Bitcoin Prequel (2): The Origin of Decentralization

We covered the origins of public key cryptography and the story behind its creators in our last article. The work of three early cryptography researchers, Martin Hellman, Whitfield Diffie, and Ralph Merkle, brought cryptography into the public eye for the first time.

In the second part, we will explore Martin Hellman’s ongoing work on public key cryptography, as well as his research on anonymous communication, payments, and the need for decentralized services.

His research sowed the seeds for the coming cypherpunk movement and laid the groundwork for TOR, Bit Torrent, WikiLeaks, and Bitcoin.

If you google the definition of “decentralization”, you’ll see a lot of answers, but you’d be hard-pressed to find when the concept was born, what problem did it try to solve in the first place?

This article attempts to answer this question.

Since the 70’s

After the publication of public key cryptography, the story of decentralization began. It starts with a student named David Chaum, who, like Ralph Merkle, is from the University of California, Berkeley, studying computer science.

He learned about cryptography while pursuing his graduate degree through Martin Hellman, Whitfield Diffie, and Ralph Merkle’s publication New Directions in Cryptography on public key cryptography. Chaum wasn’t the only one who started learning about cryptography, in fact when New Directions in Cryptography was published, public enthusiasm for cryptography began to spread like wildfire among academia, researchers, and engineers. At that time, as companies such as Apple, Intel and HP grew, the San Francisco Bay Area was becoming a gathering place for the world’s technology leaders, attracting a large number of technology talents internationally.

After a decade or so of rivalry between Microsoft and Apple, the personal computer boom of the 1970s is waning. In 1977, Star Wars IV was just released, the concept of the Internet began to attract global attention, and the world was moving towards a digital future. Around the world, technologies such as computers and robotics are constantly emerging. Apple’s record-breaking $1.3 billion IPO gave a powerful boost to the coming software wave and set the stage for Silicon Valley’s next 30 years of success.

Bitcoin Prequel (2): The Origin of Decentralization

Bitcoin Prequel (2): The Origin of Decentralization

IBM, Apple and Microsoft’s war of the 1970s

In the first new wave of cryptography, Chaum quickly understood and embraced the concepts of cryptography out of an innate curiosity about the technology. While little is known about the details of Chaum’s early life, he shares where his natural curiosity for technology came from, spending most of his childhood unlocking and cracking passwords to safes.

He comes from a wealthy family and has been using computers very early on. Like many modern teenagers, he spent a lot of time in front of a computer screen as a teenager, but he didn’t spend that time trying to break computer systems and crack passwords. As the first generation to grow up with computers, he is also very tech-savvy. Later, when he breached the seemingly secure computer network system, he developed a feeling of extreme distrust of most of the technology at the time, which also triggered his hacker paranoia.

While researching, he discovered an overlooked aspect of cryptography: metadata.

Message encryption, not the whole answer

While public key encryption conceptually solves the security problem of encrypted messages, Chaum believes this is only part of the puzzle. He believes that encryption does not mean security, and unprotected data surrounding encrypted information such as who is talking to whom and when is a great risk to personal privacy. With some relevant and unencrypted information, it is theoretically possible to identify and track others.

When he finished his graduate studies, he decided to write a research paper on data analysis for communications security: How to keep information about who is communicating with whom and when is confidential? 》

After graduating in 1979, he published his first cryptography paper in 1981: “Untraceable Emails, Return Addresses, and Digital Signatures.” In the paper, he cites the contents of “New Directions in Cryptography”, outlines the risks of personal privacy, and provides methods to protect personal privacy using anonymous mail protocols of hybrid networks. Through the hybrid network, the identity and message sending time of both parties can be protected from being discovered by others.

How does a hybrid network work?

A hybrid network is a network of nodes that communicate with each other in a way that mixes the identity of the original sender and the time of the message, and public key encryption is used between the nodes to verify the information.

