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Bitcoin's Pioneers, History and Creation, Article by Satoshi

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Bitcoin's Pioneers, History and Creation, Article by Satoshi

For some time, purely peer-to-peer, from a third party
working on a new independent electronic money system
The article is available at: http://www.bitcoin.
Its main features are:

Thanks to the peer-to-peer network, double spending is avoided.
There is no mint or any other reliable institution.
Participants can be anonymous.
New coins are made with Hashcash style proof-of-work (PoW).
The proof of work required in the production of new money is also
it will power the network and prevent duplicate spending.

Bitcoin announcement by Satoshi Nakamoto,
The Cryptography and Cryptography Policy Mail
List, 1 November 2008

Along with this message, an anonymous person or group writing under the name Satoshi Nakamoto is now known as Bitcoin.
started the known revolution.

When the Internet first entered the consciousness of society, people immediately began to wonder how to manage Internet commerce. Many people could see the potential to sell goods via the Internet, after all, as I mentioned earlier - systems have existed since the 1970s that made it possible to shop from home via computers. The main problem was the lack of a system that made transactions on the Internet secure. If you wanted to buy something from someone, you had to email them your credit card number and hope they didn't overcharge you or that the email wasn't intercepted or intercepted. This was hardly ideal, and while well-established, legitimate companies don't do business online, the idea of ​​handing over your credit card information to an anonymous person on the internet would have been seen as naive at best and insanity at worst.

Even before the widespread use of the Internet, people were working on solving this problem. The joint proposal, a currency for the internet that works exempt from the official world (or a government-issued currency) was to produce. Bitcoin was not the first effort to create such a currency. Before Satoshi Nakamoto published his Bitcoin whitepaper in 2008, several more digital currencies were attempted to be created.

The main purpose of all digital currencies, including Bitcoin, is to ensure that the transaction is secure. A digital currency that can be copied, spent in two places at the same time, or that allows one to spend more than one legally has, makes no sense. For digital money to function, people must have faith in the value of money and security. If he has flaws, people don't trust him.

This concern is only a form of obligation for the participants. if it can be fixed. It has to be something that makes sure users aren't acting in bad faith. A presence watching our transactions is not required, but the network needs to make sure that each account has the value it is trying to spend.

David Chaum created the first partially successful internet currency Digicash. Chaum was one of the early internet pioneers, and in 1983, years before the first web browser was released to the public, He wrote articles on the concept of electronic money. There were three features that Chaum considered critical to the electronic money system, and they were eventually incorporated into Digicash. In his article 'Blind Signatures for Untraceable Payments' published in Advances in Cryptology: Proceedings of Crypto 82, he summarizes what he sees as the main requirements for an electronic money system:

  1. To whom, when, or how much the payment made by a third party is made
    inability to determine
  2. In exceptional cases, individuals can present proof of payment or identify the person receiving the payment.
  3. Possibility to use payments reported as stolen by the media

What is missing from these core requirements is the concept of decentralization. Bitcoin is from a centralized system. It was the first electronic money system based on a decentralized system. Chaum's invention, Digicash, relied heavily on centralized structures. The blind signature function that Chaum wrote about in 1983 worked like this: A user requests a digital token, basically a predetermined value. a set of codes with a unique identifier that can be cashed in a bank. The bank digitally issues the token to the user, and the user attaches a blind serial number (or signature) to it, which the bank will not see. The bank signs the token without seeing what the serial number is. Only then does the user reveal the serial number before sending it to a dealer. The seller takes it to the issuing bank and the bank has a ledger with all the serial numbers given.

Unfortunately, this process could not reliably prevent the dreaded double-spend attack. A user could, in theory, spend the token they spent at one merchant later on another. If the product purchased by the user is left behind before the seller can send the token to the bank and find out that it is in the account book, the user will have successfully spent that token twice.

