An introduction to Bitcoin and the history behind it

The Bitcoin is still not known by the majority of people in the world, but has certainly experienced one of the most beautiful histories of mankind.

This sort of “information technology” (Scholer, 2015) is quite unbelievable and takes time to understand. To introduce the concept of Bitcoin we must familiarize first with the term of cryptocurrency and take a closer look from where it came from. A group of “crypto-anarchist” so called Cypherpunks brought the term up to light. For them, the world needed to acknowledge that transactions could be made without having to reveal your identity and with no third party having the control of your assets.

The term emerges from cryptography that itself comes from encryption and decryption. The figure 1.1 illustrates well these two process that are linked. “You use encryption to ensure that information is hidden from anyone for whom it is not intended, even those who can see the encrypted data” (PGP, 1990). Consequently, the science of using mathematics to encrypt or decrypt data is called cryptography. So if you are following you must have understood that cryptocurrency is a digital asset, a virtual money or either an encrypted system of money.

This article will be divided in a series of two publication. The first part, trying to explain what is Bitcoin, where did it came from, what processes does it uses ? However, we will start with where it all begins, going back to cryptography and the Cypherpunk movement. In the second article we will find out how did it spread so quickly, it’s repartition over the world and identify the places where this controversial money is “created”. In addition to that, we will focus on Bitcoin in China and try to get the latest news of this subject in a particular country where privacy has always been at the centre of the attention. And finally, I will give my personal point of view and carry some questions that may not have been answered yet.

How did it all started ?

#1 Cryptography

To clarify the meaning of cryptography you must learn first what is encryption. It’s simply a process that convert messages, information, or data into a form unreadable by anyone except the intended receiver. Encrypted data must be deciphered (decrypted), before it can be read by the recipient. Originally the word encryption, “crypt”, comes from the Greek word “kryptos”, meaning hidden or secret (SANS Institute InfoSec, 2001).

The history of the world is full of cryptography and its first acknowledge appears to be around 1900 BC when Khan listed a non-standard hieroglyph from an Egyptian scribe. Julius Caesar (100-44 BC) used it also to hide his message from the messengers. The cipher was quite simple, a shift by 3 letters in the normal alphabet for all the letters of the message. Thusly the trusted receiver could read it as he knew the rule to deciphered the information. In 1518, Polygraphiae, the first printed book on cryptology was published by Johannes Trithemius (SANS Institute InfoSec, 2001).

During the World War I and the World War II the importance of cryptanalysis, the art of breaking cryptosystems, was high. It was a way to anticipate the moves of the enemy but you also had to have a good cipher to not be discovered back.

In the movie The Imitation Game (2014) realized by Morten Tyldum, we discover how Alan Turing a real-life British, decrypted German intelligence codes (Enigma) for the British government during World War II. Making a big difference in the war against the Nazis. This is how cryptology, the study of cryptography and cryptanalysis, continued to evolve rapidly.

“New Directions in Cryptography” was published in 1976 by Whitfield Diffie and Martin Hellman, introducing the idea of a public key cryptography. They closed their paper with an observation: “Skill in production cryptanalysis has always been heavily on the side of the professionals, but innovation, particularly in the design of new types of cryptographic systems, has come primarily from amateurs.” (Diffie & Hellman, 1976).

In 1991 Phil Zimmermann released his first version of PGP (Pretty Good Privacy) in response to the threat of the FBI. PGP is a free software tool, that enables people to communicate securely, even across insecure channels. It can attain this using the public-key cryptography technology and offer a considerable high security to the ordinary citizen (Wojtczak, 2012). In his article “Cryptography for the Internet” Mr. Zimmermann state that the E-mail or any other information sent electronically can be compared to digital postcards. Because they bear limited privacy it was important for him that well-designed cryptosystems would ensure the secrecy of such transmissions (Zimmermann, 1998).

#2 Cypherpunks

As discussed previously, before the 1970’s cryptography was mainly performed by military or spy agencies. However, it changed when in 1976 Whitfield Diffie and Martin Hellman published their book mentioning the “public key cryptography”. During that time when internet spread, a group of “crypto rebels” or “crypto anarchist” begins to emerge, worried about privacy and the harm government does.

