Bit gold vs bitcoin

Monday 27 June 2016

Few innovations truly come out of nowhere. Bit gold can be regarded as an immediate precursor to bitcoin - but it lacked critical elements that led to bitcoin’s success.

Bitcoin is an incredible development: the ability to send and receive money online, without a central intermediary keeping accounts. It’s like handing over physical cash, just over the internet.

Groundbreaking though it is, it didn’t appear in a vacuum. Instead, it is a collection of technologies and ideas and draws on various disciplines. This should come as no surprise; innovations, especially such remarkable ones, don’t just appear fully-formed one day (Jared Diamond explores how ideas spread - and why they spread better in certain environments - in his excellent book Guns, Germs and Steel).

Bit gold didn’t get much traction, but it contains some absolutely critical pieces of the bitcoin puzzle that can’t be ignored. Specifically, it allows peer-to-peer online transfers of value without the risk of double-spending, through a Byzantine-resilient model. ‘However, this Byzantine method relies on a quorum of network addresses rather than a quorum of (hash) computing power, so unlike bitcoin it is vulnerable to Sybil attacks.’ (That is, creating many network addresses would give an attacker the ability to make fraudulent transactions.)

Taking a look at Szabo’s summary of Bit gold on his blog, it has many of the technical properties of bitcoin and some of the typical philosophical-political characteristics - including a concern for inflation and the problem of trust in a third party. There are, however, two key differences.

Bits

Bit gold used a peer-to-peer network, but relied on number of nodes rather than hashrate to prevent double-spending

Firstly, bitcoin relies on hashing power for consensus, rather than majority of network addresses, like Bit gold. This makes it more costly to try to forge a transaction; Bit gold requires only that the majority of network nodes are friendly, and it is a lot cheaper to flood the network with malicious nodes than with malicious hashrate.

Secondly, although Bit gold uses a proof-of-work, it has no Difficulty adjustment system, so with improvements in technology vastly more ‘gold’ could be minted. This means gold is likely to be valued according to its timestamp and the cost of production at that time. The upshot is that Bit gold is not truly fungible: bitcoins are fully interchangeable, like $10 bills, but one unit of Bit gold might not be worth the same as another.

Bit gold dates from 1998 and it took 10 more years for Satoshi Nakamoto to publish the bitcoin white paper. Szabo lists some of the reasons for the ‘delay’ in another blog post. 

‘While the security technology is very far from trivial, the "why" was by far the biggest stumbling block -- nearly everybody who heard the general idea thought it was a very bad idea. Myself, Wei Dai, and Hal Finney were the only people I know of who liked the idea (or in Dai's case his related idea) enough to pursue it to any significant extent until Nakamoto (assuming Nakamoto is not really Finney or Dai). Only Finney (RPOW) and Nakamoto were motivated enough to actually implement such a scheme.’

Szabo intimates that he is not Nakamoto himself by referencing Dai and Finney, who worked on similar ideas. He has denied it directly when confronted with other evidence; one article lists in compelling detail the factors that point to him as bitcoin’s creator. 

But what becomes very clear from an exploration of Bit gold is that bitcoin is not the work of one person. Szabo played a hugely important role in providing some of the key building blocks, but others were required. In the current climate of Satoshi-hunting, this is well worth appreciating.


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