When Digicash started operating in 1990 and introduced Chaum's 'e-money' concept, the proposed solution to this potential problem was to anonymize the payee if they were acting maliciously. The user will send the personal information to the bank and the encrypted information would be associated with the token. The seller would not be able to see the information, but if the token was spent twice, the second token would be slightly different. The bank could use this information to reveal the double spender. The flaw of this system was the vulnerability of the payee. In cases such as a stolen account or a fraudulent bank, the innocent person not only had the money stolen but his reputation was damaged because he was accused of theft.

Since this system did not spread and David Chaum was publicly known, Digicash had no choice but to operate within the limits set by the legal system. To gain the support and approval of governments, it was imperative to make e-money traceable. There were concerns about blackmail, money laundering, and terrorist funding, so Digicash had to operate its e-money in a way that allowed for anonymity in certain situations.

The idea of ​​an authorized third party de-anonymous is seen as an affront in today's Bitcoin community. But one shouldn't be too hard on Chaum. It was a different era. Anonymity was secondary, the main thing was to make sure Digicash was working. And it couldn't function without the support of banks and governments that wanted a place to turn to in the event of criminal activities.

Digicash and its e-money endured for a while but never became popular, yet it came very close a few times. According to reports, Citibank came very close to making deals with Visa and Microsoft.1 Microsoft was even rumored to have offered the company $180 million for Digicash to be included in Windows 98, but I could not find reliable sources confirming this. As a result, commercial rather than technical failures These agreements did not materialize due to failures.

Whatever the reason, Digicash's e-money has never been on the rise. Not enough merchants accepted it, not enough banks used it, and while encryption methods allowed people to trade with credit cards online, consumers didn't find it very useful. Digicash struggled in obscurity, remained uninspired, and was overconfident that its technology was superior to others. Meanwhile, the internet continued to advance and thrived without it. When Digicash was declared bankrupt and closed in 1998, e-commerce had become big business and network wallets similar to PayPal were about to come to the fore.

After the failure of Digicash, not much has happened in the cryptocurrency world. On the contrary, services such as PayPal, which allows users to send money to each other without directly dealing with a bank, have taken off. Users still needed to transact via PayPal, but this process was more convenient and PayPal made it easy. You didn't have to type in long random digits to save the bank's transfer and account numbers; all you needed was an email address. And you didn't have to disclose your details to other parties. The emergence of PayPal was crucial because while the number of companies with which you can share your credit card information online is growing, it's clear that small businesses will remain a force on the internet, especially through fast-growing services like eBay.

Of course, there were several other crypto money initiatives, the most prominent of which was E-gold. E-gold was - you guessed it - a digital currency backed by gold. The company kept real gold bars backing the digital currency. The company was founded in 1995 by a former oncologist named Douglas Jackson; He breathed his last in 2009. Before Bitcoin, E-gold was undoubtedly the internet's most successful currency, but everything depended on Jackson. When he pleaded guilty to money laundering and unlicensed money transfer activity, the currency was dead. After he was released from lawful house arrest, he tried to revive the money, but it was too late.

A Wired article from 2009, Jackson's currency

He describes his prediction as follows:
As Jackson envisioned, E-gold was a private, international currency that circulated independently of government controls and was unaffected by the rise or fall of stock markets. Overflowing with ardent enthusiasm, Jackson claimed it was a cure-all for the ills of the modern monetary system, and at one point described it as a groundbreaking change in the destiny of mankind…probably the greatest benefit ever conceived for mankind'.

That doesn't sound too different from what Bitcoin enthusiasts say about their currency. The audience initially attracted to E-gold was very similar to the early adopters of Bitcoin: gold enthusiasts, libertarians, privacy advocates, and yes, criminals. E-gold is mentioned in a 2005 New York Times article about online criminals selling stolen credit cards. According to the article, they preferred E-gold as their payment method because of their global reach and anonymous accounts. At the time, E-gold was the second-largest online payment service, following the fast-growing PayPal.

