In September 1992 computer scientist Tim May, whose inventions had once made him a great deal of money at Intel, invited a group of eminent, free-thinking programmers to his house near Silicon Valley in California. They were there to discuss this exciting new development called “the internet”.
They were excited about the possibilities, but they were also concerned. Privacy was their issue. On the internet, banks, credit card companies, merchants, and – most worryingly for May and his friends – the government, would all have access to vast quantities of payment information. How would they use it? They were scared of Big Brother.
Their mistrust was born of experience. Their friend, the programmer Phil Zimmerman, was under criminal investigation for a simple piece of privacy software he had developed – PGP (pretty good privacy). US authorities claimed he had violated the Arms Export Control Act.
Their solution was to develop computer code, especially in the field of cryptography, that protected privacy. By the end of the meeting, an anarchist philosophy had been born, that of the “Cypherpunks”. They believed that cryptography could lead to social and political change.
They were a committed, disparate and in some cases, extremely able group of computer scientists and coders; their belief system was largely libertarian; and while they understood the potential of the internet, they also saw the possibilities it was opening up for state and corporate invasion of privacy.
Your spending habits say more about you than anything. So the ultimate dream of the movement was a system of anonymous cash, beyond the invasive capabilities of governments or banks. For years these brilliant coders tried to develop a system to digitally replicate the cash transaction. But they had a problem.
Bitcoin mining and the “double spending” problem
If I send you an email or a picture or a video – any type of digital code – you can copy and paste that code and send it to a hundred or a million different people. If you can copy and paste money, it instantly loses its scarcity and value, so it is useless. This problem was known among coders as the problem of “double spending”.
Nobody could find a way round it without using a middleman of some kind to verify and process transactions. But a cash transaction has to be direct from A to B. There can be no middleman. Try as they might, nobody could come up with a system that worked. By the early 2000s, most had given up even trying. Internet cash was an impossibility.
The genius of bitcoin that so caught the attention of coders was that it solved this problem. Satoshi Nakamoto’s invention was a new system of record-keeping – an enormous automated database, which verifies transactions. A transaction is only complete once it is recorded on that database; once it is recorded, it is final. The database is public for all to see and it is maintained, not by any one individual or corporation, but by computers across the…