1. Blockchain as a Historical Construct

From the earliest days of computing, questions regarding the sharing, reliability, auditability, and confidentiality of information have been treated as strategic issues by governments, businesses, and universities. Between 1950 and the 2000s, buoyed by military, academic, and industrial research, taking place mostly in the United States, these questions led to major technical advances as well as to the commercialisation of computing. Blockchain forms part of this historical continuum in terms of both technology and culture.

In this chapter we demonstrate that blockchain is a historical construct. Technically speaking, it comprises a series of concepts that were developed over the course of the history of computing. Here, we present the chronological evolution of the reasoning behind blockchain as well as the achievements that led to its consolidation. We explore in particular the ways in which the essential technical underpinnings of blockchain, namely, distributed cryptography and distributed systems, were developed and tested, and how they subsequently matured. We also explain the origins of certain practices, rules, incentives, and behaviours that shaped the field. The challenge we set ourselves is to bring together the initial elements of an analytical framework for the field.

1.1. Cryptography and decentralised networks in the post-war period

Cryptography is the art of protecting communications against disclosure using keys or secrecy. Its use was an important facet of the Enigma project during the Second World War. At the end of the war the armed forces retained secrecy around the project, considering it to be a strategically important asset. Confidential research was conducted for the national intelligence agencies NSA and GCHQ to develop information encryption systems capable of preserving the confidentiality of electronic communications. In 1945, while conducting research at Bell Industrial Laboratories, Claude Shannon wrote a paper entitled A Mathematical Theory of Cryptography, which was classified as secret by the

US government. He also addressed the issue of signal transmission in his renowned work on the mathematical theory of communication. In 1949, Shannon published another paper entitled Communication Theory of Secrecy Systems. There he laid the foundations for modern cryptography, approaching the field from the perspective of information theory for the first time. Also of interest is Horst Feistel's research on encryption algorithms, which he completed while working at IBM.

The problems associated with decentralising computer networks were first addressed during the Cold War, notably with the development of ARPANET in 1968. It is generally understood that, for reasons of security, the US military authorities and their affiliated university researchers designed a large network enabling computers from a large number of universities as well as the research centres with which DARPA worked, to communicate with each other. Technical and economic considerations led them to develop a non-centralised network model consisting of interconnected nodes. In this model, routers served as gateways to transfer information between computers using the telephone network. Some claim that Arpanet's decentralised structure was intended to standardise connection techniques, while others argue that it was designed to maintain the reliability of a network even when part of it was damaged or destroyed.

In the early 1970s, the Network Working Group, an informal university group which was to define ARPANET's peer-to-peer communication protocols, developed the email system and the TCP/IP suite of protocols (Transmission Control Protocol and Internet Protocol), in order to transfer information securely between different computers connected over a network. The increasing availability of personal computers and microcomputing (e.g., the Hewlett-Packard 9100A and the Apple II) for businesses and the general public opened up the possibility of networking on a massive scale, a theme that was explored by the Xerox Palo Alto Research Center.

1.2. Consequences of the growth of electronic communications

The National Bureau of Standards, an agency of the United States Department of Commerce, went on to employ Horst Feistel's research at IBM and to adopt the Data Encryption Standard (DES) as the standard for the corporate world. This is a symmetric-key algorithm in which a single 56-bit key is used to

encrypt and decrypt messages. In response to this approach, Whitfield Diffie and Martin Hellman of the University of Berkeley wrote the foundational paper 'New Directions in Cryptography' in conjunction with Ralph Merkel. In this paper, the authors develop the concept of asymmetric cryptography. It is this encryption method, which differentiates between public keys and private keys, that is used to encrypt and decrypt transactions in a blockchain.

The significant success of this article within the scientific community paved the way for many other works to be published in specialised journals such as ACM and IEEE Journals. In 1978, a paper written by Ronald Rivest, Adi Shamir, and Leonard Adleman at MIT modelled an application for asymmetric cryptography using an encryption algorithm called RSA. At around the same time Usenet, the first network of forums organised into discussion groups, was connected to ARPANET. With the rapid expansion of electronic communications, researchers began to commercialise their work and file patents, including DiffieHellman for key exchange and RSA encryption.

