SLP544 Where Did Bitcoin Come From? The Genesis Book with Aaron van Wirdum

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Aaron van Wirdum rejoins me to talk about his exploration of how Bitcoin came to be. We talk about his new book, The Genesis Book. In this book, Aaron explores some of the technologies, and philosophies that led to the creation of Bitcoin. We discuss:

  • What he learned in making this book
  • Hayek and the Austrians
  • Extropians
  • Cryptography and the Cypherpunks
  • Libertarians
  • Precursor tech to Bitcoin

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Sponsors:

Stephan Livera links:

Podcast Transcript:

Stephan (00:00.351)
Aaron, welcome back to the show.

Aaron (00:02.06)
Yeah, thanks.

Stephan (00:03.842)
So Aaron, I had a chance to read your book, the Genesis book. I thought it was really cool. Some really interesting points that sort of came out from it and we can get into some of that. But let’s just start from your perspective. Why did you want to write this book?

Aaron (00:20.344)
Well, so partly is sort of a personal thing. I’ve been writing about Bitcoin for a long time, over 10 years by now. And for most of these years, or at least the first couple of years, this was, you know, on the sort of weekly or sometimes even daily basis. And at some point I wanted to zoom out. I wanted to get a bigger sort of perspective on Bitcoin itself and also go more in depth.

and really give myself the time to sort of explore, all right, where did this all come from? Because there’s still, still today, I mean, I think the myth is sort of being dispelled already, but there’s still sort of this myth that Bitcoin sort of came out of nowhere. There was no, there was nothing. And then Satoshi descended from the heavens and dropped Bitcoin, and then there was Bitcoin. And that’s not.

That’s not what happened. And when I started writing this book, as I mentioned, that myth was already sort of dispelled. Like if you would pick up an average Bitcoin book, there was usually like this one page in the first chapter that mentioned something about the cypherpunks, maybe mentioned something about David Chaum or Arpao or one of the others, Bitgold, the digital cash projects before Bitcoin that I also cover in my book. But it was…

very limited and I felt that I didn’t know a lot about it and I wanted to know more. So that was sort of my personal motivation to start writing the book. Now when I was writing the book, so it’s a history book, essentially it chronicles the prehistory of Bitcoin, so the story leading up to Bitcoin. But I think what I also try to do in that way is sort of

explain Bitcoin itself in a sort of step-for-step way. So where did these ideas all came from and where did these technologies all came from and how did they sort of evolve over time to, yeah, bits by bits inch closer and closer to Bitcoin. And by telling the story in this way, or at least what I tried to do is, yeah, this

Aaron (02:39.584)
Even if you’re a novice, even if you don’t know much about Bitcoin, actually this is sort of a natural way to get to understand it. Because you’re sort of taken along on this, on this, you know, tour where the puzzle pieces all kind of fall together until in the last chapter essentially Bitcoin is formed and it’s all, it’s all put together in that way.

Stephan (03:01.346)
Well, I can say from my reading of it, I agree. I think you did a great job with that. I found it really great. Now, obviously, you and I, we’ve both been kind of around Bitcoin for a while. So we’re both sort of deep into it at this point. But even for me, just reading through, it’s sort of, it was interesting to sort of see the way the pieces came together of like, oh, okay, you had, you know, BitGold and RPao, and, you know, and prior to that, Hashcash, and some other…

Related movements which you obviously chronicle. So for example the Austrian economists you chronicled a little bit about the Linux and the FOSS, you know free software movement and the cathedral and the bizarre and these are sort of like the building blocks if you will or what I found interesting was the way you sort of categorize or at least Pull together and give people a flavor of what was the ethos of the people who built this thing?

and the way it sort of came together. But I want to start with this question. I’m curious, was there anything that, you know, in your process of going through, doing research, doing interviews for this book, what surprised you?

Aaron (04:11.676)
Well, when I started writing a book, I kind of did it in the wrong way, I think, retrospectively. I sort of approached this book in the same way that I would usually approach writing an article. So the way I would usually approach writing an article is there’s this thing going on in Bitcoin, like there’s new technical proposal or, I don’t know, there’s this person that published something. I don’t know. But I don’t know much about it and I’m curious.

and I want to know more and I’ll write an article and that way I know more and the audience knows more. But I sort of start from scratch myself. With an article that’s very doable, but I found with a book maybe that’s actually kind of not the best approach. Maybe it’s better to, if you’re going to write a book to already know a lot, that makes it a lot easier. So when I started writing this book, again, I mentioned there were some things I knew.

but it was really more my own curiosity that drove me to write this kind of from scratch. So a good example of something that really kind of emerged over the years, because it’s been multiple years, the years that I’ve been writing this book is, I knew that there was gonna be something in it about Austrian economics, as you just mentioned, but I knew very little about it. I knew there was gonna be something in it about Hayek.

because I knew he wrote the denationalization of money. But that’s sort of all I knew about that and I hadn’t read the book yet. So I sort of had to, you know, to do all that research. And the more I started researching both Hayek’s work as well as the Cypherpunk archives and then the Extropians which is sort of the precursor of the Cypherpunks in a way as I also described in my book. And the more research I did, the more…

this Hayek guy kind of kept popping up. And for all kinds of different reasons, he was sort of an inspiration for these people, both in a very literal sense for what he wanted to do with money, as well as in a more broader sense of his sort of philosophy of how an economy should operate. And these dots, I kept finding these dots and in the end, Hayek’s ideas.

