Today, we’re going to reach back into the not so distant past to find out its ideological origins, how it made cryptocurrencies viable for the first time, and why it’s important to ordinary people.
The Cypherpunk movement advocates for the use of strong privacy-enhancing technological tools like cryptography. They believe that individual privacy is paramount, and existing centralised institutions like banks cannot be trusted. When the principles of cryptography were applied to currency transactions, cryptocurrencies were born. As a digital currency, cryptocurrency has the double-spending problem, i.e. the risk that the same units of a digital currency could be spent more than once. Digital data is far easier to counterfeit than physical currency, and this has been a major issue until the birth of Bitcoin.
On November 11, 2008, a person or collective using the alias “Satoshi Nakamoto”, published an article called “Bitcoin: A Peer-to-Peer Electronic Cash System.” This introduced the theoretical concept of Bitcoin, proposing a solution to the double-spending problem. That solution was blockchain.
In January 2009, Nakamoto launched the bitcoin network and created the first units. As it relies on blockchain, bitcoin is owned and maintained by individuals on the network rather than a central agency.
Nakamoto continued to be active in the development of bitcoin until December 2010. Although many people have claimed to be “Satoshi”, their true identity remains unknown.
So, the Cypherpunk movement inspired cryptocurrencies and their development led to the creation of Bitcoin. But why should we care? Well, you may understand the value of cryptocurrency a bit better if you recall the 2008 global financial crisis.
The crisis was caused by banks using people’s deposits to make extremely risky investments and loans. As a result, some banks collapsed, almost resulting in global economic ruin. During this time, lots of people were unable to access the money that they thought was safe in their accounts. To many, this was a sign that large, centralised financial institutions do not always guarantee the safety of people’s money.
On the other hand, blockchain enables cryptocurrencies like bitcoin to use decentralised network for transactions. People can securely store money without going through third parties like banks. This means there’s no need to be worried about whether your money is being used by others in risky ways.
Blockchain is not yet perfect of course. We’ll explore some of the factors that limit the industry next time.