Step 6 / The Idea of Bitcoin
The ideas that came before Bitcoin.
Earlier tools solved parts of the payment problem. See what each could and could not do.
Imagine designing an online payment. You want the payment to work, but you may also want privacy. You need a way to stop repeat spending. And you need to decide who keeps the record.
Researchers worked on these problems long before Bitcoin. Each tool had a different job. Following those jobs will make the history easier to understand than memorizing names on their own.
Can a payment be private and still need an issuer?
Suppose an issuer gives you a digital payment token. Later you spend it. You would like the issuer to confirm that the token is real without being able to link that later payment to your earlier withdrawal.
David Chaum studied a way to do this called blind signatures. An issuer could approve a token without learning enough to connect those two events. In the 1990s, DigiCash and bank partners tried forms of this electronic cash.
The privacy feature did not remove the issuer. Someone still had to create or redeem tokens and check whether they had already been spent. Keeping a payment private and working without an issuer are two different goals.
An issuer can validate a credential while learning less about how it is later used. Privacy and decentralization are different properties.
Who stands behind a digital gold balance?
E-gold was a company-operated service that represented claims on gold. A customer saw a digital balance, but the gold and the transfer service still depended on the operators.
Think back to leaving metal in a vault and carrying a claim to it. Who holds the gold? Who can exchange a claim for gold? Are there enough assets to meet the claims?
You also need to know who can allow transfers and what happens if the service stops operating or loses legal access. A screen can make the balance easy to see. The word “gold” does not answer those questions about the people and arrangements behind it.
Harder to make, easier to check
Now think about unwanted messages. Sending one message may cost very little. A person could send a huge number and make the recipients deal with them.
In 1997, Adam Back proposed Hashcash. It asked a sender to do some computing work before sending a message. The sender searched for a result that met a condition, then attached evidence of that result.
A recipient could check the result quickly. A sender handling one message might accept the small cost. Someone sending huge volumes would have to pay that computing cost over and over. This difference between producing the result and checking it is the useful part.
This kind of evidence is called proof of work. Hashcash did not also keep a full record of who owned transferable money. It provided a tool for a costly search and a cheap check. Bitcoin’s original paper explicitly refers to that earlier work.
The idea to keep
The earlier work had different jobs: payment privacy, claims backed by assets, costly computing work, and shared records. A tool can be valuable without being a complete currency.
Next, we will see how Bitcoin uses both payment checks and proof of work. The work helps choose a history; it does not give permission to break the payment rules.