The Idea behind Bitcoins

By Lumai Mubanga. [email protected]

In my previous article, I pointed out that bitcoins have been inspired by the ideals of the Cypherpunks and libertarians. However, who were the Cypherpunks and what where the central ideals that influenced the creation of Bitcoins? According to the Wikipedia, they are activists advocating widespread use of strong cryptography and privacy-enhancing technologies as a route to social and political change. This explains why the Bitcoin protocol is a combination of computer science, economics, and cryptography.

The central ideals of the Cypherpunks and libertarians of the 1980’s especially had a direct influence in the creation of bitcoins. Some of the strongest ideals among others are strong advocacy for the protection of privacy using cryptography. As far as they are concerned, they do not trust corporations, banks, and governments to respect the privacy of individuals. According to these ideals, the collection of huge amounts of data and information from clients and millions of user allows these institutions to wield unimaginable power and control over the populace.

The Cypherpunks therefore, were some of the first to notice the power that these centralized institutions had while at the same time, the public had shrinking liberties and freedoms. These powerful institutions included financial institutions of every kind including banks that govern economies and countries. Some companies and researchers had tried to create an anonymous currency but failed lamentably. Bitcoin however, was the first breakthrough technology that succeeded as a cryptocurrency.

Based on those ideals therefore, bitcoins immerged as an anonymous cryptocurrency not backed by any governmental, bank or company authority. Thus, the famous Satoshi Nakamoto first published the first white paper for bitcoins in October 2008. This 9-paged research paper proposed the structure and functions of a peer-to-peer electronic currency. For some of you familiar with basic computer networks, peer to peer is a simple network that directly connects two or more computers without the central control from the server. Already that explains the removal of a central authority in the equation. This explains further, why this currency does not rely on intermediate financial third parties, allowing users the freedom to perform transactions between peers.

So, how does the bitcoin or (cryptocurrency) network achieve autonomy and privacy as propagated by the ideals of the Cypherpunks? As a bitcoin user, you are not required to use your real name and actual residential address as demanded by the banks. Instead, your identity is simply an address, a string of random letters and numbers. An example of such an address is 1BvBMSEYstWetqTFn5Au4m4GFg7xJaNVN2, purely anonymous and private. What does this achieve? Two things. One, it protects the privacy of the user and secondly, it takes control from the third party entities and hands it to the user.

As a result, the bitcoin community has emerged as a network of millions of independent users who communicate with each other as part of the bigger Bitcoin protocol. This network functions as a perfect substitute for the central banks. It has capabilities to perform and validate transactions as well as store the entire transaction history from all users.

Nevertheless, what are the Dangers of such a system? My Next article will answer that question.