The ideas before Bitcoin

Bitcoin is not an original concept, as many people would like to think. In fact, Bitcoin is the result of quite a few iterations of similar ideas from the past.

Ecash

The first idea around electronic currency was conceived in 1982 by Davi Chaum in the form of Ecash, and implemented in 1995 under the company Digicash.

However, the idea came onto the market before e-commerce was big enough, and Digicash struggled with adoption and eventually had to file for bankruptcy.

E-gold

The first implementation of some kind of digital currency started back in 1996 with E-gold, founded by Douglas Jackson. It was essentially a centralised database operated by the company Gold & Silver Reserve Inc, under E-gold Ltd. Each record of e-gold in the database was backed by physical gold in a vault.

E-gold gained some serious traction and at its peak in 2006 the system processed transactions worth $2 billion per year. However, the system was too easy to misuse and abuse. It was prone to hacks and phishing attacks which eventually became its downfall.

The fundamental structures around Ecash and E-gold weren’t robust enough to withstand the test of time and technology. It was clear that something more resilient had to be the solution.

Hashcash

In 1997, shortly after the arrival of both Ecash and E-gold, came the concept of Hashcash, initially proposed by Adam Back. While this wasn’t a currency in itself, it introduced the idea of “proof-of-work computation” to prove good intent with any kind of digital transaction. The original use case for Hashcash was to fight email spam.

The basic idea of Hashcash is that if someone has consumed some non-insignificant amount of energy (that cost money) by running a very difficult computation, it’s more likely that the person is honest and not a spammer. It would not be economical for a spammer to keep spending lots of costly energy for low-value transactions.

Again, while Hashcash wasn’t money per se, it introduced the ability to in a decentralised fashion, deter attacks and other abuse on a system by making it too costly. It introduced new forms of robustness and security.

b-money

In 1998, Wei Dai published the first proposal of a digital currency using a similar proof-of-work system to Hashcash. It was called b-money.

Unfortunately, the protocol that Dai proposed with b-money never got implemented in code. But it didn’t go unnoticed…

Ideas coming together

In the late 90’s it became clear that a robust digital currency would eventually be created. For example, you had 1976 Nobel Prize winner in Economic Science, Milton Friedman, talking about the disruption of governments and the concept of “e-cash”. This was back in 1999, around 10 years before Bitcoin was going to be invented.

Come 2009, there had now been numerous attempts at creating digital currencies. Despite the lack of any technical success, the ideas from Ecash and E-gold hadn’t gone unnoticed to the world. But with the introduction of much better technical solutions such as Hashcash and b-money, it must have become clear to Satoshi Nakamoto how a better and more resilient system could be built.

A digital currency had to have the qualities of cash, e.g. durable, portable, divisible and have limited supply. The system could not rely on a central bank or a company. It had to be built on sound and tested cryptography in order to be extremely robust and secure.

Satoshi created Bitcoin, and the rest is history.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.