Did Milton Friedman Predict Bitcoin and Cryptocurrencies?

Vlad Costea
  • A popular Reddit post from the r/CryptoCurrency section mentions that Milton Friedman predicted cryptocurrencies back in 1999.
  • While Mr. Friedman's description is spot-on and very much like the cryptocurrencies that we have today, he may have been influenced by the inventions of crypto pioneers David Chaum, Adam Back, Wei Dai, Cynthia Dwork, and Moni Naor.

If you're looking for a brilliant thinker whose writings will blow your mind and extend your understanding of free markets and the limited government, then look no further than Milton Friedman. The American economist is perhaps the greatest and most prolific representative of the Chicago School, and has published seminal works such as "Capitalism and Freedom", "Free to Choose: A Personal Statement", and "Inflation and Unemployment: Nobel Lecture".

But as we all know, great people with unquestionably excellent merits usually get credited for lots of ideas and concepts for which they may not be responsible. It was the case with a popular Reddit post which claimed that the Nobel laureate had predicted cryptocurrencies in a 1999 interview. If you listen to the 54-second clip, you hear the 87 year-old talk about how the internet will create a way for people to transfer money without the need of a central authority to validate it or create regulations.

Mr. Friedman's description is generalistic but manages to squeeze in important information about encryption for privacy, as well as concerns about the inevitable criminal activity that it generates. If anything, this sounds a lot like Monero!

However, crediting Milton Friedman for the creation of cryptocurrencies is far from reality, instead you should be thanking the likes of David Chaum, Adam Back, Wei Dai, and Nick Szabo.

We should always keep in mind that Mr. Friedman was a top academic and had access to a lot of information about the latest economic developments. He definitely didn't invent the concept of peer to peer cash, cryptocurrencies, or internet money, but he definitely shone the spot light on it and helped bring it to public attention.

Bitcoin's Founding Fathers

In 1983, sixteen years before Milton Friedman spoke about private internet transactions during the previously-mentioned interview, the great David Chaum had introduced blind signatures (signing for a money transaction without actually seeing the information) and secret sharing (a way to detect if the same currency is being used twice, thus preventing double-spending). His invention was called ‘Ecash’ and it was actually put into practice through the Digicash corporation, as one US bank used it for microtransactions between 1995 and 1998. However, further partnerships with behemoths such as Microsoft fell apart due to Mr. Chaum's apparent difficult attitude.

Adam Back brought us Hashcash in 1997 and introduced a Proof of Work system which was meant to prevent e-mail spam. In a nutshell, e-mail users had to compute a hash before sending each message. Since the regular user requires to send a very little amount of e-mails, it was assumed that spamming had to be reduced and discouraged. If a spammer wanted to send thousands of e-mail (as it usually happens), he/she required a lot of processing power and needed to consume a lot of energy. The idea of limiting spam through computational functions or pricing options was first introduced in 1992 by Cynthia Dwork and Moni Naor, but it was Adam Back who successfully put it into practice.

In 1998, an entire year before Milton Friedman spoke about private internet money, Wei Dai has created B-Money. The computer scientist holds the merit of introducing the idea that solving computational puzzles can create digital money, and he also made use of a peer-to-peer network where each node holds its own transactions.

Perhaps that the best-known innovations belong to Nick Szabo (who created BitGold, which very much resembles Bitcoin), Hal Finney, and eventually Satoshi Nakamoto. However, crediting the ideological and philosophical invention of cryptocurrencies to Milton Friedman would be disrespectful in regards to all the computer scientists and cryptographers who helped develop these advanced pieces of technology.

The statement isn't meant to undermine Mr. Friedman's contributions to the underlying economic thought and cultural influence which might have led to the creation of Bitcoin. It's very likely that Milton Friedman knew about Ecash, Hashcash, and B-money, and projected his vast understanding of economics to these innovations.

Did Satoshi Nakamoto watch the 1999 interview, acquire an interest in the field and eventually discover all the other inventions? It's very unlikely that we'll ever find out. But the next time we make speculations about the identity of Satoshi or the influences behind today's cryptocurrencies, let's remember about the contributions of David Chaum, Adam Back, Cynthia Dwork, Moni Naor, and Wei Dai.

 

If you would like to learn more about the history of cryptocurrencies, and also discover the underlying fundamentals of the blockchain, you read Imran Bashir's "Mastering Blockchain". It was a precious resource which helped provide data for this article and will definitely help you better understand how a blockchain works.