The evolution of key industries have been historically driven by groundbreaking technological innovations that leave an indelible mark on society.
The printing press led to the scientific revolution, the discovery of electricity brought light to the world, radio waves changed the way information was delivered to the masses, and the internet completely overhauled the way we communicate and interact with information.
In the same vein, over the short space of a decade, Bitcoin has had a similarly disruptive and innovative effect on the financial world and the technology underpinning cryptocurrency has gone on to influence a number of sectors in the global economy.
October 31 marks the 10 year anniversary of the release of Bitcoin’s whitepaper, which described the way in which the Bitcoin protocol would work.
Bitcoin: A Peer-to-Peer Electronic Cash System was published on a cryptography mailing list in November 2008 following the initial publication of the work. It was written by Satoshi Nakamoto, the anonymous creator of Bitcoin whose identity could be that of a single person or a group of people.
The whitepaper proposed a system that replaces the need for central authorities like banks and financial institutions to facilitate transactions:
“What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.”
With that being said, the Bitcoin protocol could not have been developed without the foundations laid by previous electronic systems that pioneered decentralized, peer to peer networks using cryptography.
One need look no further than the reference list in the Bitcoin whitepaper to identify the main influences that led to the development of the protocol.
Influences of Bitcoin’s protocol
Wei Dai’s b-money, Dr. Adam Back’s Hashcash, and Dr. Ralph Merkle’s work on cryptographic hashing have long been credited for having vital influences on the Bitcoin protocol.
It must be noted that these three influencers are just part of an extensive body of work on cryptography, timestamping, and consensus protocols that influenced the way in which the Bitcoin protocol works.
Arvind Narayanan, an associate professor of computer science at Princeton, and Jeremy Clark, authored an insightful summary of the various works that influenced Satoshi’s Bitcoin whitepaper.
First and foremost, as Bitcoin primarily acts as an electronic ledger, and transactions are recorded chronologically in blocks using digital timestamps. The work of Stuart Haber and Scott Stornetta on digital timestamps, “How to time-stamp a digital document,” published in 1991 is directly referenced in the Bitcoin whitepaper.
Haber, Stornetta, and Dave Bayer’s paper “Improving the efficiency and reliability of digital time-stamping” was published two years later and is also listed by Satoshi as a reference. Both bodies of work are mainly focused on creating timestamps for electronic documents using cryptographic hashes.
Satoshi made use of the data structure from Haber and Stornetta’s original work so that Bitcoin’s timestamp server takes the hash of a block of transactions and timestamps it before it is broadcast to the network.
The timestamp is crucial, because it provides proof that the data existed before the hash can be created. Every block’s timestamp includes the previous timestamp in its hash, in order to form a temporally linear chain of blocks.
Wei Dai’s b-money described a protocol that would allow participants to transact and enforce contracts in an electronic system in an untraceable way.
B-money’s first protocol proposed that participants of the system maintain a database of account balances, which keep track of the ownership of money. Transactions would be initiated and completed by a broadcast message to all participants, which would update the respective account balances of those involved in a specific transaction.
The second protocol proposes a certain subset of all participants being responsible for updating the account balances of participants.
In its simplest form, the broadcasting of transactions and updating of account balances by users of the network, could be seen as a precursor to the nodes of Bitcoin’s protocol which keep a record of the constantly growing blockchain.
Hashcash has had a far more marked impact on Bitcoin’s protocol, in that it has formed the basis for the cryptocurrency’s proof-of-work algorithm.
Renowned cryptographer Dr. Adam Back, who now resides in Malta, invented Hashcash in 1997. The proof-of-work algorithm is primarily used as a tool to prevent email spam and denial-of-service attacks. The algorithm requires a selected amount of work to be computed before a hash stamp is created, and that proof can then be quickly verified by the receiver of information.
Put simply, a sender needs to complete a certain amount of computational work before it can send any sort of message across a network. When it comes to preventing email spam and denial-of-service attacks, this works exponentially as the sender would have to complete an enormous amount of computational work in order to send a multitude of messages in order to flood the resources of the intended recipient.