When you send a message to someone using a hybrid network, the encrypted information is first delivered to a node, where it is batched with messages from other senders, which in turn will be sent between the different nodes . Imagine a pinball full of messages bouncing on different nodes, and finally the message exits the network and ends up at the intended address. In this process, not only the information of the original sender is hidden, but also the sender cannot know the original address, so the sender’s identity and message will remain unknown, while preventing tracking and surveillance.

When designing the network, he rejected the solution of using a single message validator, arguing that it would be easily broken. He insists that, ideally, every participant is authoritative.

Later hybrid networks were used to build anonymous browsers TOR and Monero, where you could buy drugs and hire killers.

Untraceable Transaction Payments

After learning about the potential risks of unprotected metadata, he started thinking about financial transactions with the same logic. In an increasingly data-driven world, Chaum believes that e-commerce will play a huge role in the world, as will the traceability of consumer payments. He believes that the time of transactions and purchases can be used not only to track users, but also to analyze personal lifestyles, consumer choices and political leanings.

The timing of an individual’s payment for each transaction can reveal a lot about an individual’s whereabouts, interactions, and lifestyle. For example, consider payment for goods, transportation, hotels, restaurants, movies, theaters, lectures, food, drugs, alcohol, books, journals, dues, religious and political donations, etc.

In 1980, he patented a cryptographically protected digital cash transaction system that became the basis of cryptocurrencies. The patent outlines a protocol with the following capabilities:

  • Financial transactions using external systems
  • Exchange data with external systems
  • Contains the ID of the data ownership within the linked external system
  • Store data related to interactions with external systems
  • Stored data is protected by encryption, which can be accessed using a secret ID known to the owner

Chaum later refined the concept of anonymous payments further in his paper: Anonymous Signatures for Untraceable Payments, which was later published in 1982. Similar to the hybrid network concept, his proposed payment protocol requires masking of sender amounts, sending and transaction times.

A serendipitous discovery: The idea of ​​decentralization

At the time, Chaum was a student, and his work was considered politically sensitive and radical by his peers. Similar to Martin Hellman’s at Stanford in the 1970s, Chaum’s work has faced scrutiny. While studying for a Ph.D., his class teacher told him:

“Don’t work on this, because you can never judge the impact of a new idea on society.”

Ironically, his head teacher turned out to be right.

Despite pressure from his peers, Chaum decided to pursue his Ph.D. After revisiting his ideas about hybrid networks in his first paper, he decided to study the concept of trust in computer systems.

As a hacker, Chaum distrusts central authorities in computer systems, which he believes are easy to hack, and instead believes that systems involving “authorities” are harder to compromise. Chaum studied the concept of computer systems that establish trust between parties that do not trust each other, and in his paper he proposed the need for decentralized services: trusted computer systems built and maintained by mutually suspicious groups.

It is not enough for an organization that maintains a computer system to trust it; many individuals and organizations need to trust a particular computer system…
There are many other similar computer applications involving consumer-related private sector records, e.g. from credit, insurance, medical Health care and employment relationship records. Record-keeping in the public sector, very similar in areas such as taxation, social security, education, and military service…all of these applications involve a group of people who own or control a computer system, with a particular focus on maintaining the reliability of system operation and ensuring system maintenance the survival of the data – they will be called “trustees”. The second or group of groups is primarily concerned with the confidentiality of the data related to them available to the system. There may be a third group or group, possibly overlapping the first and second groups, who are concerned with the correct operation of the system… – Trusted computer systems built and maintained by distrusting groups (1982)

Initially he saw hybrid networks as one of the concepts of decentralized services, and his concerns about metadata led him to focus on research on anonymous payments. While Chaum focused on personal privacy, after looking at his work for himself and how he came up with the concept of decentralization, he probably did not understand the importance of decentralization at the time.

He sees decentralized services as a means of resolving conflicts of interest between consumers and businesses in certain applications. In his dissertation, decentralization is not described as a socio-political movement in today’s world, but is first presented as a corporate economic solution.

After graduating in 1982, he decided to continue studying cryptography. Meanwhile, that year Time magazine made “computers” their key of the year. Imagine the 2022 keyword of the year is cryptocurrency, bitcoin.

