5 Failed Predecessors of Bitcoin and Cryptocurrency

Revolutionary ideas don’t arise from a vacuum. A truly successful innovation often comes as a result of decades of failed experiments, near misses, and brilliant ideas that were far too ahead of their time. Bitcoin — and cryptocurrency in general — is a great example of this. The idea of creating a cash-like medium of exchange for computer networks dates back to the start of home computing, but it took decades of failed experiments before the right combination of concepts came together in the 2008 bitcoin whitepaper.

Let’s take a look at five of the biggest influences on Satoshi Nakamoto’s game-changing invention.

1. DigiCash: In 1982, a Ph.D. candidate at the University of Berkeley named David Chaum published one of the most important dissertations in computer science history. Titled “Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups,” it contained a radical vision outlining, among other things, fundamental concepts such as time-stamped chained data, cryptographic “blind signatures” for anonymous exchanges, and the applied use of these ideas to create a digital currency that could be securely exchanged. The academic world immediately took notice, as did many people in the rapidly growing computer industry. By 1989, Chaum had founded a company, DigiCash, to turn his ideas into a reality. But Chaum was extremely protective of his creation, even turning down a reported $100 million from Microsoft to incorporate DigiCash into the Windows 95 operating system. Chaum’s reluctance to license DigiCash ultimately resulted in the company’s failure in 1999.

Concepts borrowed by bitcoin: Almost everything. Chaum’s 1982 dissertation only lacked one essential component of Nakamoto’s 2008 blockchain: a Proof-of-Work system.

2. e-gold: By the mid-1990s, it was becoming clear that the rapidly growing phenomenon called “the internet” would need a payment solution of its own. In 1996, two years before the launch of PayPal, oncologist Douglas Jackson and lawyer Barry Downey launched e-gold Ltd. This online payment system was backed by a supply of physical gold — held in a bank safe deposit box in Melbourne, Florida — allowing e-gold members to instantly transfer dollar-denominated shares to one another as a form of payment. At its peak, e-gold had over a million user accounts, and processed more than $2 billion in annual transactions. Unfortunately, e-gold’s success soon attracted the attention of scammers, hackers, and the Federal government. In 2008, after years of serious legal headaches, e-gold closed for good.

Concepts borrowed by bitcoin: While little of e-gold’s DNA can be found in bitcoin itself, it would serve as a prototype for later cryptocurrency exchanges.

3. Hashcash: Proposed in 1997 by cryptographer and computer science researcher Adam Back, Hashcash had almost nothing to do with the concept of standalone digital money. It was designed as a solution to two problems the digital world is still dealing with — email spam and denial-of-service attacks — which it addressed by using a processor-intensive Proof-of-Work validation system. Hashcash itself was never developed beyond Back’s initial paper, but its innovations were widely discussed in computer science circles, and the concept was adapted for use in multiple protocols.

Concepts borrowed by bitcoin: Back’s Proof-of-Work system is a core component of the bitcoin mining process.

4. B-money: Cryptography researcher and computer engineer Wei Dai is typically listed in the shortlist of people who could be the “real” Satoshi Nakamoto, and for good reason. In 1998, Dai published a paper describing B-cash, an “anonymous, distributed electronic cash system” that shares many ideas in common with bitcoin. Although Dai’s work was known to cryptography researchers, the B-money concept was never developed beyond Dai’s initial paper.

Concepts borrowed by bitcoin: Possibly none. According to Dai, Nakamoto “didn’t even read my article before reinventing the idea himself. He learned about it afterward and credited me in his paper.”

5. Bit Gold: Another likely candidate for the “real” Satoshi Nakamoto is computer scientist Nick Szabo, who published a paper describing “bit gold” in 1998. Szabo’s paper outlines a peer-to-peer exchange system almost identical to bitcoin’s, adapting Adam Back’s hashcash Proof-of-Work solution to validate transactions within the network. Szabo’s paper does this in largely theoretical terms, however, rather than providing a detailed practical description. Like Dai’s B-cash paper, Szabo’s bit gold work was known by cryptographic researchers and discussed by the “cypherpunk” crowd, but never implemented into a working program.

Concepts borrowed by bitcoin: Szabo’s specialized Proof-of Work solution for validating transactions on a public registry is one of the essential innovations that allows the bitcoin network to function. Without the bit gold concept, bitcoin wouldn’t exist.


9th August, 2019 / Category - News