The Wonderful Story from Cypherpunks to Digital Currency

Original Title: "The Wonderful Story Starting from Cypherpunk"

Source: Alpha Rabbit Research Notes

1. A Gathering 30 Years Ago

In the San Francisco Bay Area of California, there is an unremarkable small building located in a commercial park near US 101, which houses a company called Cygnus Solutions. Next to the high ceiling are small cubicles for work, and down the hallway is a break room filled with various snacks and drinks. Cygnus Solutions was a startup project established by computer scientist John Gilmor to promote the better development of free software.

Photo of John Gilmor, from Wiki

On a Saturday in 1992, 30 years ago, there were very few people coming to work. However, a small discussion meeting belonging to a mysterious group was about to begin here.

This meeting was led by Eric Hughes, Timothy C. May (an electronic engineer and senior scientist at Intel who retired financially free long ago), and John Gilmor, who invited fewer than 20 of their closest friends to participate.

At the first meeting, John Gilmor humorously referred to this small group as Cypherpunks.

They discussed various current issues in cryptography and how cryptography could benefit humanity. What is the relationship between entropy and information systems? What information was conveyed in the latest cryptography conference report?

This small group gradually developed, with many members being well-known cypherpunks who had a significant impact on cryptography and computer science, including:

• Jacob Appelbaum: Core member of the Tor project
• Assange: Founder of WikiLeaks
• Adam Back: Inventor of Hashcash, co-founder of Blockstream
• Bram Cohen: Founder of BitTorrent
• Hal Finney: Major founder of PGP 2.0, first recipient of Bitcoin
• Tim Hudson: Co-founder of SSLeay and OpenSSL; co-founder of RSA Security Australia
• Paul Kocher: One of the founders of SSL 3.0
• Moxie Marlinspike: Founder of Signal
• Steven Schear: Inventor of the Warrant Canary
• Bruce Schneier: Cryptographer, lecturer at Harvard University, recipient of the EPIC Lifetime Achievement Award
• Zooko Wilcox-O'Hearn: Founder of Zcash
• Philip Zimmermann: Founder of PGP 1.0

The term "Cypher" comes from cryptography and cyberpunk.

Cyberpunk originated from dystopian futurism and was a subgenre of science fiction in the social context of the time. Dystopian worlds are not perfect, filled with a combination of rebellious spirit and high technology. Influenced by hacker culture and punk subculture, hackers often play the role of saving the world in many novel plots.

In hacker culture, hackers enjoy participating in solving the limitations of software systems, tackling challenges, and creating in the field of computing with a spirit of humor and exploration.

However, programming is not the only characteristic of hackers; the focus is on whether the process is interesting and filled with value and meaning. Some hacker behaviors can also be seen as a form of individualistic creativity or artistic expression.

In the mid-1970s, students at MIT began an activity and wrote a special guide called the "MIT Admissions Handbook," which included a chapter on hacking (in a prankster style) discussing history, hacker organizations, ethical guidelines, safety tips, and activity risks.

Early academic youths expressed their feelings through some prank-like behaviors. Before 2001, there was a unique hacker room in the MIT Museum that showcased many past hacker stories from MIT.

In 1982, during a football game between Harvard University and Yale University, a large balloon marked with MIT suddenly appeared. Alumni from MIT, during the game between Harvard and Yale, had secretly buried a small pump powered by a vacuum cleaner motor at the game site and connected it to the balloon.

Around MIT's Tech Model Railroad Club (TMRC) and the MIT Artificial Intelligence Lab, the earliest hacker culture aimed to find clever ways to solve algorithmic problems and enter restricted areas without causing any major negative events or damage.

The "prank balloon" from MIT that appeared at the Harvard and Yale football game, image source: MIT

Time turns back to 1992 in San Francisco, California, where the first Cypherpunk meeting was heatedly discussed. Thus, this discussion gradually evolved into a regular monthly gathering.

Exchanges among experts often inspire each other's thoughts. Thus, the cypherpunks decided to create a CypherPunk mailing list, allowing other "cypherpunks" outside the Bay Area to join the discussion.

Through The List, an email publishing platform that could generate over 50 messages a day, everyone on the cypherpunk list could receive emails in their Internet inbox and directly reply to the content of the emails.

