A short story of bitcoin

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The story starts with a name: Satoshi Nakamoto.

Behind this name is a shadow, a ghost of the digital era. We know he is (or she is) real because s/he put his/her name to the domain “bitcoin.org” on 18 August 2008. Satoshi Nakamoto is also the person who wrote a paper called, “Bitcoin: A Peer-to-Peer Electronic Cash System.” Which is called the “bitcoin white paper”.

Satoshi stayed around until 2010 and then, like that, he was gone. He totally disappeared. Many experts out there are certain that there is no one called Satoshi Nakamoto. The most probable is that Satoshi was a group of people and that, together, they created bitcoin and the first ever blockchain.

The technologies behind bitcoin were invented and widely used, way before Satoshi Nakamoto’s invention. The first modern proposal for digital money was David Chaum´s E-cash, launched by his company: Digital Cash in the 1980s; Chaum was a gifted cryptographer who came up with using cryptography to secure money and transactions in a network.

E-cash´s objective was to preserve a user's anonymity through cryptography. But E-cash failed because it was too centralized and was way too dependent on the banking system. In the 1980s, similar cryptocurrency projects such as Liberty Reserve and Digi Gold were trying to produce a coin which always represented a claim on some other asset (the US dollar in the case of E-cash, and gold for DigiGold). In other words, the digital representation of value (E-Cash and Digi Gold) did not have value in itself, also called intrinsic value. These projects couldn´t achieved what bitcoin succeeded to produce 20 years later:

Absolute Digital Scarcity.

Absolute Digital Scarcity was not a claim on some other asset but had value in and of itself, was very scarce and impossible to hack or controlled by third parties. At that time, the best idea of scarcity was gold (But not digital because the Internet wasn´t born), a metal which was very difficult to find and was impossible to duplicate. Indeed, without the Internet, bitcoin was impossible to implement.

Then, in 1997, a breakthrough happened. It was called: HashCash. It was created by Adam Back and explained at length in a 2002 paper: "Hashcash - A Denial of Service Counter-Measure". While hashcash wasn't useful as a general-purpose digital currency, it did see some use as a way of spam prevention. Then, B-money and Bit-gold were invented but they couldn´t survive as they were unable to offer a solution to centralization.

Decentralization and autonomy were literally out of reach until bitcoin brought all this together. The purpose of this chapter is to make sure you understand that bitcoin did not spring fully formed out of the blue but rather there were a lot of different ideas floating around and technologies that bitcoin really put together in a successful manner. Indeed, bitcoin is the first modern cryptocurrency. Its decentralized structure is unique; there is no central arbiter, there is no CEO of bitcoin which means that there is no way to censor transactions, there is no way for someone to decide that they don't want you sending money to a particular address.