Aaron (06:38.148)
have become a very sort of pervasive threat through the book. Like from the very start, the opening quotes to the very end and throughout, it sort of keeps recurring. He and his ideas keep recurring. I didn’t set out to do that. I didn’t set out to write a book about Bitcoin with like Hayek as a big part. It really emerged over the years because it just started to make more and more sense the more and more.

I read about him and the people that were inspired by him that were in themselves, you know, important in the, in these pre-Bitcoin years, so to say.

Stephan (07:17.322)
Yeah, interesting. And yeah, I’ve definitely, I’ve seen a lot of Hayek memes shared in the Bitcoin world, maybe not as much nowadays, but that video, there’s that infamous video, and I believe you, even in the book, you do spell that out as well, this sly roundabout way quote from Hayek, which a lot of Bitcoin people have shared that video or seen that video. And yeah, if you could just maybe tell us a little bit on, you know,

what sort of rabbit holes you went down in the Austrian economics world, that might be interesting for people.

Aaron (07:50.5)
Yeah, well, so maybe sticking to the topic of Hayek. So there’s sort of free eras in his life that I sort of, that I describe in my book or that future in my book. So the first era is where he’s having his sort of big debates with Keynes. So this was in the 30s. And to a large extent, this debate

can sort of be boiled down to, yeah, how should an economy be managed? Should it be something where the government has a big role? So sort of this top down type of interventionism that Keynes was advocating, or Hayek was proposing, no, it should be left to the market and should be this bottom up emergent phenomenon. At this time, he was also writing about money. And what’s interesting is that at one point,

he writes about money as he describes what would be neutral money. So what would be sort of the type of money that would be most efficient as a tool to allocate resources throughout the economy. Right, that’s what the economy does and money sort of influences that. So how do you create a neutral form of money? And what he describes then is something that’s limited in supply.

and borderless. These are sort of the main two functions. But he really quickly, he doesn’t really believe in this idea. He just describes it as sort of this theoretically ideal thing, but it’s not actually possible. And he gives a couple of reasons for that, both practical as well as, well, actually all practical. So for example, that can’t be an institution to actually manage this because any institution

has to be based somewhere, this can be corrupted, it’s not actually possible. So he gives up on this idea. He doesn’t actually, you know, advocate this in the real way. It’s more something he just describes like this would be neutral. This would be ideal in some sense, but it’s not possible. But just to point this out, it of course very much resembles Bitcoin, this limited supply and the borderless currency.

Aaron (10:10.392)
Now then he resurfaces in the 70s and now he starts to advocate for a for, for the separation of money and state. So now his main thing is money should actually just be left to the market and then the market can figure out what it wants to use. Now it is worth pointing out, which I also describe in my book, that at this point he does describe what he believes the market would choose as money.

And at this point, this doesn’t actually look like Bitcoin as much anymore, because now he’s describing something that’s that has stable purchasing power where stability is defined by whatever the market picks to be stable. Now it’s maybe you could make the argument this doesn’t necessarily preclude a limited supply money, because maybe that is what the market will settle on. But it’s now really what he’s predicting, although he’s still like his main thing is still whatever the market’s.

Jesus is fine, right? Now he has this big challenge to overcome to realize this, he knows, or society has this big challenge to overcome, which is in order for this to be possible, governments are gonna have to allow it. Governments are gonna have to basically let go of their monopoly on money, which in the 70s, high excess, this is gonna require some sort of big social movement.

Stephan (11:11.927)
Right.

Aaron (11:38.752)
It’s going to be hard, but you know, you got to try. You got to try to convince people, whatever. Then actually, ten years later, he’s given up on this idea as well. He says, well, I still believe that money should be left to the free markets. Monetary policy is only harming the economy. The government should have no say over money. It should be left to the market. However, governments aren’t going to allow it. So the only way to realize this

is to create something that governments cannot stop. So this is the quote that you earlier mentioned that I both start my book with because I think it’s very relevant for the book. And then later on, I mentioned it again towards the end of the book. So, yeah, at this point, Hayek, as I said, their free market money is still the best, but you got to figure out a way that the governments can stop now.

It’s maybe interesting elaborating on this a little bit. Like if you see the full version of this interview, then what Hayek is actually sort of working towards is some sort of security asset class type of thing that would de facto be used as money. That’s sort of the direction he’s thinking in. But it’s interesting that basically the cypher punks

they start to run with Hayek’s idea as well. And they actually realize, you know, I would say Bitcoin, well forget about the Zephyr bug, sorry. Bitcoin essentially realizes Hayek’s ideal even better than Hayek thought it was possible. Yes, exactly.

Stephan (13:20.814)
than what he thought it was possible. Right, because as you point out, and I believe you’ve mentioned this somewhere in the book, but it was thought to be impossible because at a fundamental level, nations can’t trust each other, right? There’s competing governments. We don’t have one world government, and that’s a good thing, obviously, well, from my perspective, at least. And yeah, I find that interesting. The other point I would make on Hayek and denationalization of money, now it’s been, I can’t remember the last time I read that book, it’s been a while, but the…

the vibe I get, and you tell me what you see from it as well, the vibe I sort of got, almost had this view of like, oh, what if lots of different, what if lots of different companies had their own money, or lots of different banks had their own money, and they would just kind of compete with each other? And that, to me, nowadays, obviously that’s, you know, who’s writing that, what, 40, 50 years ago, whatever, it seems almost quaint to me, but it almost seems more aligned with quote unquote, shitcoiner view of like, oh, there’ll be lots of different shitcoin people, and you just, you’d have to just trust

whether it’s the Ethereum foundation or Solana or whatever, whereas nowadays we sort of have this view of like, no, actually it’s just Bitcoin. You just need this neutral money that nobody controls. That’s how I’m sort of seeing it now. But obviously I’m seeing that now in the context, we’re here in 2024, that was written in, I believe in the 70s or in the 80s, right? But I’m curious, how do you see that?

