Bitcoin: his impact, the future and his ancestors
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The creation of Bitcoin started a universe of new opportunities: technological, social, economic and a long etcetera. Suddenly, a relatively simple idea, but one that no one had thought of before (or at least had done it successfully), opened the eyes of thousands of developers and cryptopunks around the world.
Several ideas began to be explored that resulted in new cryptocurrencies, in new ways of doing and creating through the blockchain. New innovations and businesses appeared that didn't exist before and now, suddenly, there are infinites million-dollar opportunities for everyone.
Of course, from the traditional vision of the economy, this idea of decentralized money and resistance to censorship began to be discredited. What if it was used for money laundering, terrorism, drugs, etc. Although we all know the truth, the problem is not the security, anonymity and privacy that cryptocurrencies provide us, the problem is that governments cannot control it. The powerful never wants to lose their privileges.
Money, like cryptocurrencies, is an instrument, and as such, human beings decide how to use it. Some use it for good and others for morally questionable things. However, the problem is not the means and tools, nor can the solution be to deny people the right to privacy or limit their freedoms.
In a world where governments were heading towards the elimination of cash (bills and coins), which is the monetary medium that provides the most privacy and anonymity for individuals, the irruption of Bitcoin represented a real problem. People already had a new form of money that did not depend on governments, that was unconfisfiable, uncensorable, and offered anonymity similar to that of cash. The main difference (and a positive one) was that with Bitcoin you can carry millions with you just with an app on your cellphone.
The topic of Bitcoin and cryptocurrency is so coarse that there is something to write. But, in today's article I am going to address issues ranging from the origin of Bitcoin, the impacts on society and the global economy to what can happen with this phenomenon from now on.
If you are passionate about this kind of subject, I invite you to read with attention every part of this post. Let’s begin.
Bitcoin: origins and reasons for its emergence
The creation of Bitcoin, more than something specific or an individual action, was a process that was nourished by previous ideas and technologies that go beyond the issuance of the first BTC. Because the idea of "a system of electronic cash between equals", as described in the Bitcoin Whitepaper, already existed before and had several failed attempts.
Sometimes, it is not about how good or bad an idea is for it to work, but about the historical conditions where it is tried to be implemented. And the timing of Bitcoin was just right. Perfect, I am sure to affirm.
Right in the middle of a global crisis that started in the United States of America in 2008, many people saw their savings disappear and lost confidence in banks and governments. And where technology had advanced enough so that ordinary people could participate in the mining system with few and ship resources. Just the optimal conditions like never before exist.
Nobody knows if the 2008 crisis was the one that gave Satoshi Nakamoto the idea to create Bitcoin, or if he (or they) had already been working on this idea and this situation accelerated everything. Perhaps if this conception had been tried to be implemented sooner or later that date, it would have failed miserably.
From Unsplash
Bitcoin Family Tree
To be exact, Satoshi Nakamoto did not invent any of the technologies that make up the Bitcoin protocol (Proof of Work, cryptography of public and private keys, blockchain). His genius came from being able to unite them all in a common project and give it an economical design without equality until now.
It takes different actors who do not trust each other, with incentives to steal from each other, and aligns them in interests to create an immutable accounting chain through consensus that remains open and transparent to all.
However, all this is possible thanks to the inventions that preceded it. Let's look at some of the major creations or movements that paved the way for Bitcoin and bring us to the actual moment of cryptography history.
RSA Algorithm
The name RSA comes from Ron Rivest, Adi Shamir, and Leonard Adleman, the people who defined the algorithm in 1977.
This is a slow algorithm, so it's not often used to encrypt all user data. What is usually done is to use RSA to transmit keys for symmetric key cryptography that are used for bulk encryption and decryption.
Under this encryption, messages are encrypted with a code called a public key, which can be easily shared. Due to specific mathematical properties of the RSA algorithm, once a message has been encrypted with the public key, it can only be reversed with another key, the private key.
Each user must have a public and a private key. It goes without saying that the private key must remain secret.
Cypherpunk Movement
It was in this movement that many of the inventions that served as the theoretical and technical basis of Bitcoin that we will explain later were gestated. The Cypherpunks are a notable group that is concerned with the constant decline in privacy and individual empowerment of people.
They have an almost utopian vision of a decentralized society free of governments. Its objective is to replace the current model of global payments and currency issuance with one where there is complete sovereignty and anonymity over economic activity. A concept quite similar to the one adopted by Bitcoin.
