Unchained - Why Bitcoin Now: The History of Digital Currency - Ep.185

Episode Date: August 11, 2020

Aaron van Wirdum is the technical editor at Bitcoin Magazine. Finn Brunton is the author of “Digital Cash: The Unknown History of the Anarchists, Utopians, and Technologists Who Created Cryptocurrency.” In this episode, they tackle the history of digital currency. Topics include: the motivations behind the earliest attempts to create digital currencies, and who was behind those attempts the Extropian philosophy and how digital currency was born out of it how the cypherpunks came together and eventually began implementing tools that would lead to the creation of digital currencies the problems faced during the development of digital money, from double-spending to privacy, centralization, and spam the development of a public key protocol and why it was so significant the characteristics of earlier forms of digital currency like e-cash, hashcash, b-money, and bit gold, as well as their differences the original purpose of proof-of-work and how it was developed Hal Finney’s essential contributions to the creation of earlier digital currencies, and later, Bitcoin previous implementations of blockchain and how Bitcoin came to reinvent and utilize it which previous digital currencies come closest to Bitcoin and who they think Satoshi Nakamoto is …    Thank you to our sponsors!  Crypto.com: https://crypto.com   Episode links:  Aaron Van Wirdum: https://twitter.com/AaronvanW Finn Brunton: http://finnb.net   Digital Cash: The Unknown History of the Anarchists, Utopians, and Technologists Who Created Cryptocurrency: https://press.princeton.edu/books/hardcover/9780691179490/digital-cash   Aaron's Bitcoin magazine series on the early days of digital currency: https://bitcoinmagazine.com/articles/genesis-files-how-david-chaums-ecash-spawned-cypherpunk-dream https://bitcoinmagazine.com/articles/genesis-files-hashcash-or-how-adam-back-designed-bitcoins-motor-block https://bitcoinmagazine.com/articles/genesis-files-if-bitcoin-had-first-draft-wei-dais-b-money-was-it https://bitcoinmagazine.com/articles/genesis-files-bit-gold-szabo-was-inches-away-inventing-bitcoin   Aaron on What Bitcoin Did discussing the stories: https://www.whatbitcoindid.com/podcast/the-beginners-guide-to-bitcoin-part-3-bitcoins-pre-history-and-the-cypherpunks-with-aaron-van-wirdum  Breaker Mag Interview with Finn Brunton about his book: https://breakermag.com/new-book-reveals-cryptos-radical-origins/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone. Welcome to Unchained, your no-hype resource for all things crypto. I'm your host, Laura Shin, a journalist with over two decades of experience. I started covering crypto five years ago and as a senior editor at Forbes was the first mainstream media reporter to cover cryptocurrency full-time. Subscribe to Unchained on YouTube, where you can watch the videos of me and my guests. Go to YouTube.com slash C-unchained podcast and subscribe today. Crypto.com is waiving the 3.5% credit card fee for all crypto purchases until the end of September. Download the crypto.com app today. This is the third installment in the Y Bitcoin Now series, which takes a closer look at Bitcoin in the context of larger macroeconomic forces, such as the pandemic and geopolitical moves happening in crypto. The topic of today's episode is the history of digital currency. Here to discuss are Aaron Van Weirdam, technical editor at Bitcoin Magazine, and Finn Brunton, the author of Digital Cash, the unknown history of the anarchists, utopians, and technologists who created cryptocurrency.

Welcome, Aaron and Finn. Thanks, Sarah. Thanks for having us. To really understand the history of digital currency, we need to know who the people were who were interested in creating digital currency. Who were some of these original groups of people that were working with? on this and what were their motivations? It's a really interesting community. And I think one of the challenges for us now seeing how Bitcoin has evolved and is evolving is to be able to look back and understand the diversity of motivations that sort of

originally brought them to this. Because everyone, I think, who was working in computer science or early network computing in the 1960s and 70s, they already knew that online transactions were going to be a thing. people were already thinking about in depth what it meant to buy and sell online, what it would mean to have a receipt or sign your name to something or exchange tokens of value. And they also knew that there were ways that they could make it work that would be huge improvements over, say, credit card transactions, which were already existed in a much earlier format. So when we look back at people, like just to put out a few names, David Chown, who was one of the sort of

great early pioneers of digital cash. Timothy C. May, cipherpunk and sort of anarcho-capitalists slash crypto anarchist. Hal Finney, who has obviously become very famous, retrospective for his role in the development of Bitcoin. We see a mix of people who are all trying to figure out how to solve the problem of exchanging digital tokens over what would become the Internet in a way that would allow them to create,

not just commerce, but the country. kinds of commerce that they wanted to see in the world. And I think that maybe kind of brings us to some of their motivations. Some of them were looking for ways that they could exchange existing territorial currencies, but do so anonymously and securely online, the same way that you would pay for something with physical cash. And by territorial, do you mean fiat currencies? Oh, yes. Yeah. I mean, basically currencies, you know, minted and issued by the country you happen to be in. So, yeah, finding a way to sort of exchange dollars just as you would by withdrawing dollars in cash and paying with them. And I wanted to use that territorial distinction because there were others who had similar interests in the technology,

but with the goal of producing tokens that were native to the network, right, that were like sort of particular to transnational computer networks and would sort of draw their characteristics from that new context. So I think it's, we can go through a bunch of these different characters and they're different kinds of interests and goals, but I think it's really useful for us to start with that premise, that everybody knew that this was coming. And the question was, in what form does it come? What are your goals? What are your visions for the world that you want the money to carry out? I think there were sort of two main drives. I think that sort of led to this developments. And I think one half, this is really exemplified by, for example, David Chowell, who was the first who started talking about this, is that if digital, if money becomes digital, that could have a very unpleasant consequence of making every transaction traceable, which means that there might be some database somewhere that's exactly details who's paying, who, when.

And, you know, this could be. this could become like a big panopticon, right? Which is a scary idea, I think, or at least he thinks, and I happen to agree with that. I think that's a very scary idea that someone would have it. Because if you don't have privacy that really affects your behavior, even if you're not sure that someone's watching you, like that's the trick behind the panopticum, right?

Just the idea that someone might be watching you, that's a very unfree idea. And you can't really be yourself and develop yourself. And, you know, we could get into. examples where this, you know, let's say you're a homosexual in the country where the government doesn't have a too fond perception on homosexuality, then, you know, you cannot buy certain things in certain stores because you may get government agents behind you. And keep in mind, being, since this is digital, it's not even just today's government you need to worry about. Like,

if there's a database, then it could be the government ten years into the future that doesn't like homosexuals. And it's, you know, so that's, this. Panopticon is very, or David Chalm at least thought this was very scary. So this was really the sort of privacy angle. And then you had another motivation, which was there's something wrong with our money. There's something wrong with fiat currency. For example, Hayek wrote about this lot like the Austrian business cycle and how the money itself and the way central banks manage it. And just just explain who Hayek was.

I think the first name is Friedrich. Yeah, Friedrich Hayek, he's often also known just as Hayek or F.A. Hayek. He was an Austrian economist. And Austrian economics is a field of economics. Today, most Austrian economics aren't actually from Austria, but Hayek was actually from Austria. University of Vienna, that's where this school of all develops. It's a different way of looking at economics.

It's more of a priori way of thinking about the world and economics. So he has, for example, and other Austrians had this. critique on how money works. And I think this train of thought led Hayek at some point to propose stateless currency. So free market for currency. And I think this was another driver. I would say charm was probably the first, but then when some Austrians and extropians will get to that in a bit, when they sort of realized that money could become digital, they also saw that means we can reinvent money.

