Wei Dai And His Impact on Cryptocurrencies

Firstly let me just mention the fact, that Wei Dai doesn't have any pictures posted online. so unless you know him personally, his pictures are nowhere to be found. If you think it's Wei Dai out there when you hit images on the lad, think again.

According to Google Trends, searches for terms like “bitcoin,” “blockchain,” and “cryptocurrency” have soared in recent months as public interest in blockchain technology continues to increase. News channels like CNBC and Bloomberg continue to devote portions of their programs to Bitcoin and cryptocurrencies, helping them gain the mainstream coverage they deserve.

What many may not know is that modern cryptocurrencies had their start in the 1980s and 1990s. Led by a movement called the Cypherpunks, there were repeated attempts to implement cryptographically secure digital currencies. It was not until 2009 that Bitcoin arrived, forever changing the cryptocurrency landscape.

One Cypherpunk, Wei Dai, played a particularly central role in the development of today’s cryptocurrencies.

Wei Dai’s Education and Career in Cryptography

Wei Dai graduated from the University of Washington with a degree of bachelor’s degree in computer science and a minor in mathematics. He worked for TerraSciences in Acton, MA as a programmer then took a job at Microsoft in Redmond, WA, where he worked in the Cryptography Research Group. During his time there, Dai invented two U.S. patents, #5724279 and #6081598, both of which were assigned to Microsoft.

In the Cryptography Research Group, Dai’s primary area of study was the design and implementation of cryptosystems for specialized applications. His research in the field led to some significant developments, including Crypto++ and VMAC.

Crypto++ is a digital C++ class library full of cryptographic schemes and algorithms. Designed to be free of charge, cryptographers can download a whole host of algorithms compatible with several compilers. Dai still keeps the library up to date.

VMAC was another project Dai played an integral part in. Along with Ted Krovetz, Dai created a block cipher-based message authentication code (MAC) using a universal hash. The draft paper states that the algorithm was designed “for high performance… [and] is backed by formal analysis.”

However, these two projects pale in comparison to the significance of Dai’s greatest contribution to cryptocurrencies, B-money.

B-Money

B-money was Dai’s proposal for an anonymous, distributed electronic cash system. In the b-money write up, Dai tips his hat to Cypherpunk co-founder Tim May, noting, “I am fascinated by Tim May's crypto-anarchy. Unlike the communities traditionally associated with the word "anarchy," in a crypto-anarchy, the government is not temporarily destroyed but permanently forbidden and permanently unnecessary.”

For Dai, the goal of b-money was to be a stepping stone for other cryptographers. He wanted to help make the crypto-anarchist dream a reality. He comments about b-money:

[it] allows untraceable pseudonymous entities to cooperate with each other more efficiently, by providing them with a medium of exchange and a method of enforcing contracts. The protocol can probably be made more efficient and secure, but I hope this is a step toward making crypto-anarchy a practical as well as theoretical possibility.

The paper, which was sent out on the Cypherpunk mailing list, actually sets forth two protocols. In the first protocol, every participant would maintain a separate database of how much money belongs to each pseudonym. The accounts in aggregate would define the ownership of money. This protocol, according to Dai, is “impractical, because it makes heavy use of asynchronous and unjammable anonymous broadcast channel.” It would, however, pave the way for the second protocol, deemed to be much more feasible.

In the second protocol, money records are kept by a subclass of participants instead of all users. They are linked by a Usenet-style broadcast channel, and the affected participants of each transaction are tasked with verifying that the message has been received and successfully processed by a randomly selected subset of the record keepers.

The b-money creation system in the second protocol follows four simple steps:

Planning - Account keepers work together to determine the optimal increase money supply for the next period. Bidding - All parties who want to create b-money broadcast a bid containing the amount of money to create and an unsolved problem from a predetermined problem class. Each problem should have a nominal cost which is publicly agreed upon. Computation - The ones who placed bids in the second phase solve the problems in their bids and broadcast the solutions. Creation - Every account keeper accepts the highest bids (nominal cost per unit of b-money created) and credits the accounts accordingly.

According to Dai, the project was an entirely personal endeavor, not linked to any funding or corporation. It was driven solely by personal interest, as he comments, “My motivation for b-money was to enable online economies that are purely voluntary… ones that couldn’t be taxed or regulated through the threat of force.”

According to Dai, the project was an entirely personal endeavor, not linked to any funding or corporation. It was driven solely by personal interest, as he comments, “My motivation for b-money was to enable online economies that are purely voluntary… ones that couldn’t be taxed or regulated through the threat of force.”

Dai’s Influence on Modern Cryptocurrencies

Dai’s b-money was instrumental in the creation of Bitcoin. In fact, Dai’s paper on b-money was one of the few sources cited by Nakamoto in the Bitcoin white paper. Additionally, three publicly released emails show the influence that Dai had on Nakamoto’s thought. August 22, 2008, email says (from Nakamoto to Dai), “I was very interested to read your b-money page. I am getting ready to release a paper that expands on your ideas into a complete working system. Adam Back (hashcash.org) noticed the similarities and pointed me to your site.”

Dai responds with several links that Nakamoto requests and the third and final email contains these words:

I think it [Bitcoin] achieves nearly all the goals you set out to solve in your b-money paper. The system is entirely decentralized, without any server or trusted parties. The network infrastructure can support a full range of escrow transactions and contracts, but for now, the focus is on the basics of money and transactions.

As the emails show, Dai’s b-money had a profound impact on the creation of Bitcoin, and therefore all modern cryptocurrencies. Dai’s commitment to decentralization, cryptography, deregulation--all ideas that were influenced by Cypherpunk thought--led him to pioneer the thinking behind a trustless cryptocurrency. With Nakamoto’s help, b-money evolved into Bitcoin, and the rest is history.