Cypherpunks Write Code: Wei Dai and B-money — or a Coin Before Bitcoin

@obyte

A ledger without middlemen

Credibility

In this new series, we’re talking about remarkable cypherpunks who helped to create decentralized money and more privacy and online freedom tools for everyone. Let’s remember that the group named “cypherpunks” was formed by computer science, cryptography experts, and Internet activists aiming to create new software to foster privacy and social change. As you may imagine, a lot of people in the crypto world belong there.

Wei Dai is, of course, one of them. Maybe his name is ringing a bell if you ever read the Bitcoin whitepaper. He’s one of the references at the end. We don’t know much about his personal life, because he’s a quite private person —like most cypherpunks, indeed. However, we do know about his career.

Probably born in 1976, of Chinese origin but living in the USA, Dai went to the University of Washington. He graduated in computer science with a minor in mathematics. According to some sources, his career began at TerraSciences, where he contributed to developing security solutions for the oil and gas industry. Later at Microsoft, he played a crucial role in optimizing encryption algorithms.

Dai's notable contributions include the widely-used open-source Crypto++ library, employed in projects like Microsoft Office Groove and LastPass. Dai's VMAC algorithm, designed for 64-bit systems, demonstrated high-performance data verification. He also identified critical vulnerabilities in SSH2's Encryption Block Chaining and was part of the team that discovered the BEAST protocol vulnerability in SSL/TLS, posing a significant risk to Internet security.

Besides, his work on b-money influenced the core concepts implemented in Bitcoin. This is a very similar system, published before the Bitcoin whitepaper. Despite speculation, Dai denies being Satoshi Nakamoto, or even having some real influence in the cryptocurrency creation.

B-money Proposal

B-money is considered an important precursor of all cryptocurrencies, even though it was never released. “Fascinated”, in his own words, by Tim May’s crypto-anarchism ideology with its purpose of making the government unnecessary and the threat of violence impotent, Dai designed potentially unregulated money for the crypto-anarchist community to operate, free of governmental intervention.

He showed, indeed, two protocols. The first one, described as impractical, establishes a basis for the second, more feasible one. In both, an untraceable network is assumed, where participants are identified solely by digital pseudonyms. The first protocol relies on a synchronous and uninterrupted anonymous broadcast channel, with participants maintaining databases of money ownership tied to pseudonyms. It covers the creation and transfer of money, and enforcement of contracts, including arbitration mechanisms.

The second protocol shifts the accountability of the money mint to a subset of participants called servers, connected through a Usenet-style broadcast channel. Transaction messages remain similar to the first protocol, but participants must verify that messages are received and processed by a randomly selected server subset. To prevent collusion, servers are required to deposit money for potential fines or rewards, periodically publishing and committing to money creation and ownership databases.

B-Money and Bitcoin

These two systems share many similarities. Both of them aim to establish unregulated digital currencies operating in a peer-to-peer (P2P) network without the need for a central authority. The use of Proof of Work (PoW) for the creation of new units of currency is considered as well. In both b-money and Bitcoin, participants can generate new coins by solving computational problems. This PoW process serves the dual purpose of securing the network and preventing abuse.

Additionally, both systems employ cryptographic mechanisms to ensure secure and private transactions. B-money, like Bitcoin, uses digital pseudonyms (public keys) to identify participants, providing a level of anonymity. Transactions are signed and encrypted, contributing to the privacy and security of the overall system.

The concept of a distributed ledger is another shared element. B-money and Bitcoin utilize a decentralized approach to maintain a ledger of transactions. In b-money, participants maintain separate databases, while Bitcoin realizes these databases as a blockchain—a public ledger that records all transactions across a network of computers.

Overall, the conceptual foundations of b-money, particularly the use of PoW, cryptographic techniques, and decentralized ledgers, laid the groundwork for the subsequent development of Bitcoin and other cryptocurrencies. Even the “b” in the name may result in suspicion. But Dai himself denied any contribution or involvement.

“I didn't create Bitcoin but only described a similar idea more than a decade ago. And my understanding is that the creator of Bitcoin, who goes by the name Satoshi Nakamoto, didn't even read my article before reinventing the idea himself. He learned about it afterward and credited me in his paper. So my connection with the project is quite limited.”

Not that decentralized

B-money was only one of the important steps to what we have today, and to the real decentralization we’re still aiming to achieve in crypto. It wasn’t really decentralized, as you may have noticed: the “servers” (middlemen) were in control of the money. Something similar happens with Bitcoin, indeed.

Miners, in charge of minting new coins, can cherry-pick or even censor transactions. If more than half of the big miners collude, they could take over the whole network. And they’re not even a lot of parties, considering that only two mining pools are currently in control of 54% of the network power (hashrate).

Bitcoin Hashrate by Mining Pool as of 13/01/2024. Source: CoinDance

Obyte, on the other hand, has solved this issue by completely eliminating the mining system. Instead, its Directed Acyclic Graph (DAG) structure is fully censorship-resistant. There are no powerful parties behind, and only Order Providers (OPs) are required to order transactions. Their transactions serve as waypoints to order the rest, and nothing else. If someone sends a transaction to the DAG, it can’t be blocked or censored by any party. The total supply is also fixed, protecting against inflation.

Interestingly, as Wei Dai described enforcement of contracts and arbitration mechanisms, we also have contracts with arbitration as well as an arbiters store (ArbStore) in Obyte. This is a new decentralized escrow payment solution, specifically designed for international trade.

Operating on the decentralized Obyte crypto platform, contracts with arbitration facilitate safe transactions using smart contracts (without users needing to code anything) and cryptocurrencies, offering a decentralized escrow that safeguards funds until the conditions of the contract are met. With the added layer of protection from independent arbiters in case of disputes, the parties involved are assured a fair resolution process.

We’re in debt to our predecessors. Distinguished cypherpunks like Wei Dai and Satoshi Nakamoto laid the groundwork for the building of real decentralization in the financial and online world. Let’s continue their mission!

Featured Vector Image by Garry Killian / Freepik