We can make a better money in their view, a better money. And yeah, let's talk about the extroprians because they were sort of precursors to cypherpunks, and they're very colorful. Who were they and what were their motivations and what did they want to do? Well, I think this is a pretty extraordinary history. And it's also one that really weaves together those two threads that have just been so well explained. One challenge where both of those sides met, right, the privacy thread and the money reform thread. the new money thread, the global money, free money thread. One of the places where those met was the idea that there was a real danger as money became digital,

that the ways that it was designed could halt or interfere with the kinds of innovation and activity that that digitization might unlock, right? So from the Chao-Mean perspective, if your privacy is being limited, and, you know, and Chaum, I think, had a really, really, prescient fear about this, right? One that has come true in a lot of ways, which was basically it's not just that you're, that could then be used to track you, for example, but it could also be used to data mine your transactions. And like, and just as, as was said, to to use those transactions against you in various ways or to potentially do things like change the prices in real time, you know, to like gouge you around things that were, that they knew that you had to pay for or knew that you had to pay at a particular time or what have you.

So there's a whole sense that like, okay, that will, A, drive people away from digital currency because it will be this bad deal. And B, that will dramatically limit the scope of human freedom in a lot of different directions. And then the sort of monetary reform side, right, you know, new money, different kinds of money, part of the fear, the notion with this, which is, you know, which can be debated. But the notion with this was in part that the ability of sovereign states to control their money and use tools to manage the money supply could potentially interfere with the kinds of investment and innovation and transformation, especially technological transformation, that might be possible if you had other kinds of economics at work. So the reason I say that was that the extropians were a remarkable group in that they really unified both of those threads.

And they were kind of the place where those threads met. And historically, I think the extropians are especially significant because almost everyone who was of significance in the genesis of Bitcoin, like, passed through their ranks in one way or another. Was a fellow traveler, was on their mailing list, you know, hung out with them, was an active card-carrying, extropian, et cetera. So the extropians, these two threads met, and the reason why I wanted to explain them in a little, you know, in a little depth was to understand their unique perspective.

The extropians, as their name would suggest, saw themselves as having a kind of cosmic task. And the cosmic task was the opposite of entropy. Instead of a steady decline of complexity into noise and eventually some kind of entropic heat death, they wanted more complexity, more transformation, more information on like a cosmic scale, more life. Like they thought at the scale of billions of years, they were interested in not just like becoming rich, but becoming like, you know, immortal minds embedded on silicon in, you know, far future physical forms expanding throughout the universe at the speed of light. Like that scope of ambition is a really amazing thing to consider when you think about how it reflects back on, okay, so what do you do today? What do you do this morning?

And the extropian answer was we try to build the platforms that will fuel the innovation, that will bring about things like amazing medical breakthroughs, amazing technical breakthroughs, amazing technology. technological breakthroughs, like, you know, seemingly science fictional technologies that could be realized now, and we will put ourselves financially in the position of being able to take advantage of those when they arrive. Right. So the idea is that if you can build an economic machine that is sufficiently like powerful in terms of driving innovation, of accelerating change, then maybe you could bring about the inventions that would make it possible for you to live forever and to create utopia, right? And like, I say this kind of as someone who really admires the scale of this ambition, but also to emphasize that until you go back and read the extropian documents, it's hard to realize that I'm not exaggerating at all, right? Like, they really wanted to figure out what can we do that can create the greatest possible future for trillions of minds over billions of years?

And the answer came back to one of the things is develop digital cash. Yeah, there's this futuristic ideas, of course, always. existed like something like start track comes to mind but what really was dexropians really it was first of all they thought as something that was very realistic like that could actually achieve with actual technology that's improving exponentially so within their lifetime you know they could live forever for example and the other thing is that instead of some sort of star trekian benevolent government that is sort of like a perfect people made central planning thing or democracy or whatever.

The extropians, I'm not a Star Trek fan. I don't even know exactly what kind of what kind of the look like. But the extropians, they really saw it as a free market thing. Like they had a very Austrian economics idea about it and freedom and individuals should realize this progress and governments was interfering with that. Like governmental regulation was standing in the way. If you just let individuals be free, if you just let markets be more, markets, then this futuristic utopia could become a reality. That's what I would add.

Yeah, and actually that brings up a really good point, which is that one other kind of way of, I think, understanding some of the unique elements that went into digital cash as it evolved and eventually into Bitcoin was exactly that fact that they were, and part of what they inherited from their interest in Austrianism was a fundamental commitment to emergence, right? that like sort of superior things came about not through foresightful planning, but through the emergence and interaction, the emergence out of the interaction of unknown complex factors, right? So that means that they really wanted to design a kind of digital cache that had the minimal amount of oversight, essentially, that could kind of like enable, enable things to evolve with the least amount of control, which is, you know, in many ways, something that's very different from almost any other kind of money that has been sort of, developed or administered. Yeah, and you see that ethos almost in cryptocurrency today.

And by the way, so I know many people will listen to this on the podcast, but also we do record this on video. And I just can't help but notice that there's a poster behind Aaron's head that says cyphurpunk future or something. The future is now. Yeah, what is that? That's a print by Martin Fisher. He's an artist from Prague.

he was involved with a art collective and they founded the Paralani Polis I don't know if you've heard of that

Yeah I have Yeah it's like a collective of artists and hackers and they got really into Bitcoin as well And so this is

part of this series on Cypunk I think the series is called Cypherpunk Futures now Okay Okay Yeah I wondered

if it was some relic It's got an email from Tim May I think it's the Crypto Manifesto and prints it on it. Oh, yeah. Yeah.

Awesome. Interesting. All right. Well, so yeah, one other just like little comment I wanted to make about the extropians was when I was reading Finn's book. They also had reputation currencies

that were kind of like almost like a personal token basically. And there was something about it. I was like, oh my gosh, this is like cryptocurrency, but just a long, long time ago. So it was pretty funny. But anyway,

I actually also wanted to ask, so what were the main problems that these creators of digital currencies were trying to solve? I think probably many of them are well known to Bitcoiners, but, but, you know, let's just go through them so people have a baseline. I think that's skipping ahead a little bit, but that's fine. Oh, because we didn't get into the cipherpunks. Yeah, the cypherpunks are like, they were sort of doing it step by step. Let's, yes, sorry, that was the second part of my question. And I forgot that we didn't get into that part. So let's talk about that.

Okay. Well, I would say the first problem, the main problem, the main problem that any digital currency scheme had was the double spending problem. Right. So if you make cash digital, if you make money digital, then the central problem there is that if you have a digital dollar bill, then you can just copy it and spend it to two people, right? And that sort of defeats the point of money. I would say that's sort of the central, the main idea, but there's many problems they solved. It was sort of a step-by-step process towards Bitcoin where they figured out to solve one problem after the other.

You know, privacy is one. But let's talk about the cypherpunks. Like how did they come out of the extropians? How were they different? How were they similar? What were their motivations and what was their philosophy? Can I start this one, Finn? Yeah, go ahead.

Yeah, yeah, yeah. Okay, okay. Yeah, so David Chalm wanted to create digital cash, right? Like he wrote, he had this idea of how to do it. He had an idea of how to create digital cash. And by digital cash, by the way, I specifically mean privacy. He was on the privacy side. He cared about privacy.