The mailing list became an everlasting dialogue group where everyone could discuss plans, envision ideals, and exchange each other's code and project inspirations.

"In Code We Trust"

Thus, the mailing list gradually became popular among cypherpunks, where everyone exchanged ideas about cryptography, discussed computer engineering, proposed good ideas, and tested code. They freely shared their debates on mathematics, cryptography, computer science, and even philosophy, of course, there were also arguments and debates arising from differing opinions, but this did not affect their exploration of issues.

The most novel encryption method at that time was still PGP (Pretty Good Privacy, isn't that name a bit cute?), invented by Philip Zimmermann, and the CypherPunk mailing list adopted this method.

Since the 1990s, cypherpunks from around the world have never stopped trying to solve various complex mathematical problems in cryptography for their beliefs.

Even after the peak period from December 1, 1996, to March 1, 1999, the cypherpunk mailing list averaged 30 messages a day.

By 1997, the estimated number of subscribers to the mailing list had reached 2,000.

In early 1997, Jim Choate and Igor Chudov established Cypherpunks Distributed Remailer, an independent network of mailing list nodes aimed at eliminating the single point of failure inherent in centralized list architectures.

At its peak, Cypherpunks Distributed Remailer had more than seven nodes, and by mid-2005, al-qaeda.net operated the only remaining node.

"In an electronic age, privacy means we can choose to show our power to the world."

2. The Story of Cryptography

Before the 1970s, cryptography was mainly used by the U.S. military. During the early Cold War, export control regulations included cryptography, meaning that advanced technologies of this kind required licenses for export.

In 1975, 31-year-old computer genius Whitfield Diffie conceived a new system called "public key" cryptography, which he presented to humanity in the form of a paper.

From a young age, Diffie was passionate about the world of cryptography. His father was a historian, and from a young age, Diffie began to scour all the materials in the libraries of his city. In the mid-1960s, when Diffie joined the MIT computer hacker community, his childhood interests resurfaced.

In 1967, a book called "The Codebreakers" documented the history of cryptography, and Diffie dove into it as if pursuing a dream, traveling everywhere to seek information about cryptography.

++This was very difficult at the time because, in that era, almost everything about modern cryptography was classified, accessible only to the NSA (National Security Agency) and scholars.++

Later, Diffie went to the eastern United States, where he met his future wife, and they moved back to Stanford to continue their exploration of cryptography. In 1976, Whitfield Diffie and Stanford computer scientist Martin Hellman joined forces to publish a groundbreaking paper in the history of cryptography titled "New Directions in Cryptography," bringing the discipline to a broader world.

New Directions in Cryptography

Why is the invention of public key cryptography so great?

To explain: Each user in the system has two keys—public and private. The public key can be shared with everyone without compromising security (similar to a bank account number that can be shared for others to transfer money to your account), but the private key must be kept secret (like your bank card PIN) and should not be known by anyone.

For example: If I want to send you a secret letter, I can encrypt it with your public key and then send the letter to you, which you can decrypt with your private key.

This principle can also be used for authentication.

Encryption scenario: A encrypts information with B's public key and sends it to B; B receives the ciphertext and decrypts it with B's private key;

Signing scenario: A signs with their private key and sends it to B, who verifies the signature with A's public key to prove the message came from A;

Many people believe that public key cryptography is one of the most revolutionary new concepts in the field of cryptography since the Renaissance.

However, this invention came entirely from individuals with an infinite love for cryptography through their explorations.

By the end of 1975, when Diffie and Hellman were preparing to publish their paper, a wave of cryptography centered around academia was rising, with countless emerging cryptographers, like Diffie, having read "The Codebreakers" and being captivated by its stories and heroism.

More importantly, everyone realized that the widespread use of computers would further advance the application scenarios of cryptography. They understood that the accelerated use of computers would mean explosive growth in the field.

Subsequently, cryptographers began holding regular academic conferences, and academic communities in the field of cryptography gradually started establishing their own publications.

In 1977, once again at the serious yet lively MIT, computer scientists Rivest, Shamir, and Adleman proposed a cryptographic method known as RSA (named after the initials of their three names).

Rivest, Shamir, and Adleman

RSA improved upon previous public key cryptography and was relatively flexible. These algorithms eventually received patents and were licensed to RSA Data Security. Clients integrating RSA software into their systems included Apple, Microsoft, WordPerfect, Novell, and AT&T.

