How we got to the Decentralized Finance – the history starts with CypherPunk
At the beginning of June, Nick Szabo was a speaker at the 2021 Bitcoin conference that was held in Miami. He spoke about ‘The History of Money’, where he dwelled on the modern problems of the ‘regime’, that could be (in his opinion) fixed by Bitcoin.
He spoke about how we have already seen how Bitcoin solves numerous ‘fundamental’ shortcomings of ‘fiatist money’ and precious metals. It also solves all the trouble with custody and delivery of means, as the global network allows Bitcoin to be stored virtually ‘everywhere’ and be accessible ‘everywhere’. It also presents some good, and impossible to implement in the conventional banking, management practices. The most important flaw of the system is the expensiveness and the trust-validation, and Bitcoin brings also here some improvements. Crypto also allows the systems to get rid of the need to have coins or banknotes, which of course could be abused, should improper people get their hands on the monetary policy. And as Bitcoin is really relatively inexpensive and does not need trust (at least the trust is minimized), it reduces the vulnerabilities of the system.
Also, the digital centralization is now fixed because of it, which arises under IOU gold standard or a fiat vault. All this could be now replaced with the decentralization that is actually censorship resistant. Bitcoin fixes all of this, as it has the money-supply that is publicly audible.
What exactly is the CypherPhunk?
It started in the first years of the nineties. Its representatives were the fierce critics of the ‘fiat regime’ and had some philosophical and political critiques of the then-current financial system. In the movement’s manifesto from 1993, Eric Hughes criticized ‘faceless organizations’ (corporations, governments and so on) that were letting individuals have their financial dealings private.
Hughes described it as a paradox. He believed, that when privacy is given to a weaker subject by a stronger body, then it ceases to be an inviolable right. That is because as it is given and could be taken back with not much effort. That is why CypherPunk movement was a ‘libertarian resistance’ for Hughes. They resisted from the economic control, and it attempted to use the newest technology in order to create decentralized and anonymous currency systems. The lack of state interference was key for Hughes and his followers, and it is really hard to deny that Bitcoin seems like a perfect solution for them.
Hughes would encourage people to defend their privacy at all costs. He believed that people need to come together and work out new systems that would guarantee anonymous transactions with the use of the modern tech solutions.
Their philosophy was later adopted by a new (post-2010) generation of cryptocurrency-leaders, and one of them was Vitalik Buterin. He is often referred to as ‘staunch libertarian’, and his principles really resemble those presented by CypherPunks. After Bitcoin jumped to as much as $0.08 (from previous $0.0008), Buterin incorporated his beliefs into actions. He co-founded Ethereum, which was built upon Bitcoin’s limits, and had a sole purpose of creating the system which would actually give the power to ‘the little’. The initial thought was that Ethereum could become the first step towards creating a completely decentralized system.
Buterin uses a great metaphor, where he compares centralized and decentralized systems to the smartphone and calculator. The pocket calculator represents a centralized model, which does one thing only. It does it well, but certainly does not offer the freedom and functionality of the smartphone, which is a product of a new generation, and of course can do the same things as the calculator, but better and faster. This kind of thinking influenced more and more people, and we can only wait and see where it takes us.
If you want to read a fascinating story about CypherPunk’s influence on today’s crypto market, you should not hesitate, and use the following link to access brilliant Harry Clynch’s piece written for Disruption Banking: https://disruptionbanking.com/2021/06/10/from-cypherpunks-to-defi/.