Conscious of the ever-increasing number of emails being sent across the Arpanet network, researchers Zaw-Sing and Paul Mockapetris of the University of Southern California set out the entire concept for the implementation of a Domain Name System (DNS) in a series of classified reports for DARPA. The architecture they designed involved a database in which information was fragmented into small calculation units and then distributed over several computers connected to each other through the Arpanet network.

At that time, university research in the field of communications focused mainly on issues specific to communications networks. At the University of Berkeley, Leslie Lamport's work on the resilience of networks with failed nodes and ways of addressing problems that arose led him to come up with his much-quoted metaphor of the Byzantine generals¹. One of the inventors of asymmetric cryptography, Ralph Merkle, was working on a digital signature scheme. He created cryptographic hashing and hash tree functions to digitally fingerprint digital objects so they could be identified. This is the same method that is used to structure information storage in a blockchain.

1.3. Designing privacy

In the wake of the commercialisation of cryptography and the expansion of the ARPANET computer network, cryptology began to be recognised as a scientific domain in its own right. In 1982, the International Association for Cryptologic Research at the University of California, Santa Barbara, organised the Annual International Cryptology Conference, one of the largest international conferences in the field. At the same university, David Chaum was in the process of modelling a network communications system in which messages were anonymised through blind signatures and the links between their sources and destinations obscured (known as mix networks).

Chaum was especially interested in privacy and the accessibility of the personal information used in electronic financial transactions. In an attempt to guarantee the confidentiality of financial transactions, he designed and produced a cryptographic system in which neither banks nor governments would be able to trace personal payments made online. This model led to the creation of the eCash project, one of the first attempts to launch a cryptographic electronic currency on the international markets.

The question of the rights and the level of control that producers of information have over their productions is also at the heart of the creation of free software rights. While working at the Artificial Intelligence Laboratory at MIT in 1983, Richard Stallman launched the GNU project. Its aim was to develop an operating system that could guarantee certain rights for its users. He announced the project on the Usenet forum and invited others to take part in its development.

In order to enable people to make voluntary contributions to GNU, Stallman asked lawyer Eben Moglen to formulate a legal text that would standardise the extension of intellectual property rights. In 1989, he published the first version of the General Public Licence (GPL), which established new legal conditions for the freedom to operate, study, modify, and distribute software. This licence forms the legal basis for the distribution of most blockchains.

1.4. Consequences of public access to the global computer network

As the ARPANET project came to a close at the beginning of the 1990s, it ushered in public access to the global computer network through the internet. At CERN in Geneva, Tim Berners Lee launched the HyperText Transfer Protocol (HTTP) build on top of TCP/IP. This protocol would lead to the development of a user-friendly World Wide Web browser capable of providing access to different types of resources via a single interface. The authentication and encryption protocol used to protect payments made over the internet, Secure Sockets Layer (SSL), was developed by the same company that produced the Netscape Navigator browser. The SSL protocol was based on the RSA encryption algorithm. The Internet Engineering Task Force (IETF) went on to add to the development of SSL by creating the Transport Layer Security (TLS) protocol.

Numerous new projects inspired by DNS architecture, including Seti@home and Folding@home, tested the viability of distributed computing. The results showed that a data analysis process that would require a large amount of computing time for a single computer could be done by distributing or sharing the work between a large community of computers connected to each other through the internet.

'Strong' cryptography was still a classified research area. In a form of 'cryptowar', the US government tried to restrict access to cryptographic methods by both the public and other nations. Concerns about the control of communications systems by state bodies were widespread amongst US academics and computer-industry players such as Intel and Sun. The debate centred around the export of encryption technologies, in particular the RSA algorithm used in SSL, which was heavily regulated at the time.

