To understand #Bitcoin’s resilience, it helps to understand the ideas that came before it. One of the most important was nostr:nprofile1qqsg9nvuv7ls3z66dj46nar2905t7c229p3qms2anykqg8pqkcq8x8qyr328d Bit Gold, a direct intellectual ancestor to #Bitcoin and a critical step in the evolution of electronic cash.
Szabo was one of the #Cypherpunks who worked at David Chaum’s #Digicash in Amsterdam. But while he was there, he realized that #Ecash had a fundamental flaw: it was centralised. Employees theoretically had the ability to secretly issue coins and manipulate the system.
This insight led Szabo to a principle he repeated often:
“Trusted third parties are security holes.”
About a year after nostr:nprofile1qqsqyredyxhqn0e4ln0mvh0v79rchpr0taeg4vcvt64te4kssx5pc0spr3mhxue69uhkummnw3ez6un9d3shjtnhd3m8xtnnwpskxegpzamhxue69uhkummnw3ezuendwsh8w6t69e3xj7s3l2qlf introduced #Hashcash, Szabo used its proof-of-work mechanism to design a new kind of digital money that didn’t rely on any single operator: Bit Gold.
Like Hashcash, #BitGold units were created by hashing. Only some hashes were valid, and finding one required computational work. But Bit Gold added a new twist: when someone found a valid hash, they would publish it publicly and “own” it. The hash would be attributed to their public key.
If they later wanted to transfer it, they would publish a signed message assigning ownership to a new public key.
But Bit Gold faced two major challenges before it could function as money.
The first was inflation. As computers become more powerful, generating valid hashes gets easier. Over time, the supply of new Bit Gold units could explode. Szabo envisioned a complex mechanism to stabilise difficulty and reduce technological inflation, but it was never fully fleshed out.
The second challenge was ownership tracking. Szabo imagined a distributed registry to keep track of which public keys owned which hashes. But trusted third parties were not acceptable, so this registry would have to be maintained by a group of users.
In theory, if a conflict occurred, such as a double spend, this group would resolve it through a sophisticated voting process. But Szabo never explained who these users would be, how they would be chosen, or how to prevent collusion and #Sybil attacks.
In the end, Bit Gold was never implemented. It wasn’t yet equipped to solve these economic and coordination problems.
Even so, Bit Gold represented a huge leap forward. It pushed the concept of digital money closer to what Bitcoin would eventually become, introducing ideas that would later prove essential.
We honour this chapter in “The History of Bitcoin by Smashtoshi” with original artwork by Smashtoshi.
It appears in the History of Bitcoin Collector’s Book and on our interactive timeline.
You can read the full article by Aaron van Wirdum here:
https://www.historyofbitcoin.io/timeline/discovering-digital-gold
https://blossom.primal.net/35551350c06e9ba306fb816a047e4726240a40380977030b32606c6784946d87.mp4
