's Electronic Frontier Foundation was battling AOL at the Federal Trade Commission, alleging AOL engaged in deceptive and unfair trade practices by disclosing the search queries of 650,000 users.
In Silicon Valley, cypherpunk Bram Cohen's peer-to-peer file-sharing programme, BitTorrent, had drawn blood from big telecom in 2006, after Comcast had throttled the BitTorrent service. Cohen, who self-diagnosed his Asperger's Syndrome, sued and won a federal lawsuit, one of the first skirmishes in the net neutrality war.
The cypherpunks were outstanding at coming up with new ways to send information privately, but they struggled to find a way to transact value privately. A functional underground community required that two parties be able to conduct business outside of surveillance. If their messages were private but their exchange of digital money was not, the entire transaction was still compromised.
They believed the answer would be found by utilising distributed computing, which uses multiple unconnected computers to complete a task. They worked on different ways to establish a public ledger (i.e. a third-party ledger) that was maintained by multiple nodes (computers) and did not rely on any one party to validate the exchange. In a distributed-or decentralized-system, if any node was compromised, the remaining untainted nodes could still ensure the transaction was completed.
It was an elusive goal, and they had several false starts. The Hashcash and Digicash projects achieved breakthroughs but ultimately didn't work. The two most difficult challenges were removing every single point of failure and preventing "double spends,” which could occur if the same money was sent to two different parties.
In October 2008, a person or persons named Satoshi Nakamoto sent an email to the cypherpunk email list, introducing Bitcoin. He said he'd solved the digital money problem. He attached a nine-page white paper explaining how he'd done it.
"In this paper, we propose a solution to the double-spending problem using a peer-to-peer distributed timestamp server to generate computational proof of the chronological order of transactions."
Satoshi proposed that each peer-to-peer transaction be arranged into a block of transactions. It would then be chained to the previous block by the node that wins a race to solve a computational puzzle. The winning node receives bitcoin in return. In this way, bitcoin was an entirely new currency that would be distributed to the computers that added their power to the network. As Satoshi wrote, “The steady addition of a constant amount of new coins is analogous to gold miners expending resources to add gold to circulation."
This is an extract from Dan Conway's Cypto Millionaire published by Zealot Publishing