In the Bitcoin whitepaper, Satoshi directly refers to Back’s Hashcash system as a reference to the Bitcoin proof-of-work algorithm.
“To implement a distributed timestamp server on a peer-to-peer basis, we will need to use a proof-of-work system similar to Adam Back’s Hashcash, rather than newspaper or Usenet posts.”
Whether or not it was directly intended, the proof-of-work system created by Nakamoto established a mining economy that is highly competitive. The reward for solving the proof-of-work algorithm and unlocking a new block is a certain amount of newly minted BTC.
Not only does the proof-of-work create an incentivized system to keep the network running, it also protects the network against attackers.
If a group of attackers wanted to successfully change or reverse previous transactions in the Bitcoin blockchain, they would have to re-do the proof-of-work of that specific block, and then all the blocks in the chain after that. Even with today’s hardware, this feat is theoretically impossible, unless the attackers control enough computational power to override the honest nodes in the network.
Another vital part of Bitcoin’s protocol was directly influenced by the work of Dr. Ralph Merkle, who is credited with co-inventing public key cryptography.
Merkle signatures and trees were invented and named after Merkle as well. Merkle trees are pictographic trees which contain leafs, and are labelled with hash signatures that contain data of transactions.
In its simplest form, Merkle trees are used to organize and verify stored data which has been transferred on a network.
As the diagram below shows, the Merkle root is a hash of all the hashes of transactions in a specific block in the blockchain. This Merkle root is included in the block header, which allows nodes to verify that any given transaction has been accepted by the network by downloading a block header and a Merkle tree.
Simply put, the Merkle root provides a single hash that verifies the integrity of all transactions under it. This also means that a single transaction within that merkle tree can also be verified by the network, given that the merkle root contains the data of that specific hash as well.
Satoshi’s genius – amalgamating crucial components
With so many critical influences playing different roles in the creation of the Bitcoin whitepaper, it is difficult to identify the most crucial component of the protocol.
The crux of Satoshi’s brilliance is being able to use these different methodologies and technologies to create a working electronic payment system.
Cointelegraph reached out to a number of respected figures within the cryptocurrency and blockchain community to get a sense of how the Bitcoin whitepaper shaped the space as we know it today.
Cypherpunk and software engineer, Jameson Lopp, recalls his first encounter with Satoshi’s whitepaper which spoke to him on a practical level.
“It was about 6 years ago. I kept hearing Bitcoin come up in various tech news sites and figured maybe there was a reason it hadn’t died off. Once I read the whitepaper I realized that it actually solved a fundamental computer science problem and it was then that the project caught my attention.”
Lopp is also of the opinion that no single preliminary project can be credited for having the most influence in the workings of the Bitcoin protocol. It is the coming together of these different methodologies that make Bitcoin work:
“There’s no single piece of the puzzle that I think is more important than the others. Nakamoto’s genius was not any of the individual components of Bitcoin, but rather the intricate way in which they fit together to breathe life into the system.”
Emin Gün Sirer, associate professor of Computer Sciences at Cornell University, has fond memories of his first experience of the Bitcoin whitepaper:
“I read the whitepaper in around 2010 or so. It’s like your first kiss, you don’t ever forget. The clarity of vision, and the aggressiveness of the dream of replacing the dollar, stuck with me.”
Much like others’ assertion, Gün Sirer believes that Satoshi’s ability to coalesce these different influences into a properly working electronic cash system is what sets the Bitcoin whitepaper apart from previous projects:
“Those are just citations. They did play a role in the definition of the protocol, but the core contribution lies in the consensus protocol based on following the longest/hardest chain, which was where Satoshi’s unique contribution shone through.”
While Bitcoin’s whitepaper can be seen as the preeminent blueprint for existing cryptocurrencies today, its most influential predecessors have looked to improve on certain shortcomings that have affected Bitcoin.
