Nick Szabo: The Father of Bit Gold

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Nick Szabo: The Father of Bit Gold

Nicholas Szabo, more commonly referred to as Nick Szabo, is a computer scientist and legal scholar that has had a significant influence in the field of digital currency and blockchain. He coined the term “smart contracts” in 1994 and created a decentralized digital currency concept called “bit gold” in 1998.

Due to his unique set of skills and extensive knowledge, some people speculate that Nick Szabo could be the person behind the Satoshi Nakamoto pseudonym, which was used by the inventor of Bitcoin. However, Szabo has directly refuted such claims. 

Who is Nick Szabo?

Nick Szabo is a United States citizen of Hungarian descent. He was born in 1964 to parents who immigrated to the United States from Hungary, and graduated from the University of Washington in 1989 with a degree in computer science. Szabo is quite reclusive and not much information is known about his personal life.

Although Szabo is reclusive, he has shared his thoughts publicly through various online channels. He has a Twitter account, which has been inactive since 2021, and a blog, which has been inactive since 2018. 

Nick Szabo’s “Bit Gold” decentralized digital currency concept

Nick Szabo first talked about his “Bit Gold” decentralized digital currency concept in 1998, and described it in 2005 (about three years before the Bitcoin whitepaper was published). Bit Gold was never implemented as an actual piece of software, but is still considered as a precursor to Bitcoin.

Bit Gold includes Proof-of-Work, a concept which was previously used by Adam Back in Hashcash, a system he invented to combat spam and DDoS attacks. 

Bit Gold involves using a candidate string, which users hash with newly generated random numbers. Only hashes meeting specific criteria, such as starting with a specific number of zeros, are considered valid, requiring computational effort to find. Valid hashes serve as the next candidate strings in a chain.

Ownership of a hash is established through a digital registry, linking hashes to public keys. Transfers occur via cryptographic signatures, maintained by a Bit Gold "property club" using a Byzantine Quorum System. This system relies on a majority of servers for consistency, but retains the ability for an honest minority to branch off in case a majority of server operators attempted to cheat. 

Here is how Szabo explained what his thought process was when he was creating Bit Gold:

“I was trying to mimic as closely as possible in cyberspace the security and trust characteristics of gold, and chief among those is that it doesn’t depend on a trusted central authority.”

Interestingly enough, Satoshi Nakamoto did not cite Bit Gold or Nick Szabo at all in the Bitcoin whitepaper. However, early Bitcoin adopter Hal Finney suggested that Satoshi Nakamoto should take a look at Bit Gold since it could help him with his Bitcoin development. 

Later on, in July of 2010, Satoshi Nakamoto made a post on the Bitcoin Talk forum in which he said that “Bitcoin is an implementation of Wei Dai’s b-money proposal on Cypherpunks in 1998 and Nick Szabo’s Bitgold proposal”.

Nick Szabo and smart contracts

Today, the concept of smart contracts is ubiquitous in the context of cryptocurrencies and blockchain technology, especially when talking about technologies such as Ethereum. Nick Szabo is regarded as the originator of the term “smart contracts”, having coined the term in 1994. 

The key properties of smart contracts is that they are trustless and self-enforcing. To illustrate the concept, Szabo described vending machines as “the primitive ancestor of smart contracts”. He also mentioned POS (point of sale) terminals and cards as and networks such as SWIFT and FedWire as other “ancestors” of smart contracts.

This is how Szabo succintly defined a smart contract:

“A smart contract is a set of promises, specified in digital form, including protocols within which the parties perform on these promises.”

According to Szabo, many types of contractual clauses could be implemented in hardware and software in a manner that would make breaching the contract (prohibitively) expensive.

Szabo clarified that the “smart” part of the term refers to the fact that smart contracts are more functional than traditional paper contracts and not because smart contracts would imply the use of artificial intelligence.

Here, it’s important to note that a lot of Nick Szabo’s thoughts on smart contracts originated from a legal perspective - the “contract” part of the term was meant quite literally. Today, the term “smart contracts” is used more broadly to refer to code that is deployed and runs on a blockchain.

Is Nick Szabo Satoshi Nakamoto?

Due to the similarities between Bit Gold and Bitcoin, as well as his unique set of skills, Nick Szabo is mentioned very often when people are speculating about the real identity behind the Satoshi Nakamoto pseudonym. To be clear, Szabo has repeatedly denied claims that he is Satoshi Nakamoto. 

In 2014, linguistics researchers from Aston University in the United Kingdom analyzed the Bitcoin whitepaper and compared it to the writings of 11 people that have been thought of as Satoshi Nakamoto candidates.

Among these, the researchers found the highest degree of similarity between Nick Szabo’s writing style and the writing style used in the Bitcoin whitepaper. Although this obviously isn’t proof that Nick Szabo is the creator of Bitcoin, it further strengthened this theory.

Elon Musk, the billionaire entrepreneur behind Tesla and SpaceX, has said in an interview with Lex Friedman that even though he doesn’t know who created Bitcoin, he thinks Nick Szabo had more influence on the ideas behind Bitcoin than anyone else:

“Obviously I don’t know who created bitcoin … it seems as though Nick Szabo is probably more than anyone else responsible for the evolution of those ideas. He claims not to be Nakamoto … but he seems to be the one more responsible for the ideas behind it than anyone else.” 

Did Nick Szabo invent DAOs?

No, Nick Szabo did not invent DAOs or coin the term “decentralized autonomous organization”. Computer science professor Werner Dilger used the term “decentralized autonomous organization” in a 1997 paper. 

However, in the context of cryptocurrency and blockchain, it took until 2013 for the term “DAO” to start catching on when it was used by Vitalik Buterin, Dan Larimer and other influential figures in the crypto and blockchain space.

The bottom line

Although Nick Szabo was more focused on theory than implementing his ideas, his work on Bit Gold, smart contracts and other topics has left a significant influence in the world of cryptocurrency and blockchain. Although he is a well-known figure among crypto enthusiasts, Szabo remains relatively reclusive and there isn’t much information available about his personal life.

Even though Szabo has repeatedly denied speculation that he created Bitcoin, this theory will likely continue to circulate. If you’re interested to learn more about the history of Bitcoin and its anonymous creator, we recommend you take a look at our article exploring Satoshi Nakamoto’s wallet addresses.

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