Bitcoin Prequel (2): The Origin of Decentralization

Time Magazine 1982

Over time, his ideas began to mature, and visions for the future began to form in his mind. Chaum began to express concern about the extremely rapid growth rate of computing.

Chaum’s warning to the world in 1985

Computers are taking away the ability for individuals to control how their information is used. Public and private sector organizations have acquired vast amounts of personal information and exchanged it with each other. Instead, the individual has no way of knowing whether the information is accurate, out of date, or used inappropriately. Computer technology has brought about a new and more serious crisis: a small group of people can conduct mass surveillance or infer an individual’s lifestyle, activities and connections through data from cellphones in everyday consumer transactions. The automation of consumer transaction payments is extending these crises to unprecedented levels.

In Orwell’s dystopian world, there is talk of the dangers of building user databases around computer systems. Chaum warns that this continued trend toward computerization will leave society open to exploitation and mass surveillance. He also believes that surveillance can significantly reduce an individual’s participation and expression in group and public life. In addition, insufficient security and the risk of being attacked by personally identifiable information will become “national vulnerabilities”.

Decentralized Economy is proposed after he summarizes previous research on anonymous web messaging and decentralized payments. Although his ideas were fragmented before, he came back knowing the real importance surrounding decentralized services. He sees the future the world is heading towards and is acutely aware of the crossroads that lie ahead of society. Understanding that the design of the Internet’s architecture can have lasting social and political implications, he envisions two future possibilities: one built with current technologies and one built with distributed services, both with radically different approaches. future. Either way, it could have far-reaching and lasting effects on economic freedom, democracy and our right to information.

So what exactly is the definition of decentralization?

One of Chaum’s most fundamental beliefs is the right to personal privacy, and as the world becomes more connected, he recognizes the need to protect personal data and sees cryptography as a means of protection.

Cryptography is essentially a mechanism for protecting information from manipulation by people who do not have access to it. Cryptography is the enforced mathematical laws that transcend centrally controlled forces. True personal privacy protection is achieved when individuals have the right to use encryption to control and protect their data.

Chaum believes in math, but he doesn’t trust governments and corporations. He sees decentralized services as a means of protecting privacy, and through cryptography, a decentralized system will not be controlled by the center, which is why it is trusted.

Bitcoin Prequel (2): The Origin of Decentralization

Edward Snowden exposes the NSA Prism incident in 2013

Bitcoin Prequel (2): The Origin of Decentralization

Screenshot of CIA document on U.S. surveillance program: Prism

Bitcoin Prequel (2): The Origin of Decentralization

How the Prism Program Works


Bitcoin Prequel (2): The Origin of Decentralization

Facebook’s billion-dollar business based on private data


Bitcoin Prequel (2): The Origin of Decentralization

Metadata captured by Facebook

Bitcoin Prequel (2): The Origin of Decentralization

Is Chaum a time traveler?

Chaum isn’t a time traveler, he just has an exceptionally clear vision of the future, and now he’s proven right.

While it does seem to be the case, we are not on the path to decentralization. No system is perfect, and even if the world heeded his advice, we might still have to deal with equally serious problems. Nonetheless, history has shown the need for decentralized services.

Now, 40 years after his paper was published, the world is indeed building services around centralization. Facebook has more than 2.2 billion users, but it is also true that due to the lack of decentralization technology, data abuse occurs frequently.

While the internet may have gone the wrong way, it doesn’t mean things are too late to change. The world is always in motion and cultures, technologies and societies are constantly evolving, the question is how?


Chaum spent the next decade working on cryptography until 1988. He later moved to the Netherlands and set up his own research group to act on his vision for a decentralized world. In 1990 he founded his own company, Digicash, and created the world’s first digital cash system, Ecash. Many cryptographers of global interest have interned and worked at Digicash, including Hal Finney, Nick Szabo, and Eric Hughes, one of the founders of Cypherpunk, a movement that will be explored in the next installment of this series. Digicash went through highs and lows, rejecting Microsoft’s $180 million acquisition and finally declaring bankruptcy some time later.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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