In 1983, David Chaum the creator of “Digicash” (the first virtual money), suggested a new kind of cryptographic protocol enabling a better form of money (Rid, 2016). These ideas have been the roots of the vision of the Cypherpunk movement.

Timothy May one of the creators of the movement, wrote in 1992 the “The Crypto Anarchist Manifiesto”. He describes how can an encryption method can: “alter completely the nature of government regulation, the ability to tax and control economic interactions, the ability to keep information secret, and will even alter the nature of trust and reputation.” (May, 1992). He addresses his writing to the “Cypherpunks of the World”, term used by Jude Milhon at one of the first meeting of the creators of this community of hackers. Along with, Eric Hughes who wrote “A Cypherpunk’s Manifiesto” in 1993 and John Gilmore the founder of the Electronic Frontier Foundation (non-profit digital rights group), a new wave began. They criticised the government of hiding and spying without the right to do so. The NSA went down on John Gilmore and threatened him after he shared classified documents on cryptography.

We also could talk of Steven Levy who published in May 1993 a famous cover for the Magazine Wired with Eric Hughes, Tim May, John Gilmore are holding up an American flag with their faces hidden by a white plastic masks (Levy, 1993). Another important actor is Julian Assange the creator of WikiLeaks (2006). The multinational media organization specialized “in analysis and publication of large datasets of censored or otherwise restricted official materials involving war, spying and corruption” (WikiLeaks, 2015).

Philip Zimmermann developed during this year’s PGP, the most famous email encryption software in the world that securely send data over to the net. The program was available for anyone to use and spread largely thanks to cypehrpunk enthusiasts

What is Bitcoin ?

#1 Cryptocurrency

A cryptocurrency is a virtual coinage system that functions much like a standard currency, enabling users to provide virtual payment for goods and services free of a central trusted authority” (Farell, 2015)

Fascinated by the Tim May’s crypto anarchy Wei Dai publish, in 1998, in the cypherpunks mailing list “B-money” an “anonymous, distributed electronic cash system” (Dai, 1998). The essay describes two protocols, one of them very famous called “proof of work” exposing the idea of creating money for the ones that verifies the transactions.

Shortly after Nick Szabo a cryptographer that most probably was a cypherpunk created “bit gold” the precursor of Bitcoin. Nick Szabo’s idea was a kind of response to “Digi Cash” that was handed to the banks by Chaum. He wanted the money to be decentralized with no “trusted central authority” such as banks or governments. However, the proposal left many problems unsolved as mentioned by Morgen Peck: “how do you encourage people to recognize this value and adopt the currency? And what system controls the transfer of currency between people?” (Peck, 2012).

After the failure of both “b-money” and “bit gold”, the e-money scene got kind of quiet. When in 2008, an author using the nickname of Satoshi Nakamoto published a white paper called “Bitcoin: a peer-to-peer Electronic Cash System” (Nakamoto, 2008). A (r)evolution was on process, the publication brought a lot of attention and in January 2009 the software client was released. A big amount of computer scientist and cryptographers tested the Bitcoin’s protocols and early users were attached to the political and economic message that the digital money gave birth. The possibility to have a “digital asset not tied to a central bank’s money supply policy or easily subject to government censorship of transfer” (Scholer, 2015).

#2 Bitcoin & bitcoins

When using the term “Bitcoin” with a capitalized “B”, we refer to the software and the decentralized computer network (Bitcoin Network) of users running that program. Bitcoin uses several protocols which are: the public-private key cryptography previously discussed, the proof of work algorithm also seen earlier, the Blockchain and a peer-to-peer network connection.

When talking of “bitcoin” with a lowercase “b”, we point out to a unit of the money that can be transferred on the Bitcoin Network. Satoshi designed it so, there will be a maximum of 21 million bitcoins.

What was revolutionary of the idea from Satoshi is that the money didn’t relied on a centralized trusted third party to verify money supply and transactions. Thanks to the Bitcoin community a progressive decentralized network of computers emerged, using a huge amount of computing power with the single purpose of validating and clearing transactions on the Bitcoin Network (B.N).