In the minds of cypherpunks, cryptography is so important that it must become a privacy tool accessible to everyone. This is the heroism within hackers.

The aforementioned inventor of PGP, Phil Zimmermann, was then an engineer obsessed with cryptography. When he first heard about public key encryption, he spent a lot of his spare time working on the idealistic project of "saving the world with cryptography."

Phil Zimmermann wondered, why can't the RSA algorithm be implemented on personal computers to realize a public key system?

Zimmermann began contemplating this question in 1977. Since he was not a professional cryptographer, it wasn't until 1986 that he implemented RSA for PCs and a year later wrote a method he called BassOMatic (the name comes from a Saturday Night Live skit he often watched).

In June 1991, after much effort, Zimmermann was ready to release PGP (the email encryption method we mentioned earlier). Although at one point, he considered charging users, after much thought, he decided to offer his research for free to everyone.

However, Zimmermann nearly couldn't pay his mortgage for researching PGP and was willing to make it open source. Fortunately, when the first version of PGP (which could only run on PCs) was released on the Internet, people around the world downloaded PGP within hours.

Zimmermann once remarked, "I received emails from almost every country on Earth, and everyone was excited."

However, RSA's parent company, RSA Data Security, was not happy because they felt Zimmermann had recklessly incorporated RSA's patented algorithm into PGP. Zimmermann explained that he did not profit from selling PGP but rather popularized it as a research project for the public.

Many people believe that PGP, through its open-source model, spread the gospel of public key cryptography to the public, which is one of the best things in the development of RSA.

3. From Cypherpunks to Digital Currency

The story returns to the world of cypherpunks.

The Internet is borderless and international. Could there be a native currency or digital currency originating from computer networks that allows everyone to compete fairly?

But at that time, there was an unresolved technical issue for digital currency: the double-spending problem.

Double Spending Problem

What exactly is the double spending problem? For example, I have a digital currency worth 10 yuan, which is essentially a piece of code on a hard drive. If I copy and paste it, this 10 yuan digital currency can be spent twice, which would mean that the digital currency does not possess "uniqueness." How do digital payment companies like PayPal solve this problem?

PayPal has a unified database that can perform transactions and ledger calculations around the data. Ordinary users cannot directly access PayPal's database.

If the double spending problem can be solved without relying on trusted third parties, it would be possible to create a currency native to computer networks. Early cypherpunk pioneers began to explore this path starting from solving existing problems.

1980s

Cryptographer David Chaum is considered by many to be one of the fathers of the cypherpunk movement. Chaum published numerous papers on topics such as anonymous digital cash and pseudonymous systems, including a paper published in 1985 titled "Security without Identification: Card Computers to Make Big Brother Obsolete."

David Chaum, like a one-man army, pioneered the field of anonymous communication research, independently inventing many cryptographic protocols, including Group Signatures, Mix Networks, and Blind Signatures.

Chaumian eCash

In 1990, David Chaum was the first to attempt to invent digital currency: DigiCash.

DigiCash aimed to apply emerging cryptography to protect user privacy while solving the double spending problem. The underlying algorithm was called eCash, first released in 1982 and later improved by other cryptographers.

Chaumian eCash was a significant leap in digital currency. However, in 1998, the eCash (DigiCash) company went bankrupt due to the increasing number of users using credit cards and PayPal, even though these payment systems did not truly protect user privacy.

Cypherpunks saw this failure and realized that Chaumian eCash had another previously underestimated weakness: digital currency could not rely on a single company. If digital cash wanted to thrive, it had to achieve true decentralization.

DigiCash was not the only attempt to create digital currency. Cypherpunks initiated many experiments, including Mojo Nation (Mojo is a digital cash currency designed to provide attack resistance and load balancing in a fully distributed and incentive-compatible manner.)

Meanwhile, besides cypherpunks, many others began to work on creating digital currency: e-gold, established in 1996, was one of the earliest internet companies to create digital currency, two years earlier than PayPal.

e-gold issued a digital currency backed by gold reserves, which anyone could hold and transfer. At its peak, e-gold processed over $2 billion in transfers annually. It was very popular, but due to almost no restrictions on registration, the currency was rampant with fraudsters and cybercriminals.

