Home Discover the “ancestors” of Bitcoin: eCash, B-Money, BitGold…

Discover the “ancestors” of Bitcoin: eCash, B-Money, BitGold…

Bitcoin

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Satoshi Nakamoto, a man, a woman (or even a group of anonymous individuals) published the Bitcoin white paper on October 31, 2008. The title of the document, " Bitcoin: A Peer-to-Peer Electronic Cash System ," proposes, as its name suggests, a new decentralized electronic currency system.

After a decade, bitcoin has entered the current “financial” landscape. Increasingly accepted and understood, today, bitcoin (and cryptocurrencies in general) are considered a modern version of money.

In this article, we'll go back in time to discover the ancestors of Bitcoin. Understanding Bitcoin's earlier versions is essential for a better grasp. Bitcoin wasn't invented out of thin air; it didn't spring from nowhere. It's part of a long line of cryptographic research, discoveries, and innovations…

The ideology behind Bitcoin

It is widely accepted that Bitcoin is the "product" associated with the ideology known as "Cypherpunk." This group is primarily composed of tech enthusiasts, futurists, and crypto-anarchists of varying degrees. Among them are figures like Hal Finney , Timothy May , Nick Szabo, and Eric Hughes. Bitcoin is rooted in this libertarian philosophy, which considers privacy and freedom essential rights in human societies. Bitcoin has a profoundly political dimension (whether one likes it or not). It is no coincidence that Bitcoin is also used by opponents of certain authoritarian regimes , both as a means and an end.

"Privacy is necessary for an open society in the electronic age"
Eric Hughes, “A Cypherpunk Manifesto”

Satoshi Nakamoto sent his Bitcoin proposal to this community of computer scientists and cryptographers who were working directly or indirectly on attempts at digital currencies. Since the creation of the Internet in 1989, multiple experiments in this field have been launched (and obviously failed).

The CypherPunks

Eric Hughes' "The Cypherpunk Manifesto" has served as an ideological reference for cryptographers. This stems from the science fiction subgenre "CyberPunk" that flourished in the 90s. The cyberpunk genre in literature often describes an Orwellian future where surveillance systems are omnipresent. The heroes are often anarchists who fight against the abusive surveillance established in these dystopian societies.

The best-known authors are John Brunner, William Gibson and Bruce Sterling. In their works, they often depict companies managed by long-toothed Big Brothers. Freedom and confidentiality are very often in the hands of governments and companies.

It is in this world of generalized surveillance that cypherpunks have highlighted the need for encrypted communications through anonymous messaging, among other things. Electronic money itself is a tool for the emancipation of free men in this type of society.

We can also mention, by extension, the philosophy of "extropianism." This is a movement developed by the philosopher Max More , in a series of writings that emphasize a strong belief in science and technology. Max More is a radical transhumanist who has promoted a powerful ideology embraced by many cryptographers. Among them, Nick Szabo, Timothy May , and Hal Finney are recognized extropians. These individuals fundamentally seek to improve the human condition through the use of new technologies such as cryogenics, robotics, genetics, space travel, and so on.

Previous works that foreshadowed Bitcoin

We have the bibliographic references mentioned by Satoshi in the Bitcoin white paper. We then know what work he relied on to develop bitcoin.

Bitcoin is thus a solution that is based on different research work in different fields such as cryptography, distributed networks, economics, mathematics, etc. It is therefore essential to know the previous attempts of what we can call the "ancestors" of bitcoin.

The creation of e-cash

When it comes to electronic money work, one of the most brilliant computer scientists is certainly David Chaum . He was a true pioneer in this field, and his digital currency system dates back to the 80s, even before the launch of the World Wide Web.

David Chaum published a seminal paper in 1981, “Untraceable Electronic Mail, Return Addresses, and Digital Pseudonyms.” It was from this paper that privacy protocols like Tor were born. In 1982, he published another equally important paper, “Blind Signatures for Untraceable Payments,” which detailed a future system of anonymous transactions. It is widely believed that this paper opened the door to attempts to create a digital currency.

This is precisely what he did with the creation of DigiCash in 1989. Initially, the goal was to bring privacy to digital currencies at a time when electronic banking services were emerging. Based in Amsterdam, David Chaum and his team developed the eCash protocol. However, nearly ten years later, and due to a lack of funding, David Chaum was forced to declare bankruptcy in 1998.

However, the creation of e-Cash has paved the way for new work regarding digital currency. It is even admitted that e-cash is the ancestor of central bank digital currencies (MNBC in French.

The e-Gold

After eCash, it's essential to mention eGold, founded in 1996 by Douglas Jackson and Barry Downey. As the name suggests, eGold was a digital currency backed by physical gold reserves in banks in London and Dubai . While eGold technically fulfilled its purpose, the project had to be shut down due to significant legal issues. Very quickly, and taking advantage of the lack of legal framework, criminal activities began using eGold. Thus, the founders were criticized for creating a company to facilitate money transfers without a legal license. The company was forced to close a few years later.