This was in 1980. This was just after public key cryptography was even invented. It was pretty fast. Now, he ended up in Amsterdam because he had a girlfriend there. And then at some point, he won a government contract to create a digital toll booth system. The Dutch wanted to create toll roads on their roads through some sort of electronic system where they track which cars are driving where. Well, Chalmphot, that's not a good idea.

I don't want the government to know where each car is driving. So I have a better idea. I have a private solution. He was able to convince the government that that was in fact a better idea and that he was able to do it. So then he founded a company called DigiCash. At this company, he created this toll booth system. But then he also, as part of the company, he also wanted to create a digital cash system. Okay, so this digital cash system was centralized, to be clear.

There was a central database at the company, but he used clever cryptographic schemes to make sure that the database, ideally, or at least the people, yeah, it's a bit complicated. It's a bit nuanced, how private it was, and there was a lot of debate about this. But the general idea was people paying each other don't know who they're paying. Don't know the real names and the companies shouldn't know either. Because you asked about cypherpunks. I'll all sort of get to cypherpunks.

Eric Hughes, he was interested, it was an American, he was interested in digital cash. And he actually went to work as digit cash. But he became disillusioned because some of the choices that digitcast was making. I have to scrape my memory, what his problems were with it. I don't remember. He had some problems with how it was being designed or how the company was planning to make money or something. I think some of it was, and I don't know exactly what you're referencing, but I think some of it was the business decisions that Chom could not make where he was getting all these really amazing offers like from Microsoft. No, is that different?

That was much later. Oh, okay. Yeah, that was much later. Eric Huse was like in the early days of the company and he immediately had some problems. problem and it had to do with being able to use the system offline and that came with a bunch of trade-offs as opposed to just using it online without trade-offs like it had some sort of secret chip in it like an old-forgonable chip there's a better term for it to and it was that was his problem so after a couple of weeks he was out he wants to move back to california and he was

looking for home near the coast and he met up with an old friend called tim may timay had been working at Intel had made a lot of money because he solved a big problem and he had stock options and at one point he did the math and he figures, you know what? I'm 34 years old, but I can retire. Some fall like that. Around that age. So he retired. And he spent a year on the beach, bought a house near the ocean and he spent a year on the beach reading books and he was reading a lot of cyberpunk books. And also economics and these kinds of things, but also cyberpunk. And Cyberpunk is sort of this vision of the future where the internet had some sort of parallel role in society.

That was usually one of the themes of cyberpunk books. He got into contact with another, sorry, this is becoming a long story. Temay had another friend who was starting a company that was about selling information. The internet was brand new. This was like late 80s, early 90s, late 80s, I think still, when this happened. His friend was thinking of starting a company about selling information. information and then Tim May realized, wait, if you can sell information anonymously, that could completely change the world.

Because if you can sell data anonymously, that means you can sell secrets, like government employees can sell secret data, corporation. If you're working at a big company, you can sort of anonymously sell the secrets of that corporation and completely, in his mind, there was a revolutionary concept that you could anonymously sell information online. In order to do that, you needed something to sell it with anonymously. So you needed digital cash. Okay.

Eric Hughes and Tim May met up and they started talking about this kind of stuff. And Tim May went feather in his mind. Like he started to think about if this is possible and if we have digital cash, the potential is complete disruption of government. Like it could realize an anarchic vision of the future where people don't pay taxes. this, there's no such things as government secret, it's all of that. So it was a very anarchist vision. Temei and Erickus started to talk about that, both super fascinating about this. And then after a couple of days, they came to the real, they asked themselves, they questioned, if all of these amazing tools exist, because they had been invented in the 70s and 80s.

If all of this stuff exists, then where is it? Why is no one actually using any of this? And that's where they came to the idea. That's where they got the idea to found a cyph. which was a group in California. At first, they met physically. They met physically at Eric Hughes's house. I think there wasn't even furniture then, so they were sitting on the floor.

They were discussing these ideas and they were, they made the plan to actually use these tools and make it a reality. Allow people to discuss conference, converse online anonymously, anonymous cash, anonymous information to markets, all of this. So that, that was sort of the cypherpunk. ethos is all of these tools exist, let's make them a reality. That's what they agree to do. Yeah, Finn, what do you want to add? Yeah, yeah, no, I would love to add. I think that's a fantastic account of like the whole kind of trajectory of this history.

And I think also like in that account, you can sort of see the different problems that are coming up. That they're, you know, that they're sort of going to make up the manifest of stuff that digital cash needs to be able to do and how they're trying to address those problems. Right? So it's going to have to be, it's not going to be like a credit card where like you verify your identity, you know, and then that and then like a ledger is debited somewhere to switch it over to someone else's identity and all these transaction records are being produced. Instead, it's going to be like a token. It's got to be a token, but that means a token has to be uncopyable, right? Like, I have to be able to transmit it to you without us being able to, you know, trivially duplicate it. It has to give away nothing about our transaction. But there's another, like all the kind of problems that we can see in like the bullet point list at the beginning of the Nakamoto white paper about Bitcoin, right?

Like all the issues that Bitcoin addresses. But then there's another sort of bigger problem even in some ways, which is threading through the, the story of the cypherpunks, which is what you would use this currency for. And I don't mean that in just a kind of trivial, like, what could you buy with that way? But like one of the ways that you make a currency not just valuable, but something that is in use, something that is, as they say in the currency business, passing current, you know, like something that people actually transact, is you have to make it something that can provide access to value and to potentially sustainable value over time, right?

Like you have to assume that when you put money into this, the value of that money is going to be stored in some way. If it diminishes, it's diminishing on some kind of known schedule. So this was one of the problems that they face. Like one of the ways that May put it, which I think really captures the problem, is that he challenged people on the mailing list. He said, we've built anonymous email systems,

and those are technically challenging, but they're socially easy because everyone gets, what anonymous email is. But when I say that we need to make a digital coin, what is that digital coin? And when I say, here, I'm giving you 10 digital coins, what makes that something that someone else is going to use, that they're going to like make a part of their lives, that they're going to start essentially having more and more of a personal stake in, which is what will really help to get that currency over the line into actual circulation. And, The answer to that, and I think this is a place where you can also see some of the challenges that these currencies were going to face,

the answer to that that May presented was that we're going to start by making it a way that you can access kinds of things, kinds of value that you can't get any other way, right? Like, he had a fantastic section in this long manifesto that he wrote, where he lays out all of the different communities that are going to drive the adoption of digital cash and related anonymizing technology. The way that we do identify everything that is currently excluded by law or custom from existing areas of commerce. And then we make this into things that can be. So from that perspective, one of the reasons for understanding the importance of that it starts out with the idea of selling secrets is right, that like this can make something really valuable. May hypothetically sketched out a system of crypto credits.

And part of the premise of this crypto credits was that you could get them as payment for selling secrets over the. synonymized secret sharing platform. It's sort of like WikiLeaks meets the Silk Road almost in some ways. And it was a direct inspiration for both of those. But he says, okay, so you can be paid in those crypto credits, and then you can use those to buy other information. And this is not what the currency is ultimately going to be, but this is the wedge that helps to break apart the structure of existing currencies.

