Bitcoin Is Not By Accident
When people first hear about Bitcoin, they tend to assume it is a curiosity, an experiment. It feels like it just dropped down out of the blue. At any moment it could fail because every facet of it was created on a lark — a side project of some anonymous guy calling himself Satoshi Nakamoto.
Not exactly an image that inspires confidence.
Fortunately, this is not an accurate representation of Bitcoin’s genesis. Bitcoin was not a random creation. It was the culmination of decades of efforts by freedom-minded technologists — from the High-Tech Hayekians to the Cypherpunks.
Satoshi brought these building blocks together to create an Internet-native, unstoppable money.
By bringing into perspective the scale of collective effort from brilliant minds collaborating over decades to create the battle-tested building blocks of Bitcoin, our understanding of Bitcoin shifts from the default assumption that Bitcoin is a one-off experiment towards a recognition of Bitcoin as a culminating achievement — a scientific breakthrough only possible by standing on the shoulders of giants.
An Ideological Movement Takes Shape
From the earliest days of the internet, researchers took interest in methods of maintaining privacy in digital communications. Nobody was more interested in this topic than the U.S. Government, which funded early digital cryptography research in the 70s.
By the 1980s, these early research efforts had seeded interest in academia and the private sector. In Palo Alto, a group that would be known as the “High-Tech Hayekians” began to form. The members of this group were each “a rich brew of scientist, entrepreneur, programmer and philosopher… Each has a firm understanding of market principles and a deep appreciation for the general social principle of non-intervention.” When these young men gathered, “the conversations always involved Hayekian ideas, but at the same time they almost always involved computer science.” In other words, these were programmers who were passionate believers in free-markets without intervention — what’s broadly known as Austrian economics.
As the early 90s brought the widespread use of the Internet as a daily means of communication, this geographically localized club morphed into something bigger — a movement.
In 1992, this group adopted the moniker of “Cypherpunks” and in 1993 had its foundational ethos codified in A Cypherpunk’s Manifesto…
“Privacy is necessary for an open society in the electronic age. … We cannot expect governments, corporations, or other large, faceless organizations to grant us privacy … We must defend our own privacy if we expect to have any. … Cypherpunks write code. We know that someone has to write software to defend privacy, and … we’re going to write it.”
Here are some of the notable projects attributable to various Cypherpunks:
PGP is a widely-used encryption software that allows for secure communication and file encryption.
The U.S. Government waged war against PGP in 1993, claiming that it could be used as a weapon and categorizing it as “munitions.” Defenders of PGP famously printed PGP code on t-shirts and submitted it to the U.S. Government office of Munitions Control to ask if they were allowed to sell this t-shirt… the Government never responded to this bait (because they knew they would lose the ensuing lawsuit if they attempted to prevent a clear case of freedom of speech). For a very interesting 9-minute recap of this chapter of Cypherpunk history, check out this video.
Tor is a decentralized network that enables anonymous communication by routing internet traffic through a series of relays.
Tor has been successful in providing anonymity online, with the inevitable mixed baggage of protecting individual privacy for good and bad actors alike.
BitTorrent is the dominant peer-to-peer file sharing network in the world, accounting for 3% of the world’s internet bandwidth.
BitTorrent improved upon predecessors like Napster by focusing on a purely decentralized network architecture, making it impossible for law enforcement to prevent the network from operating.
The common thread between these successful projects was their use of encryption code and decentralized networking to unleash unstoppable open-source software.
The Grail Quest for Internet Money
Despite the Cypherpunks’ notable successes, in the crusade to assert human freedoms on the Internet, the holy grail eluded them: a free-market digital currency.
Here are some of the notable efforts to create an Internet-native money:
DigiCash: Developed by David Chaum in the 1990s, DigiCash aimed to provide anonymous electronic cash transactions but failed due to limited adoption and regulatory challenges.
Hashcash: Created by Adam Back in 1997, Hashcash aimed to combat email spam and denial-of-service attacks by introducing a proof-of-work system, but it suffered from scalability limitations and lacked a decentralized consensus mechanism.
E-gold: Launched in 1996, E-gold allowed users to hold gold-backed digital currency, but it faced legal issues related to money laundering and regulatory compliance.
Bit gold: Proposed by Nick Szabo in 1998, Bit gold aimed to create a decentralized digital currency system based on cryptographic proof, but it lacked traction and never made it out of the idea phase.
B-Money: Proposed by Wei Dai in 1998, B-Money focused on creating a decentralized digital currency system but lacked a practical implementation.
The common thread in these failures was that each project relied on centralized authority to create, issue, and manage currency. These were companies, ultimately. And companies cannot compete with the monopoly on money issuance that governments enjoy.
This fact did not go unnoticed by a particular Cypherpunk:
“A lot of people automatically dismiss e-currency as a lost cause because of all the companies that failed since the 1990’s. I hope it’s obvious it was only the centrally controlled nature of those systems that doomed them. I think this is the first time we’re trying a decentralized, non-trust-based system.” – Satoshi Nakamoto, February 2009
The reason that Bitcoin succeeded where prior attempts failed is because Satoshi deliberately designed Bitcoin to solve for the weaknesses of its predecessors while leveraging the strengths of other Cypherpunk projects that were successful (PGP, Tor, BitTorrent). Notably, this doesn’t even address the specific technological components that Bitcoin relies upon from earlier Cypherpunk breakthroughs (private key cryptography, Proof-of-Work, peer-to-peer networking, etc.).
For more on the pre-history of Bitcoin, I highly recommend this 40-minute documentary, Cypherpunks Write Code. (Excellent production value and stylized presentation!)
Overall, I hope this post illuminates what often goes unarticulated about Bitcoin: it does not exist and thrive by accident. It succeeds because of prior decades of work — successes and failures — by technologists aiming to enable human freedoms through open-source software development.
Personally, learning about the pre-history of Bitcoin helped me realize that Bitcoin was not a complete fluke that came out of nowhere. Instead, it was the iteration in a long string of attempts that finally had the necessary components to survive.
If Bitcoin didn’t have what it takes to withstand a world of hackers, opportunists, and controlling governments, it would have died after a year or two and no more than $100M in value. On the contrary, it has blossomed for 14 years and accrued $500B in value… and it’s just getting started…
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