History The concept of decentralized digital currency, as well as alternative applications like property registries, has been around for decades. The anonymous e-cash protocols of the 1980s and the 1990s, mostly reliant on a cryptographic primitive known as Chaumian blinding, provided a currency with a high degree of privacy, but the protocols largely failed to gain traction because of their reliance on a centralized intermediary. In 1998, Wei Dai's b-money became the first proposal to introduce the idea of creating money through solving computational puzzles as well as decentralized consensus, but the proposal was scant on details as to how decentralized consensus could actually be implemented. In 2005, Hal Finney introduced a concept of "reusable proofs of work", a system which uses ideas from b-money together with Adam Back's computationally difficult Hashcash puzzles to create a concept for a cryptocurrency, but once again fell short of the ideal by relying on trusted computing as a backend. Because currency is a first-to-file application, where the order of transactions is often of critical importance, decentralized currencies require a solution to decentralized consensus. The main roadblock that all pre-Bitcoin currency protocols faced is the fact that, while there had been plenty of research on creating secure Byzantine-fault-tolerant multiparty consensus systems for many years, all of the protocols described were solving only half of the problem. The protocols assumed that all participants in the system were known, and produced security margins of the form "if N parties participate, then the system can tolerate up to N/4 malicious actors". The problem is, however, that in an anonymous setting such security margins are vulnerable to sybil attacks, where a single attacker creates thousands of simulated nodes on a server or botnet and uses these nodes to unilaterally secure a majority share. The innovation provided by Satoshi is the idea of combining a very simple decentralized consensus protocol, based on nodes combining transactions into a "block" every ten minutes creating an ever-growing blockchain, with proof of work as a mechanism through which nodes gain the right to participate in the system. While nodes with a large amount of computational power do have proportionately greater influence, coming up with more computational power than the entire network combined is much harder than simulating a million nodes. Despite the Bitcoin blockchain model's crudeness and simplicity, it has proven to be good enough, and would over the next five years become the bedrock of over two hundred currencies and protocols around the world. Page 4 ethereum.org