This is the thing that is what you can do with this currency that you couldn't do any other way. And this is what will help to drive its adoption and circulation. And I think that really helps us understand that this was a bigger problem that a lot of different digital cash projects faced. Not just what can you use it for, but what kinds of value does this let you access that you couldn't get any other way? What's the kind of, as it were, literal, unique value proposition that this is going to offer to you? Yeah. And so now we're almost halfway through and we haven't even dive.

into some of the actual solutions that came along the way. But quickly, why don't we just go over? So I think probably some of the other main problems that these creators of digital currencies were trying to resolve in addition to double spending and privacy or centralization, you know, having a central point of failure was something that they had to overcome. Spam was another one. There was kind of one key technological development that happened early that helped kind of enable these different digital currencies. And this was the development of a public key protocol by Whitfield Diffey and Martin Hellman. Can you talk about, you know, what this was and why this was so significant?

So this predates digital cash, right? Public key came before digital cash. So for context, before public key cryptography, cryptography itself was really something that belonged in the realm of like secret agents, secret agencies or government agencies or the military or these kinds of domains. These were the sort of people that were generally doing encryption. And one of the major challenges they always had was that in prior encryption schemes, it was always the case that the public, the decryption key was the same as the encryption key.

So that's called symmetric encryption. What's with Phil Diffey really and the Hellman really invented, this public key cryptography system where you can publicly share your key with anyone and then anyone so with symmetric encryption sorry i should have mentioned this the challenge is that you can only communicate privately if you first met in real life in some way because you've got to exchange the key if you exchange the key over an insecure line then the snoop can just listen to the key and then listen to your whole conversation so really only works if you meet up somewhere now an edit better than so public key cryptography allows anyone to communicate privately without having to meet first

another added benefit was that you could sign messages so you could if the world knew that this is if the world knows that this is my public key then i can sign messages with this which is a mathematical trick doing a mathematical equation on other data and then i proved that the only person that could have done that is the person who has the private key that corresponds to the public key Right. So this trick of owning information, this is used in digital cash schemes to prove ownership. So there are, you prove at least in Bitcoin and let's see. Well, anyway, so you prove ownership over a specific coin by signing away ownership. I forgot your question, but does that answer it? Yeah, yeah. Well, just to understand, you know, what it was that they developed and why that was crucial

to the development of Bitcoin. All right. So in a moment, we're going to. going to talk about the early forms of digital currency, such as e-cash and hash-cash and B-Money and B-Bit-Gold, etc. But first, a quick word from the sponsors who make this show possible. The ScoreBet app here with trusted stats and real-time sports news. Yeah, hey, who should I take in the Boston game? Well, statistically speaking. Nah, no more statistically speaking. I want hot takes. I want knee-jerk reactions. That's not really what I do. Is that because you don't have any knees or... The score bet.

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How did it work? What breakthroughs did it contain that later led to Bitcoin and what were. its flaws. I can maybe, you know, just kind of provide a very kind of cursory overview, which was that and one of the things that really distinguishes it from a lot of other kinds of digital cash that came subsequently was the notion that you didn't have to worry about how it was minted, right? Like, you didn't have to worry about how it was created because it was not new money. Instead, it was a format that you could transfer your existing money into that would let you spend it digitally without, like it would let you spend it digitally in a way that was as analogous as

possible to exchange in cash itself. So the notion was in very, very simple terms that when you withdrew each cash, it would take the form of just like withdrawing money from an ATM. And you might even do it as an ATM into a payment card, but it would not be like you were handling, you know, a debit card or a credit card where you swipe it and it checks in with the central ledger and then it transfers the money if you can prove your right to transfer it. Instead, it would be as though you had an envelope of physical cash with you. If you lost that card, the cash was gone. The reason why that was especially important was that that meant that you were holding a kind of digital money token that didn't need to know anything about you.

So you could get into your cab or go to your convenience store, slot it in, authorize the transfer of the money. And then at that point, their point of sale terminal would be able to check in a way that ties very nicely back into how Aaron was just describing public key cryptography that could check and say, is this money token signed by an issuing bank? Right. So there would be like, you know, basically Wells Fargo's, you know, key would be used to sign this token to say, we will redeem this token for 20 U.S. dollars, blah, blah, blah. So it would check if that was okay. If so, it would transfer that into the. like the wallet, as it were, the digital wallet of the merchant. And then the merchant could bring that in and deposit it.

And it would be just as if they're taking in that like zip bag from, you know, a retail store filled with cash. So a couple of reasons why that sort of layout is really important for understanding how different something like Bitcoin is. The first is that they didn't need to build any kind of technical minting mechanism to limit the production of money because that was a central bank issue. All this is is a format. The second thing is that it anonymizes you, but it doesn't anonymize the merchant. And that was part of the promise that Chau made, right? That, like, the person who deposits this digital cash is going to have to deposit it into some named bank account if they want to redeem it for money that they can spend.

That means that it's money that makes the customer anonymous, but would still be very difficult to use four purposes like money laundering, you know, bribery, blah, blah, blah, blah, blah. And then the sort of last tricky detail about it is goes back to that point about toll booths. So like, how do you make this work if you're not in a situation? Because remember, we're talking about the 1980s, 1990s, you know, we're not all blanketed in like, you know, LTE data everywhere. How do you make it so that someone can't just spend the same signed money token at a bunch of different places? is and then like, you know, and then all those merchants try to deposit it. Maybe the first one gets it back and everyone else is told, sorry, you just accepted a bounce

check and we have no way to connect it back. And Chalman and a group of collaborators came up with a wonderfully elegant set of solutions that were basically such that if you spent the same money, I believe more than twice, then there was a way in which that could be used to de-anonymize that money. So there was a whole set of solutions. But again, the whole premise here is that it's not digital cash the way that we might think of it. It's literally just trying to make existing money digital. So this might be a really nice way to kind of segue into something like hash cash, which is a way to try to think about like how can we produce money that is not about translating central bank money digitally, but instead about making natively digital money.

Yeah, before we get into hash cash, let's talk a little bit more about e-cash and digit cash. So Digicash was the company and it was using this eCash system. And it was generating quite a bit of buzz and getting a lot of multinational companies interested in using it. So what happened with it? Well, Laura, that depends on who you ask. Yeah, I can confirm that. You get some different stories about how that would. Chaum and the company was basically selling a technology.

Like Finn said, they weren't necessarily creating money themselves. they were creating a money layer like you could layer it on top of other on existing currency so a bank could for example use this to issue digital cash and apparently there was a lot of interest for this and definitely a lot of buzz around this company it was seen as sort of one of the next big things that that you know silicon valley and during uh during the 90s people were talking about like um you know the companies that that were big then were like yahoo and these companies And DigiCats was definitely seen as like one of the potential next big ones. Apparently, Chalm got a couple of fairly good offers.

Maybe he didn't think they were as good. And for some reason, there were no big deals struck. And at some point, they started to annoy employees at the company. And that's kind of when it started to fall apart. I think this is a version of history that's hard to disagree with. the disagreement is to what extent Chaum was maybe at fault or like to what extent he was being

too stubborn is what some people will claim you know he clearly he definitely doesn't think that was the case so yeah yeah and I did also see oh just quickly I did also see some people saying that he had kind of a cypherpun sense of paranoia

that you know maybe some of the deals weren't as good as they appeared and that kind of thing, which definitely that is part of that ethos. And Finn, what were you going to say? I was just going to say that I think we, you know, he really, I think we can look back at that moment and digit cash and really kind of understand where we are now in terms of a prediction that Chow made. Like I believe in his testimony to Congress in the early 90s, which was that if we don't get

good privacy protecting digital cash by design, then we are. going to get digital cash that just routes around territorial currencies entirely. I think he really foresaw the idea that he had come up with a really specific framework for how this could work that would allow it to play really well with existing institutions. And if that didn't come to pass, people were going to just start building their own. Yeah, that's also one of the reasons why Chao and the Cypherpunks didn't always get along as well. The other, there was also patents, the debates between them. But yeah, because like Finn explained, there were actually some ways in which e-cash users could be de-anonymized.