Credit card thieves weren't the only ones caught in e-gold. Ponzi schemes were also working with E-gold. Jackson collaborated with authorities and fulfilled government requests for information about user accounts. When Jackson wanted to reveal a user's identity, E-gold was not anonymous. But stolen credit card number

The Secret Service investigating his secrets decided not to cooperate with Jackson and sought to bring E-gold into the regulated space, along with the likes of MoneyGram and Western Union. However, Jackson felt that his company should not succumb to such regulations.

The government did not agree with him; Jackson was accused of setting up an unlicensed money transfer service and a money-laundering scheme. And that was the end of E-gold. Meanwhile, a small 'upstart' technology was emerging: Bitcoin. But before Bitcoin was created, there were a few problems that needed to be resolved. In 2008, months before Nakamoto published his white paper describing Bitcoin, Nick Szabo presented something quite similar he called bitcoin. Bit gold was never created. Rather, it was a proposal that embodied almost all the main features of Bitcoin. It is this similarity that makes Nick Szabo one of the credible candidates who could be Satoshi Nakamoto's true identity.

Unlike e-gold, Digicash, and earlier electronic currency initiatives, bitcoin would be decentralized. They would have a timestamped public ledger and a limited number of concrete ledgers. The decentralized ledger problem that no one has been able to solve is called the Byzantine Generals problem. I think the familiar explanation is unnecessarily confusing. The problem is simply that a network within which knowledge must be disseminated by its participants relies on the honesty of those participants. If you are honest if they are not, false information given to honest actors by dishonest ones can spread across the network.

This is proof-of-work (PoW) pioneered by Nick Szabo and perfected by Nakamoto. addresses the problem. Each transaction is timestamped and contains a hash of the transaction that preceded it, of course, the transaction that preceded it. Therefore, if the malicious player wants to propagate a new chain, he must find the transaction he wants to change in the ledger, delete the subsequent transactions and recalculate all the work that has taken place since that point. Otherwise, the hash of each subsequent transaction will not match mathematically. Therefore, if that malicious party wants to capture the legitimate chain, it must be faster at mathematical equations than a bunch of people working on the legitimate chain.

In a real-world context, this means that a miner trying to create and enforce a fake blockchain must have more computational power than miners operating on a legitimate chain. To stay safe, there must be more computational power on the legitimate blockchain than malicious actors operating on a single fake chain. Theoretically, this is where the "51% attack" I've explained below comes into play.

One of the problems with the bitcoin solution was that it would use the number of participants rather than the amount of computational power behind it to determine the validity of a ledger. This would expose every currency in the bitcoin offering to the Sybil attack10, in which malicious actors generate a large number of pseudonyms and then use them to spread the modified ledger. Rather, it relies on how much computational power is behind the Bitcoin ledger, which simply means that it is vulnerable to a 51% attack where malicious actors have to be responsible for more than 51% of the network's hash power just to spread the inaccurate ledger. This kind of computational power is virtually impossible to assemble and would cost hundreds of millions of dollars. Also, the hash rate on the network is constantly increasing, and the probability of a 51% attack decreases as the network grows.

Despite this rather minor difference, Nick Szabo's bitcoin is sometimes referred to as the starting point for Bitcoin. In his 2005 blog post, Szabo didn't mention anonymity, but he did mention two ideas that are seen as the main tenets of Bitcoin's economic philosophy today: decentralization and resilience to inflation. The article begins and ends with these ideas:

I discovered the idea of ​​bit gold a long time ago. The problem, in a nutshell, is that the value of our money currently depends on reliance on a third party. Given the many inflationary and hyperinflationary periods in the twentieth century, this is not an ideal course. […] In a nutshell, all the currencies that humanity used were more or less insecure. This distrust was expressed in many ways, from dishonesty to theft. Bit gold can provide us with a currency that is unprecedentedly protected from these dangers.

Szabo approached the concept before 2005, although he had not used the term 'bit gold' in previous blog posts. Back in 1999, a concept that Wei Dai borrowed heavily from the B-money proposal. He shared his post on 'God Protocol'. It was introduced by Dai on the Cypherpunks mailing list in 1998.12 He proposed using hashcash to create rarity in cryptocurrencies, one of the most important features used in Bitcoin today: email send i

A system that blocks unwanted e-mails by requiring extra computational power, making them costly. Its rarity allows Bitcoin to have supply-demand dynamics.

