One summer day in August 2008, Adam Back got an email from Satoshi Nakamoto.
It was the first time Nakamoto had reached out to anyone about a new project that the pseudonymous programmer or group of programmers called Bitcoin. The email described a blueprint for what a group of privacy advocates known as the cypherpunks considered the Holy Grail: decentralized digital cash.
By the mid-2000s, cryptographers had for decades tried to create a digital form of paper cash with all of its bearer asset and privacy guarantees. With advances in public-key cryptography in the 1970s and blind signatures in the 1980s, “e-cash” became less of a science fiction dream read about in books like “Snowcrash” or “Cryptonomicon” and more of a possible reality.
Censorship-resistance was a key goal of digital cash, which aimed to be money beyond the reach of governments and corporations. But early projects suffered from a seemingly inescapable flaw: centralization. No matter how much cutting-edge math went into these systems, they ultimately still relied on administrators who could block certain payments or inflate the monetary supply.
More “ecash” advances occurred in the late 1990s and early 2000s, each one making a critical step forward. But before 2008, a vexing computing riddle prevented the creation of a decentralized money system: the Byzantine Generals Problem.
Imagine that you are a military commander trying to invade Byzantium hundreds of years ago during the Ottoman Empire. Your army has a dozen generals, all posted in different locations. How do you coordinate a surprise attack on the city at a certain time? What if spies break through your ranks and tell some of your generals to attack sooner, or to hold off? The entire plan could go awry.
The metaphor translates to computer science: How can individuals who are not physically with each other reach consensus without a central coordinator?
For decades, this was a major obstacle for decentralized digital cash. If two parties could not precisely agree on the state of an economic ledger, users could not know which transactions were valid, and the system could not prevent double-spending. Hence all ecash prototypes needed an administrator.
The magic solution came in the form of a mysterious post on an obscure email list on Friday, October 31, 2008, when Nakamoto shared a white paper, or concept note, for Bitcoin. The subject line was “Bitcoin P2P e-cash paper” and the author wrote, “I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party.”
To solve the Byzantine Generals Problem and issue digital money without a central coordinator, Nakamoto proposed to keep the economic ledger in the hands of thousands of individuals around the world. Each participant would hold an independent, historical, and continually-updating copy of all transactions that Nakamoto originally called a timechain. If…
Read more:The Quest For Digital Cash