It would, there were a couple of, it would, for example, required the spender and the bank to cooperate. But anyways, so there were some weaknesses and cypherpunks really, really didn't like that. And then they couldn't build their own version of it because Chalm had the patent. So there was friction there. But yeah, Chalm thought the cypherpunks were actually too radical. They were too radical for his days. The stuff I just explained about Tim May's vision of anarchy and crypto-anarchy. Chelm wasn't really on board with that.

So that was, so yeah, he did make this prediction. Indeed, Finn is right. He made this prediction to Congress that if something like e-cash wouldn't be adopted, then something more radical would come along. And here we are. Here we are. So that was back in the 90s. And there was another development.

This was proposed in 1992, which was proof of work. And it was just proposed in a paper. And obviously, that's a key technology in Bitcoin. Who developed that and how does it work? And what was the original purpose of proof of work? Yeah. So the first version was developed by, what turn, Dwar and Nowor? Yeah, Cynthia Dwork.

Yeah, Dwork and Nower. Yeah. So it was meant as postage. I know I'm not exactly I've never interviewed Have you interviewed them Finn?

I spoke with Adam Beck a lot Yeah I've said with Adam Beck a lot of course who reinvented it so I'll just tell I'll just tell you Adam Beck's version of the story Is that okay

Because I know more about that And I think that the motivations were similar I think Like they wanted to invent the same thing And the Beck invented Reinvented it individually A couple years later So yeah the idea was that

during the 90s, you know, around the mid-90s, spam was becoming an issue. Email spam, just, you know, it's free to send as many emails as you want, so you can send 10 million emails trying to sell penis enlargements or whatever you're spamming. And then there was also the thing with the Cypherpunks, they had remailers. So they were offering technology that was allow you to email through them. And you could email through a network of remailers. And that, it's kind of like Tor. They have similar technology.

So you could use that, but these were being spammed as well. People were just sending spam through these remailers. So that was costing all sorts of resources for the people that were running these remailers, which included a lot of the cypherpunks. They would run that stuff themselves to offer privacy to anyone who wanted it. But so, yeah, it was being abused. So they were starting to think about how can we counter this abuse? and they will start to think in the direction of postage for the internet.

But then the question is, how do we do a postage? Now, one way, I should note, another solution to deal with spam is to have it banned by the government. But the problem with having it banned by the government is that you get the government involved in deciding what kind of data people can send to each other. And the cypherpunks really didn't like this idea, in part because, you know, this would be the camel's nose, under the tent. That's the English expression, right? Like if you let government decide that, then who knows what else they'll decide and it will end with like

driver's licenses for the internet and all this. So they wanted to come up with their own solution for that. And the solution they were thinking is like, we need a post system. So we need something that resembles postage. There were a couple of ideas about it. One idea resembles ECAS just use ECAS as postage, but postage, but ECIS wasn't really. ready yet and they had their own problems with shopping and all of that.

So then at some points at the back came up with the solution of proof of work hash cash, which meant that there were implementation details that could differ. But the general idea was that if you mail someone, then you need to actually first solve like a puzzle. It's not really a puzzle. Actually, Dwarz and now worse version was a puzzle and then back a bit different. But you need to prove that you spend. energy, which means you hash the email a bunch of times until you get a hash of the email that would be considered valid by whoever is accepting the email.

And because not all of the hashes would be considered valid by the protocol, you'd have to try a bunch of times, this costs a little bit of energy, and only if you've done that, they will accept the email, otherwise it will just bounce. Now, the idea is that if you're sending an email alone, it would just cost you five seconds of computing power or something like that, so it's not really a big deal. If you're a spammer trying to send out penis enlargement emails, you have to do that 10 million times, and that's 10 million times five seconds, and now all of a sudden it's going to be super expensive to spam everyone in the world or spam these remailers.

So that's at least Adam's back motivation for coming up with that. I'm assuming Dwar can now have a similar idea of the problem. And just for people, because now we're getting a little bit of technical. And I know not all my audience is very technical, but a hash is like a random string of numbers and letters. And it's kind of hard to create, but easy to reverse an engineer to check it and verify it. And so that's, you know, it's kind of commonly used now in Bitcoin and cryptocurrencies. But now let's just talk about hash cash. You know, we've been talking about Adam back. And in 1997, and currently Adam is well known. He's the co-founder and CEO of Blockstream. And in 1997, he proposed hash cache to the cypherpunk mailing list. And so who was he at that time and what was hash cash cash and how did it work? I think, yeah, I think it's been very well explained kind of the goal. And I think one crucial thing to understand about how Adam was proposing it was that he, it begins, like in many ways, part of what he's worked out is a technology with a lot of different potential applications that people can.

start kind of, you know, feeling out what it's going to be like. And he writes this kind of series of papers and proposals and emails, which are pretty fascinating because you can actually watch the idea evolve, right? Where it starts as thinking, you know, as thinking of it as like some kind of postage system. And one particular aspect of that to understand is that hash cash would be unique, right? Like each, I believe, the exact way that this worked involved the notion, right? Because hash is, you know, this sort of, you know, string of data. And you can set particular parameters around like how, you know, unlikely you want that version to be so that you can essentially escalate the amount of work that it takes. But nonetheless, it's a string of data that's based on existing data.

And so part of the original sort of system for hash cache was the idea that the original data would be, for example, your email, the exact time stamp when it was sent, the from and two and so on. And the reason for that was that that would make it so that a spammer could not simply like generate, hash cache in five seconds and then just, you know, Control C, Control V on to 10 million emails. So the UD is it has to be like uniquely generated for each message. So the reason why that's especially interesting is that it begins to dawn on all of the kind of the circle that Back was working with, the larger kind of cypherpunk community that if there could be a way that you could use

hash cash to not just create like unique one-off, like, you know, bits of, of proof of work for particular emails, but as some kind of effort limiter that you could like reuse or link to some like larger project, well, there might be a lot more that you could do with this technology. So in, I believe it's 2002, back has been reading and thinking about some posts by Way Dai, who has become obviously like very kind of very famous

and in our world, in our community for coming up with the B-Money model and a variety of different kinds of ways. of thinking about digital currency and making a lot of contributions to cryptography more broadly. And part of the premise of B money is that, okay, what if we had a kind of digital currency that we could exchange and that all of the people who held it could collectively be part of the, as it were, bank that issued it. And back begins to talk about, well, what if you could actually use hash cash cash as a kind of minting mechanism for a currency.