God Protocol proposed replacing the third-party central server with an automated virtual third party. It used the early concepts of cloud computing, and if it were implemented, it would likely be a proto-version of today's autonomous—digital company that can function with little or no human input. Many people imagine that this is next for Bitcoin. God Protocol was planned as a solution for smart contracts – another concept animated by Bitcoin. Szabo writes on his blog:

[Network security theorists] have developed protocols that create virtual computers between two or more parties. Multi-party secure computing makes it possible for any number of parties to share a computation, each learning only what can be deduced from its input and output of the computation. These virtual computers have one exciting feature; each party's input is strictly hidden from other parties. The program and outputs are shared by the parties.

For example, we can run a spreadsheet on the Internet on this virtual computer. We can decide on a set of formulas and set up the virtual computer with these formulas.

Each participant will have their input cells, which will remain empty on other participants' computers. Participants will share their output cell(s). Each participant enters their private data into the input cells. Alice can learn from other participants' input cells only as much as she can infer from her inputs and outputs.

You can see how this concept could evolve into something similar to a blockchain. When you combine the cryptography concept of PGP and Digicash's tokens and B-money's concept of using the computational power of the main processor to create rarity, you begin to see a cryptocurrency similar to the Bitcoin approach.

These ideas were not put together until Nick Szabo's gold piece. But there were some problems. The Sybil attack I mentioned earlier had not been addressed, no one had yet thought of putting the 'unbreakable chain' (in Szabo's words) on the PC of each client (or at least a sufficient number of clients). Instead, he designed 'several different timestamped services', perhaps automated as defined in the God Protocol, and no mention of peer-to-peer.

As a result, not much development took place in the cryptocurrency space from the mid-1990s to the mid-2000s. This lack of development is not unreasonable. At that time, there were not enough people working on this issue. Disappointed by Digicash or E-gold, many saw it as an empty dream. Others thought that a currency that was not backed by a commodity such as gold or silver would not last long. Some feared that such an initiative would face stiff state resistance.

They were right about this last point. E-gold was eventually shut down by the American government. Digicash wasn't shut down, but consumer demand never caught up to its lofty goals, and problems with its central side didn't appeal to many cryptocurrencies as a concept: Even if it was revived, few people were working with it.

On November 1, 2008, the cryptocurrency/electronic money movement was reborn with Bitcoin. It was met with skepticism at first. The Bitcoin community is not united today, as it has been from the very beginning. Satoshi Nakamoto has done a good job calmly responding to every question and criticism, whoever or whatever.

I don't want to go into too much speculation about the true identity of Satoshi Nakamoto, because so much has been written about it that it's disgusting. No conclusions have been drawn, and this mystery will likely continue until Nakamoto reveals his identity. And even then, I predict the debate will continue in some corners of the internet.

Among the prime suspects is the multi-use proof-of-work e-money mentioned in Szabo's bitcoin proposal. There is cryptographer Hal Finney, who was instrumental in implementing his idea. He was also the recipient of the first Bitcoin transfer. He is also a prime suspect, as the aforementioned Wei Dai continues to be interested in cryptography after the B-money proposal. Then, of course, there's the long-standing theory that Satoshi Nakamoto is Nick Szabo, who has written openly about concepts very similar to Bitcoin. There is also David Chaum, who certainly has the necessary experience and perhaps wants to show the world that electronic money is viable. Adam Back invented hashcash, and he can't be eliminated either, for commenting on the B-money proposal on the Cypherpunk mailing list.

Dorian Prentice Satoshi Nakamoto lives in a small house in California.

A man was once "revealed" as the real Satoshi Nakamoto in a highly controversial cover story by Newsweek. When the article was published, Satoshi Nakamoto's email was resurrected and he wrote "not Dorian Nakamoto" on his Bitcoin developer mailing list. However, the e-mail was not digitally signed, meaning it was sent not by Nakamoto himself, but probably by someone who had Nakamoto's e-mail account.