Aaron (14:41.804)
Yeah, 76 was the original. Well, so there’s two versions of the book basically. So there’s the denationalization of money and there’s the denationalization of money, the argument revined. And what you describe is basically what Hayek envisions in the denationalization of money, where he thinks, yeah, all these banks or companies or whatever you wanna call them, they all have their own currencies and they’ll all compete with each other. And then in the argument revined, he actually sort of makes a step in his thinking.

any figures, no, there will be sort of one clear winner and this, this will, everyone will sort of converge on the, whatever this currency considers to be stable, everyone will converge on this. And then this definition of stability will in itself start to sort of operate as a meta currency. So you can have contracts in this meta currency, even though

Stephan (15:21.78)
Yeah.

Stephan (15:28.194)
Gotcha.

Stephan (15:36.194)
Gotcha, yeah.

Aaron (15:40.82)
in it. Now it is, you know, if you really want to go on a tangent, which I did in earlier drafts in my book, by the way, and decided to delete because it was too much sort of about the future of Bitcoin or potential future of Bitcoin, they start to resemble what hell Vinny describes as like the Bitcoin bank. Yeah. The Selgin inspired Bitcoin bank type of solution where

Stephan (15:59.358)
Right, the infamous, yeah.

Aaron (16:09.06)
Yeah, there would be a free banking system that uses Bitcoin, but they would probably issue different currencies on top that are sort of backed by Bitcoin or, you know, measured against Bitcoin. It doesn’t mean that everyone’s using Bitcoin. What? Yeah, which is still a possible future if you ask me, but I decided to leave that out of the book exactly because it is sort of speculating about. Yeah.

Stephan (16:22.082)
like natively, yeah, interesting. And you know what is, yeah.

Stephan (16:29.806)
It’s like more speculative rather than definitively or kind of objectively in the history of Bitcoin. And I will just quickly point out here for some listeners, if you might not be aware, Mises was writing, and I believe this comes from, I think it’s theory of money and credit. And he has this infamous quote in there where he’s saying, you know, those goods that are less marketable would be one by one rejected until you would have one most saleable or most marketable commodity, in other words, money.

And so that’s kind of, in a way, Hayek’s refined argument is sort of closer to the Mises, sort of, let’s call it maximalist view from 1912, theory of money and credit, so interesting there. But there’s lots of other, go on.

Aaron (16:59.931)
Right.

Aaron (17:15.884)
Yeah, I do think that’s a very relevant idea in the context of sort of modern maximalism. Like at least my, like I consider myself a maximalist, so if people consider my, me a maximalist, then I’m fine with that. But the idea there is like, it’s not an anti-market idea. It’s actually just the idea that’s no, the market will just settle on one because that’s sort of the ultimate, you know, configuration. So it is similar. Yeah, there’s definitely similarities with

Stephan (17:32.396)
Yeah.

Aaron (17:44.388)
both Hayek and Mises’ ideas which are also described in my book.

Stephan (17:48.862)
Yeah, of course. So one other interesting area that would be cool to touch on is some of your discussion around the world of FOSS and Linux and the cathedral and the bazaar, you sort of talk a little bit in the book about, you know, some of the ideas of Richard Stallman and some of that, you could argue as well, is like a parallel with Bitcoin, like the culture of, let’s say, a Linux.

There’s some parallels between Bitcoin, because Bitcoin is this open source project, and Linux also comes from a similar ethos, let’s say. And so could you just expand a little bit on what you saw there and how you chose to explain that in the book?

Aaron (18:35.784)
Yeah, there’s, uh, so the book sort of has two legs as you’ve read it. So you know, it’s sort of the economics leg and then there’s the tech leg and throughout the book, they sort of start to melt together and yeah, what you’re asking now is sort of the emergence of the hacker culture and the hacker movements, which is also a big part of the book that sort of the start of the other leg, the tech leg.

And this is very relevant for Bitcoin, of course, for two reasons, I would say. So Richard Stallman, they’re sort of in the book, there’s sort of the backstory of where the hacker movement itself came from and Richard Stallman’s role there in. And at some point he, uh, formulates the four freedoms that free software should, um, should have.

His important motivation, and this is the important thing for Bitcoin, is that he sees that as an empowering thing. So he sees free software, which has sort of been rebranded to open source, but I explained the difference in the book, but free software is more ideological essentially. And so the ideology there is, users should be in control of the software they run. So they shouldn’t.

If users cannot verify what the software they’re running on their computers is doing, then basically the developer has a power relationship over them. It’s only if software is free, aka open source, and users can read what it does, only then will they know there’s no backdoors and nothing like that. Now, of course, for Bitcoin, this is super relevant.

Because we couldn’t have Bitcoin without that. We couldn’t have Bitcoin without this free software ideology. Because how would you know that there’s only 21 million Bitcoins, for example? How would you know that any of the protocols, protocol rules are actually being enforced? How do you know Satoshi doesn’t have this backdoor where he’s creating money for himself? How do you know any of that? So this is possible thanks to free software and the free software movement that Richard Solman launched.