So you could actually use hash cash cash as a way of saying, we will make it this level of difficult to produce new currency. And then if there's too much currency floating around, the community can make it this level of difficult and slow down the production of new currency for a while. There's a lot of different ways of thinking about this. But now you can start to see an answer to that question of not just what stops double spending,

but what stops you from flooding the market by, control C, control Ving your currency over and over again. Well, maybe the answer is a hash cash-cash-like tool that can slow down or moderate or demand work for the production of digital money. And so that's where we see how... Was hash-kash ever used? There were some interesting like test versions and there have been like other applications that are not in this exact lineage of people using these kind of like small-scale proofs of work. But the, as far as like being applied to money goes. I don't know from the institutional side, but from the cypherpunk side, I believe

people start really exploring how to use these ideas, and they always credit back and they're all in conversation with each other, but it doesn't necessarily take the form of hash cash cash as such, right? Like, they definitely were actually able to get it to run. Like, we have, you know, emails that Hal Finney was sending that are kind of experimenting with hash cash. But when we start to see it actually being used, it's often in the form of something like Hal Finney's usable proofs of work system, where he basically says, He came up with a really ingenious way to have proofs of work that you could generate, that you could then essentially turn into a server that would say, like,

okay, this has been deposited with me. I'm going to verify that this is still valuable. And then I'm going to issue it again that someone else can use it in an exchange. So we can see the premises of digital currencies appearing based on hash cash cash, but that's kind of where they're already starting to mutate. It turned out that if you put a hash cache filter on your email inbox and no one is using hash cache, then you're never getting any emails. So it sort of had this chicken and egg. It had sort of this chicken and egg problem and as hash cash cash for email, that never really caught on.

But like Finn said, it was like a, it was a major milestone. What it sort of did was it tight real world resources, namely energy. and it tied it into the digital world. So now you had something digital that proved that it had real world resources being burned in this case. It tied the real world to the digital world. That was sort of the big...

And that's why people start thinking about it in terms of money. Because, yeah, for money, money needs to be scarce. That's one of the things money need to be. So if you can tie real world scarcity to it, then that works. The problem with Hashcast as money was that computers get faster every year, much faster every year.

So then it gets much hard, you know, you have this risk of inflation. If you have a certain difficulty for which hash cash cash would have had, then it gets easier to create new money every year and after a couple of years, you know, the system gets off-run by inflation, cheap money. And like Finn said, so yeah, that was sort of the next problem they had to solve. Like how do we solve this inflation problem? And that turned out not to be so easy. Yeah, and eventually did get results with Bitcoin.

But before we get to that, two things. So first, let's just very briefly talk about who Hal Finney was because he's so important and we haven't really discussed him. And then we'll talk about B-Money because that was the next digital currency. So just very briefly, who was Hal Finney? Halfini was a digital currency enthusiast from the earliest days. He was on the Extrobium mailing list and the extrobyan meetings where he was already, you know, that was sort of his thing, digital cash.

And then he became part of the cypherpunks. And again, he was always on the sort of front line of the discussion of digital cash and what it should be. And every time someone had a proposal, he was the first to jump on it, review it, explain it to others. At some point, he created his own digital currency, Arpao, which Finn briefly mentioned, which was based on proof of work and had this same type of chip that I mentioned. in the context of Chaum system.

There's a better term for it, which is escaping me the unfortunate type of chip. That's what he used. But yeah, Halvini was always there. He was always on the front line of digital currency discussions, debate, review. He was very much a figure of, and I feel like it's really important to, like, capture the way that when you look back over the history of digital cash, like he's always there, just as is what said, right? Like to the point of being, you know, like Nakamoto's correspondent. and like a key figure in the very earliest days of Bitcoin. But he was also in a way that I want to like, you know,

especially because he passed away, you know, quite young relatively and very, you know, tragically and unfortunately, that he also had a real role of like emotional leadership in a lot of ways, like through the whole history of this. When he was, you know, just arguing with psychopunks about directions that they could be developing digital cash tools. He said that, and this always really struck me in the context of, you know, this, you know, just mailing list or people are arguing over technical points. He said, we may look back on this and understand that this was the most important work that we have ever done, you know? Like, he was really someone who kind of like carried the torch for a lot of these projects.

But yeah, so he and he is, he is someone as well, I think helps us kind of segue maybe into the Bitcoin era a little bit because he really like, you know, carried a lot of these. same projects and ideas and questions straight from the periods we've been talking about into Nakamoto's publication. He was also just to mention that he was also a major contributor to GPG in the early days. Oh, which is... Am I saying that right? Yeah. Yeah, pretty good privacy, which is, just remind me with it.

It's a protocol for, is it encrypted? For public key cryptography, yes, to communicate, which was sort of the first implementation of that idea that would feel Diffy and help. invented. Okay. Yeah. And so, yeah, let's move on to B-Money, which brings in another character who's really important. In 1998, Waydie proposed B-Money.

And Aaron, in an article on B-Money, you called it Bitcoin's first draft. And I remember when I read about it in Finns book, I made a little note, is B-Money the closest precursor to Bitcoin? Because when I was reading it, I was like, whoa. But let's talk about, you know, who was Way-Dye? And then, Aaron, why did you call B-Money a first draft of Bitcoin? Well, I actually had to correct that, Laura. I think I mentioned it in a note in the article because it turned out that B-Col's and so there was Zabo's proposal.

And B-Money, I think B-Money actually predated B-Money. I didn't know that when I wrote the article. But it was very close. Like they were discussing on the same mailing list, Zabo and Wai-Dai and others. They were on the same mailings, not just the Cypherpunk mailing is also. another one. So it's, you know, they're contemporary contemporaries. That's the word, right?

It was the same time. But yeah, B money, what's interesting about B money, several things are interesting about B money. But one of the things that is interesting about Mimani, and Finn mentioned this, I think, is this idea that the ledger of ownership of the currency itself, in Chalm's case, at Digi-Cast, this was centralized. And it's meant, actually, they had the play money version of e-cash as well, as well and people start to value this and actually it was called cyber bucks and people actually had

this play money but they started to value it so it was sort of working as money but then when digitcast went down then all of a sudden the central server was down so their money was gone right so it had this central point of failure b money was one of the first attempts to solve this so instead of a central point instead of a central server that was maintaining maintaining the balances of everyone they shared this now it It's a little bit hand wavy how they would have done this and how they would have solved certain problems. Or to put it differently, they didn't solve all the problems. But it was a big step. But I think that was, I would say that was probably the most important idea.

That's what I focused my article on, at least that the ownership of balances was maintained on a district, did this decentralized distributed ledger? Every time someone makes a payment, everyone updates their ledgers. So everyone has the same idea of who owns what, not just one. person. So anyone, there's no central, nothing can be shut down. Nothing, no one can cheat. No individual can cheat about how much they own because then the rest of the network would just notice that and not accept that version. There's no pressure point for the government to targets and to maybe install all sorts of regulation or, or, you know, this sort of, by decentraling, distributing the ownership of currency. That was a, you get, you get, you. You get, you.

you do away with the central point of failure. I would say that was the big innovation that both B-Money and BitGold around the same time brought to the world. And what was the flaw in B-Money? Like, why didn't it go anywhere? There were a couple of problems with it. I would say one problem was it's,

well, so for example, the double spending problem was not really solved because if I, you know, if I copy my coin, so to say, and send the same transaction, well, the same coin to two different people on two different parts of the network and they do it at the same time, then they both haven't updated their ledger yet for the other transaction. So it's sort of conflicts then.

They're both going to argue that their transaction was first and there's no way for the network to sort of resolve this. Now he had some sort of idea of maybe having tires of users where some users would be sort of like power users and others would be more like client users. and then these power users would have to sort out, who was first? Another problem, I would say, is how to get the money into circulation. He had some ideas about it. He had some idea about either these power users could figure out how much new currency was needed,

and based on that, adjust the proof of work difficulty, like Finn just mentioned. There were some other sort of rough ideas, but that's how I would describe him. They were rough ideas. It wasn't a final design of a system that could have been implemented. It was a great innovation in that it was a good idea, but it wasn't quite. The details were so a little bit murky and hand-wavy, I would say. And one thing that was interesting was what you described with the power users. They would kind of obtain that position by putting down a deposit, which could be slashed.

