The Rise of the Cypherpunks and How they Paved the Way to Blockchain

What do Julian Assange, Wei Dai, and Satoshi Nakamoto all have in common? They were all emboldened by a cypherpunk movement ignited by David Chaum's breakthroughs in digital anonymity. In his publication, Untraceable Electronic Mail, Return Addresses, and Digital Pseudonyms, he unknowingly kicked off the largest internet privacy movement to date.

Before Chaum's breakthroughs in applying public-key encryption to web traffic, there was little ability to keep secrets over the web. A group of privacy enthusiasts saw this development as an opportunity to change the very nature of the internet.  This group took it upon themselves to build anonymous systems for everyones' use to pursue political and social change. They dubbed themselves the Cypherpunks.

The Cypherpunk movement's aim is summed up in Eric Hughes' message, A Cypherpunk's Manifesto. He declares,

"We must defend our own privacy if we expect to have any. We must come together and create systems which allow anonymous transactions to take place. People have been defending their own privacy for centuries with whispers, darkness, envelopes, closed doors, secret handshakes, and couriers. The technologies of the past did not allow for strong privacy, but electronic technologies do."

Hughes makes the important distinction that secrecy does not equate with privacy. Secrets are never meant to be discovered, whereas private matters are disclosed selectively. Therefore, privacy is the ability to selectively reveal oneself to the world.

Now, it is not in the government's interest to have less data available to them. Until the mid-1990 the U.S. government classified encryption as an item on the US Munitions List - strictly regulating its use and export. The Cypherpunks fought for the right to privacy. They lobbied to bring us to the age of, "unregulated encryption."  They helped shape our Internet as, “perhaps the single most effective grassroots organization in history dedicated to protecting freedom in cyberspace” (Beltramini, 2020).

For a group dedicated to making privacy technology widely available, laying the groundwork for blockchain technology doesn't seem too far of a leap. They led us to a technology that allows completely untraceable transactions in a way that the government cannot regulate. A realm where you can exist entirely under a pseudonym. Blockchain technology is an invention directly rooted in the most salient values of the Cypherpunk community.

From Spam Email to Bitcoin

How exactly did they make this leap from private messages to a two trillion dollar (and growing) market?

In the late 1990s, Dr. Adam Back invented HashCash, a computational mechanism designed to add computational cost to emails sent. This was thought to make spam email uneconomical while imposing little tax on the regular email user. This was never implemented as large companies saw this as an unnecessary burden for so-called regular business operation email.

Although HashCash never grew to protect you from spam email, it laid the groundwork for what is now known as proof of work.

Shortly after Back's advancements, Wei Dai published a proposal for b-money. This proposal sought to design a system to enforce contracts between anonymous parties. It discussed two novel concepts:

1. Each participant maintains a separate database recording how much money each user has.
2. A subset of participants is incentivized to keep these numbers honest by putting their own money on the line.

If this sounds familiar to you, it should. Wei Dai's b-money was essentially the first theoretical proof of stake distributed ledger system.

Now, along comes 2008, and Satoshi Nakamoto, an anonymous pseudonym, published the bitcoin whitepaper. This paper blended all the previous concepts to lead to the inception of the first widely used blockchain. Since this moment digital transaction possibility has exploded. Not only did Satoshi Nakamoto pave the way for the first cryptocurrency, but they also removed trust from the equation. In the most emblematically Cypherpunk fashion, an anonymous pseudonym changed privacy on the internet forever.

"The traditional banking model achieves a level of privacy by limiting access to information to the parties involved and the trusted third party. The necessity to announce all transactions publicly precludes this method, but privacy can still be maintained by breaking the flow of information in another place: by keeping public keys anonymous. The public can see that someone is sending an amount to someone else, but without information linking the transaction to anyone."

Some say that the Cypherpunks movement ended in the 1990s, but in reality, there are more participants than ever before. As governments continue to try to regulate this new technology, the battle has only just begun. The Cypherpunks are preparing for what is known as The Crypto Wars 2.0.