Aaron (20:51.548)
in the eighties. So that’s very relevant. And then throughout the chapter, yeah, like Linux is introduced and that sort of where it morphs more into open source. And so the difference there is the open source ideology is more pragmatic. It’s more about quality. It’s more about, hang on, if you use, well, free software, open source software, and you allow anyone…

to contribute to this, it turns out that actually results in very high quality software, because anyone can check for bugs and anyone can fix bugs. And there’s a very pragmatic reason for it as well, which of course, you know, it’s also good for Bitcoin. It’s good that the quality is optimal and that anyone can help improve it. And then you could even argue there’s sort of this…

or I do sort of argue in my book, there’s also this aspect to it that in order to actually achieve this, in order to actually achieve this optimal quality, and if you want people to contribute, then the project needs to be something that they care about. It needs to be something that they want to contribute to. And this in a way makes the project

de facto something off the community. Like you can’t have essential leadership or a dictator that wants to take the project into directions that the community doesn’t want. Again, let’s take the very typical example of increasing the 21 million limit. Let’s say the lead developer of Bitcoin, whether that is these days, there isn’t really one, I think at this moment. If you want to…

take Bitcoin in that direction. He kind of can’t because none of the contributors will go there with him. The communities won’t go there with him. So there’s also this sort of distributed power aspect to these types of projects as well.

Stephan (22:57.554)
Yeah. And you also get at this idea of the cathedral and the bizarre. Now this is a famous essay by Eric Raymond. And I guess he, in a way he’s saying there’s this cathedral model for development, which is sort of like the corporate closed source model. And then you’ve got this kind of bizarre model, B-A-Z-A-A-R model. And basically the, all these individual contributors are just people from wherever can just kind of contribute. And it’s just a very stark contrast in the model.

So that was also really interesting too.

Aaron (23:30.308)
Yeah, that’s sort of what I was referring to earlier.

Aaron (23:38.048)
this idea that anyone can contribute, anyone can fix bugs, anyone can see if there’s anything wrong. Well, before that, yeah, more the cathedral model relied more on sort of dedicated experts that would be very careful with the software. While this bizarre model has a more open approach, let’s just put it out there and let everyone contribute and improve this.

It turns out that’s actually a very good way to get high quality software, which at the time when I was first tried, of course, was sort of surprising. It’s sort of surprising in the same way that it’s kind of surprising that WikiLeaks works really well, right? So like before WikiLeaks, no one would have expected if you just let anyone, you know, contribute to this encyclopedia, then the quality… What did I say?

Stephan (24:28.302)
Wikipedia you mean, but yeah. You said WikiLeaks, but yeah, yeah. Yeah.

Aaron (24:33.724)
Oh yeah, Wikipedia is what I meant, sorry. Yeah, if you let anyone contribute, no one would have expected that would actually work, but turns out that it does. And so it’s similar with software. It turns out.

Stephan (24:44.746)
Yeah. So let’s get into the Xtropians. You touched on this earlier, but who were they?

Aaron (24:54.104)
Yes, so the Extropians is one of the, I would say one of the more interesting chapters in my book and also one of the more important. It’s interesting just because it’s such a sort of fascinating ideology. So it started with Max O’Connor, who changed his name to Max Moore and his friend Tom Bell, who changed his name to Tom Morrow. So then I have Max Moore and Tom Morrow.

which is fitting because they had this very optimistic view about the future. And specifically about technology. So they, they believed that technology, uh, was basically increasing exponentially or improving exponentially, I should say. And therefore the, the expected, you know, potential benefits of technology would

fastly exceed what many other people were expecting. And for example, one of the important things they were focusing on was like medical technology. So they expected that within most of their lifetimes or within the matter of decades, basically all diseases could be cured and even old age could be cured. So people’s lifespans would become indefinite. You could just live forever. And

Stephan (26:17.014)
Right, it’s more like a transhumanist idea, yeah.

Aaron (26:19.588)
Yes, exactly. Well, that’s where it comes from essentially. Or the term sort of existed before, but it really got shaped by Max Moore and sort of by this community in the 80s, early 90s. Yeah. So they started to also take very seriously ideas like space colonization, AI, cloning, like all kinds of very futurist ideas.

Importantly though, they believed that the best way to achieve this was again, sort of by structuring society in a Hayekian way or in an Austrian way. What I mean with that is just let the free markets reign. Just don’t get the government out of people’s business and then people’s individual desires and experimentation.

will lead the way to the future. So they were both very utopian futurists and very libertarian. Now from this libertarian perspective, the idea of digital cash was at one point introduced. There were a bunch of computer scientists in this community. One of them was Hal Vinnie, who many Bitcoiners, probably all your listeners have heard of Hal Vinnie. He was one of the extropians.

and he introduced the idea of digital cash in that community. And the reason he introduced that the idea of digital cash was he saw it as a way to get government out of your finances, essentially. So get government out of your life. Very extropian idea, very libertarian idea. But he was mostly focused on the privacy aspect of it. The government, the government doesn’t need to know where you’re spending money or how much money you have, or let’s get the government out of all of that.

So this idea resonated very well with the Extropians.

Aaron (28:21.616)
so well in fact that several of the ex-Tropians including Max Moore, so one of the founders, they started to grab on this idea, they became inspired by this idea of digital cash in an even bigger way than just privacy alone and they saw it as a tool to potentially separate money and state altogether. So they saw it as a way to essentially realize Hayek’s ideal of the denationalization of money.

through this new digital cash technology that David Chaum was building and Hal Finney had introduced in this community. So Max Moor really said, all right, we should be building this and we should also be thinking of just creating a new form of money with it. So if you think of these two legs in my book, for example, so you had the Austrian sort of monetary reform, Hayekian part of the story and the technology part of the story.

these really started to merge with the extropians. And a number of the extropians were also these designers of earlier digital cash projects before Bitcoin. So this is really where these two quite different ideological movements start to sort of bundle their forces, you could say.