A form of information activism was beginning to emerge. Philippe Zimmerman designed the PGP ('Pretty Good Privacy') encryption software and distributed it under the GNU GPL licence (General Public Licence) in order to ensure public access. Personalities such as Tim May, Eric Hughes, and John Perry Barlow published texts such as A Declaration of the Independence of Cyberspace, which contained strong political messages regarding the need for information independence. Regular meetings were held at Stanford, the cypherpunk collective was established, and global discussion lists were created (cypherpunksrequest@toad.com). The Electronic Frontier Foundation was set up as a lobbying force to defend the right to information privacy. Between 1996 and 2000, under the Clinton administration, US regulations on the use of cryptography were relaxed and then virtually abolished.

At Bellcorp's Bell Laboratories, cryptographers Stuart Haber and Scott Stronetta were developing a method for timestamping digital documents. The challenge was to date the creation and modification of documents with complete accuracy. The method was supplemented by a digital signature scheme that could guarantee the integrity of an electronic document and authenticate its author. Haber and Stronetta then set up their own timestamping company, Surety, using the AbsoluteProof software, which continues to provide cryptographic sealing for digital documents. Every week since 1995, Surety has published all of its new seals in a single signature in the 'Notices & Lost and Found' section of the daily issue of The New York Times. The same method is used to protect author rights in blockchains by creating proof of precedence.

In 1994, lawyer and computer scientist Nick Szabo began to publish a series of papers about the concept of the Smart Contract. Szabo had worked with David Chaum as a consultant on the eCash cryptographic electronic currency project. His experience in the field led him to develop ways of adapting specific commercial and contractual practices to electronic commerce between individuals over the internet. His premise was that many types of contractual clause, such as privileges, guarantees, and ownership rights, could be converted into code and executed automatically.

Nick Szabo conceptualised the computer protocols that would enable several parties to a contract to observe its execution, check that the agreed conditions had been met, disclose only those details necessary for the execution, and, finally, reduce their costs by automatically implementing the contract once all the criteria had been met. To illustrate his concept, Szabo compared the operation of smart contracts with that of vending machines that dispense a beverage when the exact amount has been fed into the machine. Once the parameters have been initiated, the smart contract runs automatically, regardless of external events such as one of the parties changing their mind.

Cithy Dwork and Moy Naor of the IBM research division in San Jose published a paper in the review of the Annual International Cryptology Conference which presented a method for fighting spam and other undesired electronic communications by asking the sender of the email to provide proof that a certain algorithm had been executed. This is called 'proof-of-work' and is based on the idea that some form of cost should be incurred for the use of free online services such as email. Inspired by their work, Adam Back posted a solution on the Cypherpunk mailing list which could fight spam more effectively -- a proof-of-work system he called Hashcash.

In 1989, David Chaum exploited the eCash patent through a company called Digicash. In 1994 he introduced Digicash at the first international World Wide Web conference in Geneva, in a talk entitled 'World's First Electronic Cash Payment Over Computer Networks'. With the aid of financial players such as Credit Suisse, Deutsche Bank, and the Mark Twain Bank, Chaum was able to experiment further with his new centralised cryptographic money system. Digicash filed for bankruptcy in 1998. Chaum put this down to the fact that his system had entered the market before e-commerce had fully taken root on the internet.

Others would go on to design decentralised currency systems without implementing them. These included Nick Szabo's BitGold, which incorporated digital signatures, timestamping, and proof-of-work. We can also cite Wei Dai's B-money, which he described as 'a scheme for a group of untraceable digital pseudonyms to pay each other with money and to enforce contracts amongst themselves without outside help'.

In the early 2000s, against a backdrop of increasing internet speeds and a proliferation of access providers, computers and peripherals, cryptography was fully declassified by Al Gore. Audio file-sharing sites began to emerge, especially for music files. Napster enabled its users to share music files in MP3 format by making a list of files available on a server that could be searched and downloaded by anyone. Only the downloading of files was decentralised. In March 2000, the Gnutella protocol was created to allow objects to be searched and retrieved without a central server.

Napster and Gnutella paved the way for further upheavals in the cultural sector. Audio, video, and literary file-sharing services using completely decentralised peer-to-peer systems, like Soulseek, LimeWire, SETI, Bitorrent, and Tor took off. Media production and distribution companies filed a plethora of copyright violation suits. These early services were important driving forces in the evolution of peer-to-peer systems.