And so it's essentially a proof of stakes system, or what we would. recognizes that today and I found that pretty fascinating. And there was another difference, which is that B-Money had a different monetary policy from Bitcoin. What was its monetary policy? Yeah. So Vida's main idea was that there would be a basket of goods in the same way that we have a basket of goods now and central banks use this to sort of manage inflation. So there would be a basket of goods and oh, I have to think about this. It's been a while since I wrote that article. every time someone hashes a new thing, it should be worth that basket of goods.

So it's a long time. Well, the main thing is he wanted it to be a stable currency. He did not believe in... Yeah, that's for sure. That was the goal. It was very much like, yeah, it was a way of kind of reinventing the, you know, the notional goals of a central bank

for a way that like the kind of power users who are holding the currency would be able to act in its best interest as a kind of central bank, but with some really interesting, like, yeah, kind of almost computational like ratchet mechanisms that would sort of help them have the tools to keep that value constant. But yeah, it's very, it's, I mean,

I think it's also really interesting to look back at things like this. And likewise, at a bit gold as well, and to kind of see them as examples of things that we're really trying to think about what long-term stability would look like for a digital currency, right? Like, you know, with all due respect to the extropians, they were not afraid of like bubbles or, you know, crazy runaway speculative booms because those might be the accelerants that they would need to sort of, you know, crank up the motor of, you know, far future innovation. And it's really interesting to look at some of these and see the ways that people were trying to look at gold.

We're speculatively talking about baskets of goods. We're looking at inflation management. we're trying to kind of think about how you would create something that would be more about stability as a store of value over time rather than like volatility as a speculative instrument. And so Big Gold, I guess, was developed by Nick Zabo around this time, but I don't think he publicly described it until 2005. And he had actually worked at DigiCash under Chom. What else can you tell us about who Nick Zabo was at that time and then tell us,

a little bit more about the characteristics of BitGold? Yeah, it was definitely early Cypherpunk as well. Although he wasn't as active on the list later on. I think he was mostly active in the early days and he really cared about privacy. And he things, I would say, you said, yeah, he only publicly posted the idea for BitCold on his blog in 2005. But it was definitely, it was, so this was the other mailing list I mentioned. They had another mailing list and apparently with White I, for example.

And apparently that's where he posted it around the same time. like 1998, privacy-minded, very libertarian, inspired by Tim May. Tim A was sort of, you know, the sort of crypto-anarchy ideal. That was a big expression for a lot of them. Not all of them. Some were a little bit more less radical, you could say. But for Nixamo was definitely into the whole crypto-anarchy thing. So we get into Biggold?

Yeah, so BitGold also used proof of work. The way Bitcalls did it was, it started with like a candidate string. So there was a string of numbers. And then anyone could perform proof of work on top of that string. So create a hash. And like we've explained before, not all hashes are valid. So you need to prove that you only certain hash are valid, which means you've invested energy. Okay, then you get a new string.

If you win a new string, that string is yours. Like you sort of, it becomes your ownership. It gets tied to your public key. It's yours to have. So the string itself is like the money. The other thing is that the string becomes the new candidate string. So we started with a candidate string. It was hashed.

You have a winning hash that becomes someone in money. And now the new hash is always also a candidate string. So someone else can start hashing on that string on that string. And that's how you get like a string of hatches. So that resembles Bitcoin quite a bit, right? It's also got this string of hash. ashes, which is the blockchain. So this was embedded in BitGold.

So everyone's winning these strings. The strings is money. Now, one of the problems is, like we've discussed before, computers are getting faster every year, so it gets easier to develop, to find new strings every year. Now, this becomes a problem, because if I have a string that I found five years ago, and it cost me five days and we're five years later,

and you get a string within five minutes, because your computer is so much faster. Are they really worth the same? That's not really, you know, it doesn't really work well. So, you know, ideally they should be equally hard to find, but that's another case. So then he adds another layer where these strings

would be traded against each other. And that's how the value of the different strings would be sort of measured against each other. So newer strings would be worth less than older strings. And then there was, there were sort of banks that would bundle these strings. And that's how you would get sort of an equal unit of account where one old string is like worth 10 new strings. So you've got two bundles.

One bundle has just one old string. One bundle is two 10 new strings. And these are sort of caught up and then you have money like this. These make for the units of count. That was bit gold's idea. I just wanted to emphasize that one kind of thread in Zabo's work that we can also see in Biggold is at another kind of way of thinking about the set of problems to solve. was that it was also trying to find a way to remove all of the so-called trusted third parties, right? Like to remove anyone who would be, to remove any institution or person that you would have to trust to,

for example, authenticate the value of something or to enable the transaction of something or to that you would trust in the production of the token of value, you know, and so on. So like, it's useful to think about these as a set of technologies that are all trying to slowly subtract the trusted third parties on which people normally rely in their transactions of money. Yeah, but Nick Savo didn't really solve that problem. He tried. Yeah, no, no. He wanted to do.

He was to. Like, that was the goal. That was the idea with the distributed ledger. But then it was, you know, that's a very hard problem to solve, it turns out. And, you know, he came up with, so that's called Byzantine false tolerance. Am I saying this right? Yeah. Yeah.

Yeah. Yeah. Yeah. So it was like, it were like, the type of. systems that maybe airplanes would use, like several of the computers must all fail at the same time. But then it becomes tricky, like who's actually running these computers? And he, for example, didn't really solve the civil problem, which is, you know, anyone can fire up a thousand fake nodes, you know, the suck puppet problem. And then sort of mess with consensus and, you know, all lie about who owns what.

And then you're joining the system as a new user and everyone's, you know, all of these. Thousands of suckpuppets are telling you one thing, and then these other computers and these other nodes are telling you another. Who's telling the truth? This wasn't a very properly solved system yet for Bitcoin. That was a big challenge. And so then after that, Satoshi did come out with Bitcoin. In what ways did Bitcoin improve upon Bitcoin? So Bitcoin did something extremely clever.

Satoshi did something extremely clever because he solved two big problems at once. So one problem we've been dealing with is how do you get currency into circulation? And the other problem is how do you get everyone to agree on the state of balances? Now, Satoshi actually tied these things together. So there's one way of getting new currency into circulation, which is through proof of work. And by the way, in Satoshi's in Bitcoin, it's not the proofs of work themselves to their money. You know, it's just a way to determine who gets the new money. So there's sort of another abstraction later there as well, which I think is also very important,

by the way. So that's one thing. There's sort of this lottery of who gets the new money. And then the winner of this lottery also has the right to determine, I'm simplifying, but gets the right to determine, okay, this is the real state. You know, if there's, if there isn't consensus, then this is now the consensus. You know, the winner gets to the decide. If there's two winners at the same time in coincidence, then it's the next winner after that.

And then ultimately, this is how it resolves. So it's these two problems that were. solved in the same solution, which is, you know, that's sort of the brilliance of Bitcoin, I think. And we talked about how Finney a little bit earlier, and he was crucial to the launch of Bitcoin. Can we just tell a little bit about that story? Yeah. I mean, you know, Finney was was on that mailing list and responded really promptly.

I mean, one thing that is often forgotten when we look back at Bitcoin is how, how dubiously, it was initially greeted at the very, very first instance. The reason being, right, the dubiousness was because a lot of the people who are on that list had, you know, many of them were people we've already talked about today, or they were sort of people in the same milieu as a lot of the people we talked about today. They'd seen digital, you know, digital cash projects come and go. They'd like tried them out. They'd kick the tires on them.