The Cypherpunks opposed surveillance by promoting the use of cryptography to preserve privacy. This led to their designing many open source and privacy focused apps that are still in use today. These include the Pretty Good Privacy (PGP) program that encrypts and decrypts email over the Internet, the Tor private web browser, the GNU project, BitTorrent, Mixtermaster Remailer, etc.
eCash - DigiCash
David Chaum, a cryptographer, computer scientist, and Cypherpunk, in 1983 (26 years before Bitcoin) created a system that allowed banks to produce digitally signed digital money (eCash). Customers could spend their electronic cash that merchants would then redeem with the bank.
After each transaction, the person who received them could automatically exchange them for dollars, which were deposited in their bank account. When someone redeemed the e-cash, the bank saw that it was valid, but didn't know which of their customers it was originally assigned to. This made individual transactions anonymous to the bank.
It used a system of Blind Signatures through the issuance of secure keys that prevented third parties from accessing personal information. It did this in a way that was very similar to how the Tor network or the Lightning Network works today.
Each node in the network only needed the information of the next node to send as the system was based on onion type routing. Each node peeled off a layer and this allowed it to route the payment, but it never knew who was sending or receiving.
Unfortunately, it was unable to convince large players in the global financial system to adopt the technology.
Blockchain Technology
The concepts of blockchain as such go back to a group of articles published in 1991 by Stuart Haber and Scott Stornetta. They are considered the inventors of the first blockchain at Bell Communications Research (Bellcore) to ensure the integrity of digital records.
They wrote a series of documents and patents that laid the foundation for Bitcoin and all other digital currencies, suggesting a secure method of time stamping digital documents. Timestamp would approximate when a document was created, but timestamp accurately conveys the order in which documents are created; if one was created before the other it would be easily reflected.
In this concept, security requires that the timestamp of a document cannot be modified after it is created.
This idea was defined as blockchain and was one of the bases of the Bitcoin protocol.
Proof of Work
Cynthia Dwork and Moni Naor created a technique to reduce spam in 1992. It required email senders to attach some type of proof showing that they had incurred a cost. Without this test, recipients would reject incoming emails.
These costs would be negligible with normal email volumes but would be high enough with the sending of millions of emails to discourage spammers. It worked in a simple way, if you wanted to send an email, you had to calculate a hash as evidence to show that computing resources have been spent to compose the email.
In this way, it would be unfeasible for spammers to calculate the hash of the thousands of emails they send every minute. Verification is done on the receiver's side in a quick and easy way.
The cost in the form of repeated calculations would be considered work and the receipt would be proof that it was done. This is where the name “Proof of Work” comes from.
eGold
Douglas Jackson became one of the early pioneers of digital currencies in 1996 when he founded eGold, one that was backed by gold. eGold was operated by Gold & Silver Reserve Inc. and allowed users to open an account denominated in grams of gold and other precious metals on its website. Providing the ability to make instant transfers of value to other eGold accounts.
Electronic gold transactions, in addition to being instant, could not be reversed and cost a fraction of traditional bank transfers. The goal was to create a private gold-based monetary system with Internet transactions that would work better than traditional finance.
This project guaranteed a secure and efficient method of transmitting value by keeping records of payment transactions. Each digital gram was backed by a physical gram of pure gold.
This project was dismantled, a few times before Bitcoin was born in 2009, by the United States government as it was used by criminals for money laundering, fraud, and other misdeeds. Not requiring KYC allowed them. But being a registered company this allowed the authorities to prosecute and shut it down.
HashCash
Adam Back created a system similar to the proof of work in 1997, he named it Hashcash. Adam saw that the concept had utility beyond her own service and moved to promote the use of her creation in other email services. Eventually, Hashcash became a well-known innovative idea implemented in different messaging and email software.
HashCash's mission was to stop mass spam since doing so would be a strenuous activity for a PC, consuming CPU cycles and increasing power consumption. Making sending thousands of emails financially prohibitive.
B-money
In 1998, Wei Dai, a computer engineer and cryptographer, created a network in which senders and recipients were only identified by their digital pseudonyms or public keys. Each message was signed by the sender encrypting it for the receiver.
The network was untraceable. In it, transactions would be transmitted to a network of servers, which would monitor account balances, updating them when signed messages were received. The creation of money would be agreed by the users through periodic auctions.
B-money was an anonymous distributor of digital currency through a trading computer network that was verified with SHA-1 hash functions. Dai sparked interest in cryptocurrencies with the publication of the B-Money Whitepaper. In it, Dai describes the basic properties of today's cryptocurrencies. In addition, it proposes the creation of money in four phases: planning, bidding, calculation, and money creation.
Wei Dai had a crypto-anarchist utopian vision of a community where violence would not be possible because people's physical locations and real identities would be hidden. And that, because of the lack of violence, there would be no need for governments.
The incentive through the mining process as seen in Bitcoin is also based on the Dai proposition. Dai's article on B-money was cited as a reference by Satoshi Nakamoto in the Bitcoin Whitepaper.
