Weekly Market Update - Friday, April 28, 2023

The Origins of Bitcoin

Most of us think of Bitcoin as the original cryptocurrency, as it spawned an entirely new asset class. While its impact on the financial system and the wider world has been profound, there were a few much lesser known precursors that laid the foundation for the crypto universe. Today, we look back to the roots of Bitcoin. To read more deeply about this topic check out .

What came before Bitcoin?

Bitcoin has played a unique role in creating a movement to decentralize existing, centralized financial services, but it was not the first attempt at creating digital money.

The notion of scarcity with respect to digital money was famously envisioned by when he in 1998. B-Money, another conceptual precursor to Bitcoin proposed by Wei Dai, a computer engineer, , and cryptographer, arose around the same time and is referenced in the Bitcoin whitepaper.

Going even further back, the idea of building cost (or digital scarcity) into a system using was first conceptualized by Cynthia Dwork and Moni Naor in 1993 as a way to protect Internet services from abuse such as spam. In 1997, an English Cypherpunk named Dr. Adam Back implemented this concept into his project Hashcash, a service aimed at limiting spam and denial of service attacks by requiring a sender to generate a Hashcash token by solving a PoW puzzle.

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Together, Bit Gold, B-Money, Hashcash, and other early examples of digital money and consensus mechanisms set the stage for Bitcoin.

Bitcoin arrives on the scene

was published by the mysterious in 2008 and the network launched in January of 2009 upon the mining of the “” — the first block of the Bitcoin blockchain. Bitcoin created a digital currency that operates in a fully-decentralized, trustless manner that allows users to send monetary value to each other through the Internet without the need for trusted, financial intermediaries.

This was made possible by a major breakthrough in its PoW . Instead of relying on a majority of (known as “”) to reach consensus, Bitcoin relies on the majority of hashrate — the network’s processing power — to reach consensus.

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Acquiring a majority of the network’s is expensive, making it costly for a miner to tamper with the . Moreover, in doing so, a dishonest miner would forgo the handsome bounties of newly minted bitcoin (known as the “”) that are awarded approximately every 10 minutes to the “winning” miner who correctly solves the PoW puzzle. Therefore, it is assumed that a rational, economically-motivated miner will commit her processing power toward securing the integrity of the blockchain instead of trying to manipulate it and cheat the system.

This incentive structure has turned digital money, a movement once made up predominantly of computer scientists and cryptographers, into an increasingly mainstream phenomenon.

Check out more about the , its , and how it's .

See you next week. Onward and Upward!

Team Gemini

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