Maybe some of them remembered the days of like ghost marks and tacky tokens and all these various sort of experiments and projects. and stabs. And so there was a fair amount of, you know, kind of early, you know, just people who are like, well, you didn't, you didn't think about this or this is probably going to happen or you really need to kind of map this out. And I think Finney is really important, both because he provides a bunch of concrete, you know, technical advice and ideas about refining the project and kind of figuring out what its trajectory of improvement is going to be as it goes from white paper to working code. But, Finney also was kind of one of the most important cheerleaders, you know, the person who could say, I really think there's something here. And I think there's something that actually, you know, like Finney was able to, you know, both because he was really looking for something like this, but also because I think in a lot of ways he was very discerning about exactly the fact that this had, in fact, solved a couple of preexisting problems that no one had ever figured out how to address,

certainly not as elegantly, and it tied those solutions together into a new package, into a new way that money could be. So Finney was someone who in a lot of ways, like maybe, I don't know, I'm not sure, you know, it can be room for disagreement at whether or not this is actually the case. But I'm really curious if Bitcoin would have become another like kind of also ran draft towards, you know, the next version of this technology, were it not for the fact that Finney had really helped to like keep it all rolling forward? Yeah, and was crucial to the launch because he was receiving the transactions. I would add that I think Fini, apart from maybe Satoshi, I don't even know about Satoshi,

but I think Fini has the first sort of quote that I think shows that he understood sort of the value proposition of Bitcoin or understood why its value would or could bootstrap, right, which is this digital scarcity, which is that because it's interesting, Finney, did a lot of work on prediction markets as well. I won't get into prediction markets entirely, but it's sort of predicting the future with tokens. It has a lot of like odds related, like what are the odds of something happening? And then Binnie sort of did the math, like what are the odds of Bitcoin succeeding? Maybe very small. But what are the, and what would the Bitcoin be worth then? And then if you sort of do the math, then he concluded, well, that means if there is any chance of Bitcoin succeeding, then

it's got to have some value because the odds like it can't be zero like there's got to be some value and that's how uh you know that's sort of how bitcoin's value bootstrap for the scarcity and for the sort of odds you know thinking and odds i thought that was a great early quote by viny where he sort of understood why this could actually be big and might as well you know it's got to have some value and then from then it could bootstrap i think the quote was that he looked at the value of all the money in the world and then said well, if the cap on Bitcoin is 21 million, then one coin will be worth $10 million. If it does overtake all the value of all the money in the world.

Yeah, then you can think how much would it cost to mine one? And then you can sort of do the odds. And then I think the math he got to is like if there's, if the chance is even a hundred million to one that it will succeed, then you should probably get some because you're getting it a good deal. And so amongst all the precursors, who did Satoshi credit the most or which previous attempts did Satoshi rely on most heavily? I actually have an unusual answer for this, which is, right, so there's a couple of people that we haven't talked about. I mean, and this may be a very, like, dry historians kind of interest. But one thing that fascinates me is the relative lack of overlap between academic computer science and, like, kind of cypherpunk computer science or like, kind of.

of hacker digital cash development, that people would keep kind of reinventing things on both sides without necessarily knowing what the other side had done it yet. So there's a bunch of people, many of whom we've already talked about, you know, Way die, Adam back, like people that Nakamoto wasn't in touch with and was drawing on, but the people who get cited in the white paper are two computer scientists named Haber and Sternetta. And theirs is a really interesting story, because in a lot of ways, they invented the first blockchain, but they didn't invent it for money, right? They invented it as a way of irrefutably and publicly timestamping documents. And their particular interest was actually kind of an amazing one to think about when we look at how Bitcoin now works, which is, right, to have, like, benched lab notebooks where you write in your results.

And there's all these physical mechanisms that make it so that we can be sure that you aren't, like, fiddling with your numbers after the fact. You know, there's like numbered pages sewn in bindings. they said, how do we do that digitally? We come up with a publicly verifiable mechanism, no trusted third parties that relies on blockchain technology in their kind of earliest form. And then we will periodically publish the verification hash in the lost and found section of the New York Times, and everyone can use it to prove to themselves that this system is still working. So the reason why I say that is I think that's one other thread that I think is really worth remembering in all this, is that there's this whole history of like changing the world through currency.

But then there's also a more abstract but equally important history, which is how do you irrefutably timestamp something digitally? How do you create a digital mechanism that allows you to say in a way that everyone can trust that this happened at such a time? And so that, and that I think is something that we can really see in all the ways in which Bitcoin itself then like led to all of these other blockchain applications. applications that have continued to kind of run with the way that it was reintroduced through Bitcoin,

but then are now using it for lots of different kinds of proofs. Aaron, do you have that? Well, I can't. I don't know, Satoshi, I can't look into his mind. I don't know who inspired him to what extent. I will say, you know, if I'm just looking at the different projects that we've discussed or that are out there, then Bitcoin is really pretty similar to Bitcoin. It was like getting pretty close.

And it's, you know, it's notable that Zaba wasn't mentioned in the white paper. Satoshi did later mention that Bitcoin was an implementation of Bitcoin, somewhere on the Bitcoin Talk forums. So I don't know. I can't make any claims on behalf of Satoshi. I'm not going out. Just from my own perspective, Bitcoin looks an awful lot like Bitcoin. And in your research, for both of you, who did you come

believe was the most likely candidate or candidates to be Satoshi Nakamoto? I don't, I don't care. I mean, I don't know. It doesn't matter. It doesn't matter, Laura. He wanted to remain anonymous. That's my answer. I have a little bit of a really honest answer, even though it sounds like a historians, like

head fake, which is basically that I think that culturally, historically, the fact that Nakamoto not just is anonymous, but could be anonymous and still have this level of effect is actually far more consequential than any specific known identity could be. I think it tells us a lot more about the context and the goals and the sort of historical situation of Bitcoin than if we could definitively say that it was this or that person. You guys. And it matters a lot as well that we don't know and like it's anonymous because that's the whole point of Bitcoin. It can operate with. Without anyone in charge of it or without anyone leading it.

That's why it's so brilliant. Sorry, Laura. That's the only answer I'm going to give you. I know why you asked, but, you know, this is, yeah. I was just about to say you guys both copped out, but your answers are, they make sense. All right. Well, this has been quite the tour through the history of digital currency. I really, really appreciate that you guys both came to discuss it.

why don't you reveal where it is that people can learn more about you? People can find me on Twitter at Aaron Van W. I still write for Bitcoin magazine. Not just right. I also do podcasts and videos and these kinds of things. So just on Bitcoin magazine in general. If you speak Dutch, we have our Dutch podcasts, which is the Bitcoin show,

which you can find on YouTube or podcast apps. I am at f-in-n-n-b.net. I'm very old fashioned. I just have a website, but there's links to all my books and other materials there. Great. Well, thank you both so much for coming on Unchained. Thank you. Thank you for having me. Thanks so much for joining us today. To learn more about the history of digital currency, check out the show notes for this episode. Don't forget, you can now watch video recordings of the shows on the Unchained YouTube channel. Go to YouTube.com slash C slash Unchained podcast and subscribe today.

Unchained is produced by me, Laura Shin, with help from Anthony Yun, Daniel Nuss, and the team at CLK transcription. Thanks for listening.