It is important to emphasize that until today (in 2022), some legal issues related to the issue of digital assets are still unresolved…

Adam Back's hashcash

In 1992, IBM researchers Cynthia Dwork and Moni Naor worked on "Sybil attacks" and other computer attacks that were taking shape at the beginning of email. The research duo then proposed an ingenious system through which the sender performs some computational work to solve a cryptographic problem. Thus, in the email, the sender provided a "proof of work" (or PoW). In computational terms, the process was rather trivial. The goal was above all to prevent possible attacks and spam.

Based on this work, Adam Back , a computer scientist and active cypherpunk, proposed a similar system he called Hashcash. He emphasized the hashing process, which transforms data into a random string of characters. Even the slightest change to the data would result in a different hash. This makes data verification very easy.

Hashing is the process of transforming any piece of data of any size into a random string of characters of predetermined length. Even the slightest change to the underlying data would result in an entirely different hash, allowing easy verification of the data.

Adam Back's hashing opened the way to digital currencies closer to Bitcoin such as B-money and Bit Gold.

B-Money by Wei Dai

In 1998, Wei Dai , also a member of the cypherpunk movement, proposed the B-Money system. In the Bitcoin white paper, Satoshi Nakamoto makes an explicit reference to Wei Dai's work. Similarly, Vitalik Buterin named Ethereum's gas fees "Wei," a reference to Wei Dai.

wei dai b mney — Source: https://www.gwern.net/docs/bitcoin/2008-nakamoto#emails

B-Money is an alternative peer-to-peer financial system that allows transactions to be carried out outside the traditional financial system. B-Money supported a large distributed ledger across a network of pseudonymous peers. To create the digital currency, a node had to solve a computational problem (proof-of-work). However, the "double-spending" problem was not solved in the B-Money system . This meant that it was possible to spend multiple identical assets simultaneously.

The B-money proposal was not materialized. However, B-Money is very similar to Bitcoin, in its design of distributed ledger and digital currency based on Proof of Work.

I think it achieves nearly all the goals you set out to solve in your b-money paper.
Satoshi Nakmaoto to Wei Dai (source: https://www.gwern.net/docs/bitcoin/2008-nakamoto#emails)

The major difference with Bitcoin was that B-money already had "value," being pegged to certain commodities. In fact, B-money was closer to what is called a " stablecoin " for this reason.

The Gold Bit

Nick Szabo is a well-known cypherpunk figure and has made a significant contribution to the development of cryptography. In 1994, he proposed the implementation of smart contracts – contracts based on code rather than human legal jurisdiction – as the foundation of internet commerce.

Szabo had worked for some time on DigiCash with David Chaum. He therefore had some knowledge of work on innovative electronic currencies. He set out to create a new currency for the internet. A currency that would be entirely digital, rare and expensive to falsify. He therefore had the idea of creating digital gold: bit gold was born.

Bit Gold is a sort of hybrid between Hashcash and B-money, using a proof-of-work mechanism based on periodically time-stamped hashes. However, Bit Gold had a significant problem: its value could decrease over time. Indeed, due to the computational cost, its value would inevitably decline with the advent of more powerful machines and computers.

Bit Gold thus required other complementary infrastructures to perfect it. At the time Bit Gold was to be implemented, Satoshi Nakamoto published the Bitcoin white paper.

Szabo then abandoned Bit Gold recognizing that Bitcoin intelligently resolved Bit Gold's flaws.

Thus, Bitcoin has proven to be a successful scientific product after several attempts. Satoshi Nakamoto even wrote in a 2010 Bitcointalk forum, "Bitcoin is an implementation of Wei Dai's B-money proposal [...] in 1998 and Nick Szabo 's Bitgold proposal ."

“Bitcoin is an implementation of Wei Dai’s B-money proposal […] in 1998 and Nick Szabo’s Bitgold proposal.”
Satoshi Nakamoto, Bitcointalk

—>Read our profile of Nick Szabo , the man behind smart contracts

The creation of Bitcoin, finally

Knowing the history of cryptocurrencies, one understands that Bitcoin wasn't a miraculous invention conjured up by Satoshi Nakamoto. This actually lends even more weight and grandeur to this remarkable invention, given the numerous unsuccessful attempts that followed. On November 8, 2008, Satoshi Nakamoto registered the Bitcoin software on SourceForge so that cryptographers and computer scientists could discover it. Available as open source, the inventor of Bitcoin wanted to open it up to public scrutiny and collaborative work.

This is how, slowly (admittedly), the Bitcoin ecosystem took shape and how today it has carved out a prominent place in economic and financial history. The forerunners of Bitcoin and electronic money are precisely there to remind us that the road was long and arduous.

It's all the more interesting to note that Bitcoin's history continues to evolve over time, thanks in particular to proposed improvements (BIPs) . This very fact—its ongoing evolution—is what makes Bitcoin undoubtedly one of the most fascinating human inventions.

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