In 2008, humanity faced an unprecedented financial tempest known as the "subprime mortgage crisis." Governments around the world were scrambling to respond to the crisis. In order to tackle the global crisis, the world's financial system, led by the U.S. Federal Reserve, began to engage in massive monetary easing, increasing the issuance of paper currency to stimulate economic recovery. This "poison pill" approach left many disappointed with governments, prompting cryptographers to establish a decentralized digital currency system. This is the context in which Bitcoin was born.
Bitcoin is one of the greatest innovations of the 21st Century. However, innovation is never instantaneous, it is rather a spiraling ascent built upon the shoulders of predecessors. The birth of Bitcoin has undergone countless iterations of technological inheritance, innovation, and development. The earliest ideas behind Bitcoin's technology can be traced back to the "cypherpunk" movement of the previous century.
"Cypherpunks" is an organization formed spontaneously by a group of genius geeks and IT elites, aiming to protect individual privacy through encryption algorithms. This organization lacks a formal leadership structure and generally communicates through encrypted mailing lists.
The origin of the cypherpunks dates back to 1992 when three retired tech experts, Eric Hughes, Tim May, and John Gilmore, invited over twenty friends for an informal gathering to discuss various cryptographic issues. By the end of that year, Tim May officially launched the "cypherpunks" mailing list organization. As the cypherpunk movement gained momentum, their mailing list quickly became popular, attracting a growing number of subscribers. Every day, numerous topics were discussed, encompassing mathematics, encryption technology, computers, politics, and philosophy. Countless imaginative ideas emerged from these discussions.
In 1993, Eric Hughes wrote a book titled "A Cypherpunk's Manifesto," which combined the ethos of computer punk culture and emphasized the use of encryption methods to protect personal privacy data. This book marked the first explicit use of the term "cypherpunk." By this point, after about a year of development, the cypherpunk organization had grown to include around 1,400 members, many of whom were IT elites. Notable members included Julian Assange, the founder of WikiLeaks; Tim Berners-Lee, the inventor of the World Wide Web; Nick Szabo, the father of smart contracts; and, of course, the creator of Bitcoin, Satoshi Nakamoto.
It is said that before the invention of Bitcoin, members of the "cypherpunks" group had discussed and even created dozens of digital currencies. Here, we briefly introduce two digital currencies that had the most significant impact on Bitcoin's development.
2.1 Hashcash
Hashcash was created by Dr. Adam Back in 1997. It serves as a proof-of-work system designed to prevent spam emails and denial-of-service attacks. Essentially, it functions as an anti-spam mechanism by increasing the time and computational power required for sending emails, thus raising the cost of sending spam, as senders have to prove that they have expended computational effort to create a "stamp" in the email header, similar to proof-of-work, before they can send the email.
Bitcoin's proof-of-work mechanism (PoW) is derived from Hashcash. In Satoshi Nakamoto's Bitcoin whitepaper, a specific reference is made to Back's Hashcash, acknowledging Dr. Adam Back's contribution to the development of the proof-of-work algorithm for Bitcoin.
2.2 B-Money
In 1998, Chinese cryptographer Wei Dai posted a proposal called B-Money on the "cypherpunks" mailing list. This proposal was described in text only, without corresponding code implementation. In Wei Dai's vision, B-Money aimed to be a distributed and anonymous electronic cash system. B-Money had two core functionalities: ① Token generation through PoW mechanism and ② Distributed ledger.
The B-Money proposal first explains the process of generating tokens through a PoW mechanism. The logic of B-Money is strikingly similar to that of Bitcoin, as computational resources are used to solve computational puzzles and generate corresponding tokens. The process of a distributed ledger is then described. In B-Money, both the sender and receiver do not have real names and only possess public keys. The sender signs the transaction with a private key and then broadcasts it to the entire network. Each network node maintains a large ledger containing records of all transactions. B-Money's core technological concept closely resembles today's mainstream cryptocurrencies.
However, B-Money did not find a solution to the double-spending problem and still relied on centralized trust for transactions. Additionally, B-Money lacked many concepts found in Bitcoin, such as the blockchain, total issuance, timestamps, and more. The aspects missing in B-Money provided direction for Bitcoin's innovations.
On November 1, 2008, a mysterious figure named Satoshi Nakamoto published a paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System" on the cryptography forum "metzdowd.com." The paper detailed how to create a novel cryptographic currency system called "Bitcoin." This system was built upon a foundation of complete decentralization, eliminating the need for trust and centralized institutions, addressing issues related to currency circulation and issuance in a decentralized context.
As explained by Satoshi Nakamoto, Bitcoin is entirely peer-to-peer and decentralized, removing the necessity for trusted third parties to facilitate transactions. By introducing concepts like timestamps and peer-to-peer payments, Bitcoin effectively solved the double-spending problem. Additionally, Bitcoin allowed participants to remain anonymous while ensuring security through the proof-of-work (PoW) consensus algorithm.
On January 3, 2009, Satoshi Nakamoto mined the first block of Bitcoin, known as the Genesis Block, using a small server in Helsinki, Finland. This marked the birth of Bitcoin and earned Nakamoto the initial block reward of 50 Bitcoins. To ironically reference the cyclical crises of the traditional financial system, Nakamoto included the headline from that day's edition of The Times newspaper in the Genesis Block: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks."
The first Bitcoin transaction demonstrated the viability of the network, albeit with much work left to be done. Subsequently, more and more "cypherpunks" joined to test the Bitcoin network, spreading awareness within the tech community. However, for quite some time, Bitcoin's reach remained limited. It wasn't until its significant price increase and the unleashing of its innovative potential that Bitcoin gained increasing attention from a broader audience.
Source: TradingView
This year is 2023, marking the fourteenth year of Bitcoin's existence. These fourteen years have been filled with ongoing debates and controversies, as well as a period of robust growth for Bitcoin. From its humble beginnings to its peak value of $69,000 per coin, evolving from a tech enthusiast's niche interest to sparking limitless application innovations, Bitcoin has woven a tapestry of myths and legends throughout its journey.