Stephan (29:43.214)
Right, yeah, yeah. And so then as you spelled out earlier, they were somewhat of a precursor to the cypherpunks. So can you spell out a little bit about, you know, the cypherpunks, people like Tim May and what was their involvement?

Aaron (29:58.104)
Yeah, so you gotta imagine, public key cryptography was invented in the 70s. There’s also something I write about in my book. Yeah. So before that cryptography existed, but it was really sort of in the domain of armies and secret services. It wasn’t a public technology, essentially.

Stephan (30:08.075)
Yeah, also in the book, yeah.

Aaron (30:26.148)
So this changed in a way in the 1970s with the invention of public key cryptography and this kind of unleashed an entire new wave of innovation in that field. However, for over a decade, so public key cryptography invented in 76 and now we’re in the early 90s and Tim May, who’s this retired,

physicist from Intel, retired young in his early 30s. He meets up with a friend, Eric Hughes, who works briefly at the Digicast startup in Amsterdam. And they start to discuss the potential of all these new technologies that are being invented, all these new crypto tools that are being fought up in academic circles, essentially. But they

Stephan (31:24.182)
Right. With these crypto technologies, I think it might be just useful just to sort of quickly spell some of them out. So as you mentioned, what have we got? There’s Ralph Merkel with the Merkel trees. There was Diffie-Hellman for the Diffie-Hellman key exchange. There’s RSA, Rivest, Shamir and Adelman. And then Whit Diffie, he’s another one in that kind of…

Aaron (31:44.924)
Edelman.

Stephan (31:52.798)
Yeah, so I guess you kind of spell out who some of these different people are and some of their views and then of course David Chaum and they’re sort of all of these different technologies kind of had a relation because they relate to either cryptography, public key cryptography, Merkle trees like and you know Chaum with the e-cash and so they sort of were all relevant in this movement.

Aaron (32:18.94)
Well, the thing that Tim May and Eric Hughes sort of concluded or wondered or the question they stumbled on is, all right, all of these technologies are possible, but no one is using any of this. So the internet was starting to…

emerged, it was sort of a real thing in the early 90s, very small of course, but it existed. But no one was actually using these technologies. So there were a lot of conferences, there were a lot of papers written in universities, a lot of discussion about what was possible, but no one was actually using it. And they wanted to change that. So they decided to invite a bunch of their friends, both from the hacker community and from the Xtropian community and other smart people from sort of the Silicon Valley area.

where they were and they started to invite these people first actual to physical locations, start to brainstorm how to bring these types of technologies, how to build these tools and bring them to the public. And then from there also they started a mailing list and this mailing list was online and now anyone from all across the world could sort of join the discussion and

start developing these tools. So their mantra was, cypherpunk’s right code. You gotta actually write this stuff, we’re gonna do it.

Stephan (33:42.398)
Yeah, that’s interesting as well because, as you said, there’s all these protocols. Why aren’t there actual applications that people are using? And even in the modern day context, we could say, well, look, okay, yeah, you’ve got PGP for cryptography, how many people are using PGP, but there’s hundreds of millions, if not billions of people using Signal or WhatsApp, which do leverage, you know, some of those, some of, you know, some of that cryptography to give people some additional privacy in how they text and do calls with each other.

Aaron (34:11.628)
Yeah, it’s worth pointing out that this is pretty new though, right? Like, when was Signal introduced? Yeah, something like that would be my guess. But even like in the early 2000s, no one was using cryptography. Well, I mean, I’m exaggerating a little bit, of course, but…

Stephan (34:12.524)
Yeah.

Stephan (34:17.662)
Maybe 5-10 years ago? Not super long ago, yeah.

Stephan (34:28.586)
Like in terms of retail users, like regular everyday people, yeah, very few people.

Aaron (34:33.226)
It’s pretty recent that people actually sort of started to care a little bit.

Stephan (34:37.346)
Right, yeah, that’s true. And one other area I wanted to touch on with you as well, you mentioned in the book around Chalm and his DigiCache idea, the cyber box, and sort of how, you know, after eight years, it didn’t really pan out. Could you just explain some of your views on why you think that was, or at least the two, I guess, explanations you found?

Aaron (35:01.22)
Yes, so this is one of the more sort of controversial parts of the book in the sense that there’s very strong disagreements on what actually happened. So the context is David Chalm had invented this technology to create a form of digital cash. And when I say digital cash, in this context, I mean something that can be used privately. So a way to pay each other online.

without anyone else knowing that the payment happened essentially, or who paid who, that kind of stuff. This was a very, so he launched a startup around this idea called DigiCash, and they were developing what was called Ecash. Now, the context there is, again, like early 90s, like the internet was just starting to come online, just starting to emerge.

And at this point it was not obvious yet how, what the economics of the internet would look like. So there was still a very broadly held belief that websites, for example, would charge money in order to visit them. Like anything online would be micro payments, for example. So you can imagine that if you’re working for this company that’s trying to develop this and it has this very powerful technology to enable it.

This was considered like a very hot prospect basically. It was considered potentially the next big thing. Now it didn’t actually pan out. So why didn’t it pan out? There is, as you alluded to, two versions of this story. Version one of the story is there just wasn’t any market for it. So this is sort of what David Chaum himself and some of his former colleagues will say, look, we had the technology, but no one wanted to use it.