All the popular candidates denied that they were the real Satoshi Nakamoto.

Among the main suspects, I think the most likely candidates are Szabo and Dorian Nakamoto, but the least likely.

But I believe Nakamoto is some kind of combination of Szabo, Finnerty, Dair, and Adam Back. With him. I'm not saying they are the creators of Bitcoin, I'm just saying that these are the people who are most actively working towards something like Bitcoin and have the tools to do it. It's possible that none of these people were, after all, countless anonymous people were posting on the Cypherpunk mailing list at the time, and a few have expressed interest in the issue.

Nakamoto's identity was overshadowed by the fact that the Bitcoin whitepaper was published. Not long after the summer of 2008, Bitcoin was launched.

Nakamoto had already prepared the code and claimed to have been working on it for two years before publishing the white paper.

On January 3, 2009, Bitcoin's initial block (the first block in the blockchain) was created. On January 9, v0.1 of Bitcoin was released via the cryptography mailing list. On January 12, the first transfer between Satoshi Nakamoto and Hal Finney took place and the Bitcoin revolution began to take off.

There are a few other milestones worth mentioning. On October 5, 2009, the initial exchange rate for Bitcoin was determined by the New Liberty Standard website, based on the cost of electricity used to create bitcoin with the mining process at the time 'difficulty'. (Difficulty rating refers to how hard a computer has to solve the computations that run Bitcoin; I'll cover that further in the section on mining.) One dollar was equivalent to 1,309.03 bitcoins (BTC), so according to their algorithm, each bitcoin was equivalent to approximately $0.00076. Some Bitcoin users countered, saying the price was too high.

On May 22, 2010, affectionately called 'pizza day' in the Bitcoin community, the first open Bitcoin transfer in exchange for a tangible commodity took place. BitcoinTalk user Laszlo sent 10,000 BTC to jerks and used his jerks credit card to send $25 worth of pizza to Laszlo.

In July 2010, the soon-to-be infamous Mt. Gox exchange was established and as a result, caused the price to rise to $0.06. Less than a year later, on February 9, 2011, Bitcoin was equated with the US dollar and created a new wave, prompting numerous media outlets to report on the new currency.
user added.

On July 26, 2011, a Berlin bar called Room that promised "warm beer, cold women and slow-cooked fast food" began accepting Bitcoin, and this continues to this day. In March 2013, the price of bitcoin reached $100 and the market cap of Bitcoin exceeded $1 billion. At that point, no one was sure of Bitcoin's future, but more fans were sure it wasn't going anywhere anytime soon.

Finally, the price skyrocketed once again. Unfortunately, this event happened on the infamous Mt. It coincided with Gox's failure, which brought the price down again. I'll talk more about this in one of the next chapters. Since then, Bitcoin Mt. It fell at the same pace towards the end of 2015, when the price started to rise steadily, but more steadily than in the Gox period. At the beginning of January 2015, the price briefly dropped below $200, but then recovered and, after holding for months between $220 and $250, abruptly peaked above $450 in November 2015. When you read this book,
The rise will no doubt have passed, but as I write the book, everyone is wondering if this is the next giant leap forward.

But if Bitcoin's history tells us anything, it's that it can function at any price level. People are investing in Bitcoin and will see it available in the future, even small niche economies that PayPal and Apple Pay can't touch. Investors won't like the idea; They want Bitcoin to be used by everyone, everywhere. It can. It seems almost inevitable that Bitcoin or some kind of blockchain technology will be used to modernize the financial world, but it could also go the other way and be used only by people who need it. In this case, the price will never reach the high predictions of Bitcoin fans. However, technology will continue on its way; worth a dollar to someone

Sending bitcoins is as easy as sending $1000 worth of bitcoins.

In any case, technology will be able to fulfill this task. It has proven to be versatile and there is little reason to think that will change.