The second great innovation of Satoshi is the “Blockchain”. A centralized public ledger with the history of all the transactions on the Bitcoin Network. This public ledger is stored locally on the computer hard drive of every user running the computer network software. The bitcoins can only be sent or received by logging the transaction on the public ledger. When users try to validate the block they use a considering amount of computing power in other to win the race among other users. If you succeed you will be rewarded a X amount of bitcoins.

“The concept of proof-of-work mining ensures that an adjusted amount of work and computing power must be expended to solve a block, with the block reward providing an economic incentive for honest mining.” (Scholer, 2015).

The virtual money can be subdivided to eight decimal places, it is called “a satoshi”. It has a value of 1/100’000’000th of a bitcoin and is the smallest value it can be possessed. Today the number of bitcoins is over 70% of its global capacity and will reach in 2026 90% of it.

The history of Bitcoin is extraordinary, not only from the fact that it was created by an anonymous person or group of person “Satoshi Nakamoto”, but also from its entire history from the cryptography to the cypherpunks to the first cryptocurrencies. Moreover what is incredible is that in a few years the money experienced a huge growth and has now become the strongest cryptocurrency in the world.

Stay tuned for the second part of the article !!!

Meanwhile enjoy this video: The Bitcoin Gospel !

Bibliography:

Dai, W. (1998). B-money. Retrieved on http://www.weidai.com/bmoney.txt

Diffie , W., & Hellman, M. E. (1976). New Directions in Cryptography.

Farell, R. (2015). An Analysis of the Cryptocurrency Industry. Wharton School.

Levy, S. (1993). Crypto rebels. Retrieved on https://archive.wired.com/wired/archive/1.02/crypto.rebels_pr.html

May, T. C. (1992, 11 22). The Crypto Anarchist Manifesto. Retrieved on http://www.activism.net/cypherpunk/crypto-anarchy.html

Nakamoto, S. (2008, 11 1). Bitcoin: A Peer-to-Peer Electronic Cash System. Retrieved on https://bitcoin.org/bitcoin.pdf

Peck, M. (2012, 05 20). Bitcoin: The Cryptoanarchists’ Answer to Cash. Retrieved on http://spectrum.ieee.org/computing/software/bitcoin-the-cryptoanarchists-answer-to-cash

PGP. (1990). An Introduction to Cryptography . Santa Clara: Network Associates, Inc.

Rid, T. (2016). The cypherpunk revolution. Retrieved on http://passcode.csmonitor.com/cypherpunk

SANS Institute InfoSec. (2001). History of Encryption. Retrieved on  https://www.sans.org/reading-room/whitepapers/vpns/history-encryption-730

Scholer, K. (2015). An Introduction to Bitcoin and Blockchain Technology. New York: Kaye Scholer.

WikiLeaks. (2015, 11 03). What is WikiLeaks. Retrieved on https://wikileaks.org/What-is-Wikileaks.html

Wojtczak, D. (2012). COMP516: Research Methods in Computer Science. Retrieved on  http://cgi.csc.liv.ac.uk/~dominik/teaching/oldcomp516/_downloads/PGP_essay_4.pdf

Zimmermann, P. R. (1998). Cryptography for the Internet. Scientific American, Inc.

Movies:

Banking on Bitcoin (2016), Periscope Entertainment, LLC

Bitcoin the end of Money as we know it (2015),  3D Cotent Hub

The rise and Rise of bitcoin (2015), Bitcoin Rising Hoffman

Ulterior States (2014), I am Satoshi production, https://www.youtube.com/watch?v=yQGQXy0RIIo

The Bitcoin Gospel (2015), https://www.google.fr/#q=Bitcoin+the+end+of+Money+as+we+know+it%2C+3D+Cotent+Hub+%26+t

By | 2018-01-15T06:07:22+00:00 January 20th, 2017|Categories: Bitcoin, Blockchain, Cryptocurrency, Cypherpunk|1 Comment

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  1. Clara Gonin January 30, 2017 at 11:23 pm - Reply

    Excellent article ! Bravo 😉

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