And there is something to say for this side of the story because they got some big banks to actually adopt this. Deutsche Bank in Germany is a good example. Also Credit Suisse, like these are major financial institutions and they actually did adopt the technology. However, there wasn’t much adoption, like consumer adoption in the end. So there’s something to be said for this side of the story. The other side of the story is there was basically

Aaron (37:27.712)
was a brilliant cryptographer, but a horrible businessman. That’s what some of the other former colleagues of DigiCash will say. What have told me as well is, you know, he would back out of deals at the last minute or would try to change contracts, you know, on the day that it was supposed to be signed. And he was just very generally distrustful of whoever he was trying to do business with. And these were in some cases very big.

companies like very big banks in the Netherlands. Microsoft is sad to have had the interest and so it could have been included in every Windows computer essentially sort of by default. But this all fell apart according to this side of the story because Chowm just wasn’t a good businessman.

Stephan (38:12.714)
Yeah, interesting. And so it could also just be that, like it or not, the ad model was more prominent for the internet. Like people just didn’t want to do these micro transactions. You know, maybe that’s also part of it as well.

Aaron (38:26.688)
Yeah, Nick Szabo has written about this. This is not included in my book, by the way, but he has written about the mental cost of transactions. So the reason that micro payments can’t work is not so much technical or anything like that, or because people don’t value whatever they’re buying. But they don’t even want to have to think about, do I want to buy this or not? It’s like the mental cost is sort of a cost, a transaction cost, which is…

even more annoying than paying half a cent, that the fact that you have to make some kind of decision. So yeah, Nick Szabo speculated that this is the reason why micropayments can’t actually work.

Stephan (39:03.138)
Right, yeah. And then I guess the other angle is that whenever somebody is trying to implement something into an actual business, they often end up running into, in some cases, government regulation, or it’s a perception where, you know, with DigiCash, you spell it in the book that the eCash recipient and the bank could be uncovered if the sender and the bank…

cooperated. And so then it’s almost like there’s this clash between with the with the privacy hardliners who are saying, No, hang on, I thought this whole idea was to have privacy. And now it’s sort of like, and maybe for regulatory reasons, or for, you know, pick your, you know, terrorism or whatever. That being the reason that sometimes the privacy has to go, at least in the business context, given the government regulation.

Aaron (39:55.572)
Yeah, I would say there’s an even bigger sort of meta problem with DigiCache and Chowm. And that is that Chowm had the patents on this DigiCache technology, on this Ecache technology, and he didn’t want to share it. Or at least… Again, even here there’s sort of different parts of the story, but…

from everything I’ve seen and read, it seems like, you know, they had the patents and it was very hard to get access to using this technology. And because of that, it was actually very difficult or impossible, well, very difficult, I would say, to experiment with this technology. So Digicast made certain design choices. So one of them you just mentioned is that the recipient isn’t guaranteed his privacy if the bank and the sender are colluding. But then there was also

DigiCash was very much focusing on sort of hardware modules to make payments, which you could say are sort of the precursor of maybe hardware wallets these days. But anyways, they were sort of focusing on this type of stuff rather than on the actual cryptography and tools. And so there were a couple of design decisions that DigiCash was making that others considered bad. And the real problem was that these others couldn’t offer alternatives. They couldn’t compete on the free market.

or at least not using the same technology. So this, ironically, while Chaum was on the one hand a big inspiration for the cypherpunks, like he really showed the way and he showed what was possible with cryptography, he also became kind of a…

an enemy or maybe enemy is two bigger words but he

Stephan (41:43.862)
Maybe there was some resentment or something like that because of maybe the way things panned out.

Aaron (41:46.812)
Yeah, so he was both an inspiration and then but cypherpunks also thought he was holding up the technology and Fisa Versa by the way is also interesting to mention is that David Chaum even though he was the big inspiration for the cypherpunks he didn’t really like that movement he was never involved because he fought some of the cypherpunks Tim May most notably was like one of the premier writers on the mailing list

Chomp thought they were a bit too radical for his taste.

Stephan (42:17.262)
I see, yeah. And so a lot of the cypher punks, though not all of them, held libertarian views, this view of trying to separate money from the state or various other things. Maybe some of them had the view that the individuals could use cryptography and sort of use it to opt out of government taxation, whereas others maybe, it sounds like, you know, from reading your book, it sounds like some of them

were maybe sort of sympathetic to the idea, but didn’t think it would be realistic, and that actually in practice you’d have to sort of deal with a slightly less optimistic view.

Aaron (43:02.344)
Yeah, well, I would say sort of the general ideology or the most common one within the cyberpunks was definitely libertarian. And in some cases, a pretty radical form of libertarian and eco-capitalist basically, like Tim May, who really saw electronic cash as a way to undermine the state itself, as it would allow people to evade taxes and this would in turn discourage.

anyone else from paying taxes either. He really saw these technologies as a pretty radical thing to, as I mentioned, get rid of the state essentially. But they were definitely also more moderate libertarians for one. So they were still libertarian, but they maybe weren’t as radical as Timmay in the sense that the entire state must disappear. Or they just thought the technology wouldn’t actually enable that like Helvini. He was a pretty…

moderate in the sense that he may have agreed with Tim May in sort of his goals. He just didn’t believe that it was actually possible that at the end of the day, the only way to you still you still have to live in a country. And if you live in a country, you know, the taxman will find you one way or the other. So he had a more realistic idea. But even like Eric Hughes, one of the co-founders of the Southpunks, he actually explicitly

did not refer to himself as a libertarian. He saw it more as, you know, a coalition of the willing, if you will. I don’t know if he would have considered himself a socialist or I don’t know where he stands politically exactly, but he definitely explicitly said he didn’t consider himself a libertarian and he just wanted to collaborate with people like Tim May because they had shared goals when it comes to things like privacy. Yes.