BitGold
Nick Szabo, who was one of the world's first Cypherpunks, came up with Bit Gold in 1998, but it wasn't until 2005 that he posted a blog about him making big waves in the crypto world. Many experts have identified stark similarities between Satoshi's and Nick's handwriting.
Bit Gold is one of the first attempts made to create a decentralized virtual currency. This idea was driven by the inefficiencies of the traditional financial system and the need to reduce the amount of trust required to create transactions.
However, it was never officially released, although this does not take away from the fact that it was part of the inspiration behind Bitcoin. The Bit Gold idea used timestamped blocks stored in a title registry and generated with proof-of-work chains. Bit Gold would use a proof-of-work and mining mechanism to create a new Bit Gold but with increased computational difficulty to curb supply.
Bit Gold had limitations related to trust in distributed steps, as well as issues related to transactions using trust-based systems. It also did not address the problem of the machine architecture required for the network to work in practice.
Impact of Bitcoin on society
As it happens with all current technology, it happens with Bitcoin, each one of them is based on past technologies and discoveries and serves as a foundation for future technologies and discoveries. Without any of the previous steps, Bitcoin would not have been created at the right time and without it, we would not have blockchains with smart contracts or applications or decentralized finance.
It not only represented access to international finance for unbanked people in poor countries or with economic sanctions. It represents a halo of freedom for all people who live in totalitarian systems, it is a valuable safeguard for all those who live in countries with high inflation rates.
The creation of Bitcoin also opened windows of job and business opportunities for many. Perhaps socially the only "criticism" I would make is that its expansion to underdeveloped countries occurred when it was impossible to participate in the mining process with personal computing equipment. What a great impact on the redistribution of wealth it would have had if poor people in Latin America, Africa, and Asia had been the great accumulators of Bitcoin through mining in its early days!
Yet despite that, the positive impact has been enormous. Remittance businesses based on Bitcoin and other cryptocurrencies have meant that more money reaches families by avoiding the traditional high fees. People who start reading the Whitepaper and end up studying and learning about finance and the world monetary system, are able to protect better their economy and make better financial decisions.
Yes, the impact goes beyond the economic and also goes through the social, cultural, and political.
Where are Bitcoin and cryptocurrencies going now?
I am sure that the potential of Bitcoin and cryptocurrencies is just being exploited. We still have multiple innovations to live in this world, even those that are achieved without wanting to. Like the Segwit and Taproot Bitcoin updates that were aimed at increasing security, speed and privacy, a developer took advantage of them to create the Ordinals protocol that allows inscriptions (NFTs on the BTC blockchain).
Unlike 15 years ago when there were just a few talking in forums about cryptography, decentralization, and others, now there are millions of people in the world pending the issue and hundreds of thousands of developers working on it.
Perhaps that is why some governments feel threatened, it is no longer so easy to exercise control over the people. More and more are questioning the real usefulness of current political systems and the interests to which they respond. They should accept the idea that as much as cryptocurrencies are prohibited, their use cannot be avoided.
Governments would have to accept these technologies and see how they apply them in their processes to guarantee greater transparency in their efforts. Blockchain technology applied to public finances would prevent (or make it very evident) embezzlement and corruption, and applied to electoral systems would prevent fraud. And so, there are countless more applications that would only result in a better service to the people to whom they are due.
But that remains to be seen, and it even seems like one of those Cypherpunk utopias, those who have power refuse to give it up and try to keep it by any means. It is directly repressing or justifying itself in National Security, terrorism, or the black market to curtail freedoms.
Those who seem to have realized that the world has changed and that they must adapt to the new economic and technological conditions that Bitcoin has brought are the large multinational companies. More and more are integrating payments with cryptocurrencies into their platforms, seeking how to benefit from the use of the blockchain and/or insert themselves into Web 3.0 or decentralized finance. There are several that have launched NFT collections with different degrees of usefulness and real use cases.
There are even several institutions that use cryptocurrencies as investment instruments and capital reserves leaving the traditional stock market.
Those who should also be reviewed are the maximalists (of any cryptocurrency), extremism leads nowhere. It's okay to defend the belief or preference of each one, but always from a constructive point of view, not because more shouting and offending you will be right.
After all, Bitcoin and cryptocurrencies are the true spirit and example of a free market based on supply and demand. This is also why you will always be exposed to scammers and rug pull projects, but that can be solved by always carrying out an independent and personal investigation before investing.
As Bitcoin itself gives freedom over your funds, the only responsibility to protect them is yours. That is the price to pay, the alternative is to keep living in the FIAT money system. But hey, wherever works for you.
Posted originally LeoFinance Alpha