When asked if Bitcoin’s whitepaper is the most comprehensive, “fool-proof” methodology for a blockchain payment system, Gün Sirer objected. As the professor explains, projects like Ethereum look to provide technical innovations to Satoshi’s original work:
“Absolutely not. Satoshi has been outclassed in every direction. Ethereum took the vision further to build smart contracts.”
Vinny Lingham, blockchain entrepreneur and industry advisor, also offered Cointelegraph some insightful comments on the legacy of Bitcoin.
Lingham, who founded Bitcoin-based digital gift card platform Gyft, said he was initially skeptical of the cryptocurrency in its infancy and struggled to see it becoming a global currency.
That seemingly changed when he realized that Bitcoin could solve problems they were having with the company, relating to fraud and chargeback problems.
“The initial rise and fall of Bitcoin immediately reminded me of how the internet had ‘died’ in 2000. By using our infrastructure at Gyft, we were able to allow Bitcoin users to spend their Bitcoin at over 50,000 physical locations, using gift cards. No other way to put it, but the results were spectacular, and Gyft eventually sold to First Data for over $50 million. This exit changed my life, and I really believe that I owe it all to Bitcoin.”
Reflecting on the various projects and technologies that shaped the Bitcoin whitepaper, Lingham echoed the sentiments of Lopp and Gün Sirer, who credited Satoshi for creating a fully working digital money system:
“Satoshi Nakamoto’s innovation was that it fixed all the broken thinking with all the projects that came before it, where they were unable to solve the problem of creating digital money. The previous work that was done was incremental thinking at best and flawed, independently. Satoshi brought it all together in a single stroke of brilliance. Ironically though, the mindset that went into the prior projects, seems to be creeping back into Bitcoin, for better or worse, now that Satoshi is gone.”
What do the next 10 years hold for Bitcoin?
As we celebrate a decade since the inception of Bitcoin in Satoshi Nakamoto’s whitepaper, there is a lot to be cognisant of. As the history of Bitcoin shows us, it certainly hasn’t been plain sailing and the challenges that faced cryptocurrency have also shaped what it has become today.
The original protocol, as set out in Nakamoto’s whitepaper, has remained largely the same, but it is the technological advances that have occured around Bitcoin that are likely to shape what it becomes in the next ten years.
As Lopp tells Cointelegraph, the next decade should see Bitcoin become even more accessible and user-friendly – as developers and software engineers create different applications that improve the way we use Bitcoin and interact with the blockchain:
“I expect that the fundamental aspects of the protocol will remain the same, but that implementations will look far different as they evolve and the system will continue to become more complex technically. But I also expect that the user experience will become less complex as we are able to abstract away more of the aspects of Bitcoin that have a high learning curve. Much like as internet based technology has improved over the years, mainstream Bitcoin users will understand very little of how the underlying protocols operate – they will simply follow the guidance of the applications they run on their machines.”
Gün Sirer offers a similar view, suggesting that the next decade will see a period of innovation that will overhaul systems we’re currently using today:
“In another 10 years, Bitcoin will still be around close to its current form, but it will be a side show. The actual systems that people will use to transact value and to execute contracts will bear no resemblance to today’s systems.”
Lingham produced a more measured outlook for the future of Bitcoin. Seemingly disconcerted with a focus on ideological opinions over technological solutions, he hopes that the community can look for ways to make Bitcoin attainable in the years to come.
“It’s clear that decentralization is part of the future, but how decentralized is the more significant question. It’s clear that ideology has become more important than the technology when it comes to Bitcoin, and I’m skeptical on the outcomes, but happy to be proven wrong.”
As for the financial stability and future market outlook for the cryptocurrency, things are starting to look up. As Cointelegraph reported in the beginning of October 2018, Bitcoin price volatility hit its lowest rate in 17 months.
Casting market speculation aside, Satoshi Nakamoto’s Bitcoin whitepaper paved the way for cryptocurrencies to challenge conventional financial systems and banks. For this reason, its 10th birthday is a special one, and there is no doubt that Bitcoin will forever be hailed as the original cryptocurrency.