Stephan (44:57.962)
Like private messaging and other privacy techniques, let’s say. Yeah.

Aaron (45:02.4)
Right. Well, also electronic cash, it was definitely a big electronic cash proponent as well.

Stephan (45:08.682)
Yeah, interesting. And yeah, so it’s interesting because some of the words can be thrown together, but maybe there is a distinction in them. So let’s say the cypherpunk is not necessarily the same as a crypto anarchist, right? And there may be some who, let’s say Tim May would have been in both camps, right? He would have been a cypherpunk and a crypto anarchist. Maybe someone like Hal Finney would have been like a cypherpunk.

a libertarian, but not necessarily a crypto anarchist because he didn’t believe it’s realistic that everybody can just opt out and use Bitcoin now, but back in those days, electronic cash. Because as long as he sat in the state of California, the government of the United States and of California would come after him and that in practice, it wouldn’t be feasible for any realistic number of people to actually go and do, quote unquote, crypto anarchy.

Aaron (45:59.716)
Yeah, I mean, there were even people on that list that would consider themselves socialists. Like, there wasn’t actually an ideology attached to cypherpunks. However, as I mentioned, sort of the dominant ideology was still definitely libertarianism. Most people on that list were libertarian to some extent, yeah.

Stephan (46:07.114)
Right. Yeah.

Stephan (46:21.69)
Yeah. And it’s interesting as well that there are parallels with what’s gone on in the past. So as you mentioned in the book, the crypto wars and what went on there and potentially what could happen even today or in the future. But could you just spell out a little bit, you know, maybe for listeners who aren’t as familiar, a little bit about the crypto wars and the US government going after Zimmerman.

Aaron (46:46.36)
Yeah, so shortly after the Cypherpunks formed, so this was early 90s, it started with the Clinton administration coming into power, so it was 94. And they were concerned about the potential of cryptography, you could say they were kind of concerned in the same way as Tim May, but what Tim May considered positive, the government. Right.

Stephan (47:09.942)
they thought of it as a bad thing, right? Because they see it as munitions, right, in their mind.

Aaron (47:15.52)
Well, yeah, so what happened specifically is they imposed a law that bans the exports of strong cryptography. Now, remember, as I mentioned earlier in this podcast, for a long time, cryptography existed in the domain of like army and secret service, these kinds of entities. So mentally, it sort of maybe you could…

argue kind of makes sense that they would be inclined to put it in the same category. But yeah, the cyberpunk really start to fight back against this idea that you could not export cryptography. So yeah, some of the ways they did that. Phil Zimmerman, you mentioned he was the creator of PGP, this privacy tool, and he came under investigation.

And at some point to kind of make his case of why the, why these new rules were so ridiculous, he printed the algorithm in a book and asked if he could export these books. And at that point, you know, the authorities had to make this very awkward decision where they were either going to have to ban books or de facto allow strong cryptography. Something similar happened with Adam.

back, who again, all your listeners will know, he decided to print the RSA protocol on a t-shirt and the same logic was sort of applied there that if you would cross the border out of the United States wearing that t-shirt, you were technically a weapons exporter, just to show how absurd these rules were. So yeah, they started to fight back in these sort of symbolic ways, but also in practical ways in the sense that

you know, the cyberpunk’s write code. We’re gonna write the code regardless of what the government thinks of it. We’re gonna spread it, you know, it’s free and open source software. And, you know, good luck stopping that. So they were sort of the activist arm to fight against these new anti-crypto regulations. They weren’t the only arm. There was also the more commercial arm, you know, the Netscape of this world. Netscape was of course a big company back then.

Aaron (49:37.8)
and they couldn’t sell the original versions of their web browser abroad. They would have to create one with weaker encryption. And this was in turn broken by cypherpunks to prove their point again. There were also human rights groups like the ACLU and the electronic frontier foundation that were also fighting back. But the cypherpunks really were the radical arm of this movement.

And in the end, they won. The government folded and by, I think it was 98. I could have the year wrong, but a couple of years later, basically the government said, all right, you guys are right, you can export crypto. And yeah, now we have crypto on our phone, in signal, as you mentioned earlier. Although it is still coming under attack in some countries, but yeah.

Stephan (50:26.431)
Yeah, right, and uh…

Stephan (50:30.762)
Right, and even in the US or even in the EU, there’s different moves being made sometimes by certain governments, certain administrations sometimes where maybe they make a move against it, but we’ll see what happens there, but I guess there are perhaps some parallels there. And I guess interestingly, the cypherpunks did not have a leader, right? It was kind of like a leaderless movement, and I guess in some ways, Bitcoin is sort of parallel to that, that there’s not a leader in the Bitcoin movement. There’s no kind of one person that everybody looks up to. It’s just kind of…

There’s a whole bunch of people just doing their thing and advocating or developing and writing code or doing business, whatever.

Aaron (51:08.656)
Yeah, for Tim May this was really his vision for the future, is that society would essentially work a lot like the Cyberpunk movement sort of worked. It’s people voluntarily collaborating if and when they want to without any official structure. And yeah, and indeed that’s sort of how Bitcoin works today.