U.S. officials took notice of this, and after a lengthy lawsuit, the court ruled that e-gold had committed money laundering and violations of remittance laws. The founders were held criminally liable, and in 2008, all electronic gold balances were frozen. In the following five years, U.S. authorities arranged for the redemption of all electronic gold account holders.

e-gold raised another important consideration: how to view regulation?

In 1997, Adam Back created Hashcash, the first attempt at an anonymous transaction system.

In 1998, Wei Dai published a proposal for B-Money.

This proposal outlined two methods for maintaining transaction data; a) Each participant in the network would maintain a separate database to record users' fund amounts; b) All records would be kept by a specific group of users.

Wei Dai's proposed method is known as "Proof of Stake" (POS), which Ethereum (ETH) borrowed from. If you have read the Ethereum white paper, you can see Vitalik's acknowledgment of cypherpunks.

In 2004, Hal Finney drew on Adam Back's Hashcash to create RPoW; (which is one of the important reference elements for the proof of work adopted by BTC)

In 2005, Nick Szabo published a proposal for Bitgold based on Hal Finney and many previous ideas.

Cypherpunks believed that cryptography was crucial for the sovereignty of the Internet.

The inventions of Diffie-Hellman, RSA, and PGP heralded that ordinary users could have true freedom in digital discourse.

Over time, Peter Junger and others opposed the cryptography export protection regulations set by U.S. authorities and achieved victory at the legal level. Companies like Netscape worked hard to develop SSL and HTTPS, and the commercial application scenarios of this discipline became increasingly broad.

Cryptography advocates believed that other countries and regions outside the U.S. also needed encryption software. Moreover, the lack of cryptographic technology would hinder the development of e-commerce. Ultimately, the first-generation cryptographers won, and the export and dissemination of cryptographic technology gradually liberalized.

The earliest cypherpunks won the first victory in their own cryptographic war.

From the Bretton Woods System to Satoshi Nakamoto

In July 1944, 44 countries held a United Nations and Allied monetary and financial conference in the eastern United States to discuss how to arrange international currency after the war. The Bretton Woods system established a gold-exchange standard based on the U.S. dollar, forming an international monetary system centered on the dollar.

Later, due to the imbalanced economic development of various countries after the war and the inherent flaws of the Bretton Woods system, including issues related to the role of the dollar and the interests of the U.S. at the time, the Bretton Woods system collapsed. People began to explore that the future international monetary system might not necessarily be dominated by sovereign currencies, and other possibilities existed.

The outbreak of the 2008 financial crisis led some experts to question the credit system of commercial banks.

"Perhaps sticking to the gold standard is destined to be eliminated."

Just a year after the financial crisis erupted, on January 3, 2009, in Helsinki, Finland, Satoshi constructed and compiled an open-source code on a small server and ran SHA256 calculations for the first time.

On March 18, 2009, Satoshi created the first block in the world of Bitcoin.

The rules of the Bitcoin world are that everyone in the BTC system can obtain some Bitcoin by solving mathematically defined puzzles. The stronger the computing power, the faster one can obtain Bitcoin rewards. The author does not know whether there is an emotional connection between Satoshi and Cypherpunk, or whether he participated in the early heated discussions about cryptography among cypherpunks.

However, even in 2022, when the author opens the discussion list of cypherpunks from 30 years ago, he can still genuinely feel everyone's deep love for technology, cryptography, and innovation.

The early development and progress of cryptography indeed had many applications for national defense and cybersecurity, utilizing numerous technologies that could truly benefit all of humanity.

To a large extent, this is inseparable from the contributions of countless cypherpunks who are obsessed with computers and possess a rebellious spirit.

In the world of cypherpunks, everyone starts from solving problems and is dedicated to maintaining privacy. Along with the development and principles of cryptography, this spirit of cooperation and selfless sharing has evolved into a firm belief.

Today, in the rapidly developing world of Web3, some cypherpunks believe that in many scenarios, NFTs and blockchains are inherently public, and ownership and security may not be as envisioned, making it difficult to predict the future direction of development.

However, from Web1.0 to today's Web3, curious individuals have not stopped exploring and have continued to create them. We can continue to observe, speculate, and verify in the long river of history. I believe that more amazing things will happen in the future.