Stephan (51:35.03)
So let’s talk a little bit, we’ve got a few more minutes left, but we can talk a little bit about some of the precursor electronic cash projects that you know precede Bitcoin as you spelled out at the start of this interview and You know as many long time Bitcoiners know Bitcoin didn’t just come out of the ether right? There’s all these preceding building blocks that were required for this to come together, so could you just

you know, maybe just overview a few of them. I mean, you don’t have to go into super in-depth detail, but just a brief overview.

Aaron (52:10.924)
Yeah, yeah. So the five I particularly highlight in my book, and I’ve also previously highlighted in a series of articles I wrote for Bitcoin magazine called the Genesis Files. So these five are Ecash, Hashcash, Bitgold, Bmoney and RPao. So Ecash was this completely centralized solution, and it was really meant to offer privacy.

Now what’s maybe interesting to briefly mention is that the DigiCash company also had a trial version of Ecash which was called Cyberbox and what they said with Cyberbox is we’re only going to issue 100 million ever. There will never be more than 100 million Cyberbox essentially and the Cyberpunk actually started to trade these currencies, this currency a little bit and even attach some real value to them.

So for example, the Adam Back shirts I mentioned earlier, he was selling these for Cyberbox. So he was earning Cyberbox for the shirts he was selling. Now when DigiCash went under, DigiCash went bankrupt, the server also disappeared. So the Cyberbox server disappeared. So the coins or the Cyberbox that all these Cyberpunks were holding were instantly worthless because there was no central server to check on double spending.

And I think this really was a lesson for some of these cyber punks that if you’re going to design an electronic cash system, it needs to not be vulnerable to, you know, a single server being shut down. Now, fast forward a bit to Hashcash. And then back came up with Hashcash. This was supposed to be more of a postage system. So it wasn’t a currency that could really circulate, but it used proof of work. Now, again, most…

Bitcoiners these days will know what proof of work is. It’s what Bitcoin uses for mining. So what Hashcash introduced was you prove that your computer actually made a bunch of calculations and therefore put in some real effort. And therefore, in his specific case of Hashcash, that meant that spammers couldn’t create millions of emails and spam entire networks or remailer systems.

Aaron (54:33.34)
For free like it was coming at a real cost and this would essentially make spam Unprofitable was the idea now what hashcash introduced With proof of work was a real cost real energy real physical resources Required to create this you know postage and this concept was then applied in both Bitgold B money and our pile so Bitgold was Nick Szabo’s idea

to explain how this works, you know, that’s, there’s like several layers to it and I won’t go into it, it’s all in my book for those who are curious. ARPAO, sorry, B-MONEY works similarly. What’s similar, what’s interesting about B-MONEY is that it’s proposed a truly decentralized way of managing the system. So anyone and everyone would check on their own computers, you know,

which transactions were going through and that every transaction was valid and therefore what the balance was, how much everyone owns. And then ARPAO was Helvini’s idea, which was, this one was actually centralized again, but it did also use proof of work. And then it used something called remote administration, which really leveraged sort of free and open source software, because what it meant was, even though it was run on the central server,

the server was running free software and there was this special chip that signed this software so you could always check that the server was running this specific software so that’s how you knew that Hal Vinnie who was running the server for example couldn’t just create money for himself so you can really see different ideas that exist in Bitcoin sort of start to form throughout all of these digital cash projects that preceded it over the years

Stephan (56:28.67)
Right. And so as you point out, it’s like Satoshi basically pulled the pieces together across, you know, all of these things, right? Where there was like the FOSS movement, Free Software, Austrian Economics, you know, RPAL and BitB money and BitGold and Hashcash and Ecash. All of that sort of weaves together. And then that’s actually what Bitcoin is. And so to sort of achieve…

Like all of these things, right? That no double spends, no centralized mint. Everyone can be pseudonymous, let’s say, and this idea of using proof of work, both for the creation of the new coins, but also to prevent double spending. And I guess that was also another big problem, historically, was how do you stop a double spend? Because you either need to have like a centralized server normally to do this thing, right?

Aaron (57:24.036)
Yeah, this is the Byzantine generals problem, right? Which sort of recurs a couple of times in my book as well. It’s sort of this problem where if you have a decentralized system, then how are you going to be sure that everyone is on the same page essentially? And this problem just seems incredibly unsolvable until Satoshi indeed came along and he sort of used the coin creation system also as a consensus system.

in the way that the longest proof of work chain is the one that everyone’s just gonna have to settle on. So that was a very clever insight. Yeah, interestingly, all of these pieces existed, but Satoshi just put them together in a way that it actually worked for the first time.

Stephan (58:08.658)
Yeah, fascinating stuff. So yeah, look, I do recommend the book. I think it’s a great one for people to check out. It makes a great gift. And also just like if you’ve been around Bitcoin for a little while, but you haven’t sort of looked into some of the history of where Bitcoin came from, like the Austrian economists behind it, the cypher punks behind it, the crypto anarchist people behind it, I think it’s a really great book. So Aaron, where can people find you online? Where can they get the book?

Aaron (58:36.992)
I mean you can find me on X twitter at Aaron van W. You can also find me in my bio. The book you can go to thegenesisbook.com or you can just find it on the Bitcoin magazine store or Amazon or possibly other bookstores that decided to offer it.

Stephan (58:57.398)
Fantastic. Well, thank you for joining me, Aaron. And yeah, hopefully you get a lot of, you know, people getting your book.

Aaron (59:03.524)
Thanks Stephan

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