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.

The Internet Inventors' Trilemma; How Can Blockchain Help Solve It?

As a global society, we have become reliant on the internet. It is a tool that fuels almost every aspect of our lives. However, it is a dynamic and evolving tool, but that evolution is not always for the better. Interestingly, the internet was only proposed thirty years ago, by Tim Berners-Lee, yet, its creator has a few concerns. 

While the internet has become a tool for the individual, it has also become a corporate tool, being used to make businesses money via its users through the data revolution that has happened. But potentially even more concerning is that this information superhighway does not always contain real and factual information.

Misinformation and fake news have become the scourge of the internet, and with its interconnect ability across the globe, the spread of this fake news is devastatingly easy, and dangerous.

One last concern that was raised by Berners-Lee in 2017 is that political advertising lacks transparency and the responsibility to be understandable and clear. So, while the internet is a tool of individuals and corporations, it is also a tool of political powers - and that is dangerous if it goes unnoticed.

However, we are in a world where we are becoming a lot more aware and conscious of the issues we face through the internet. Data scandals have been unearthed, and people’s information is now being valued and protected; Fake news is being questioned more, and individuals are a lot more critical; even the pressure on political parties is on the rise for their influence to be labeled and transparent.

However, awareness is not enough - there needs to be active tools and technologies put into play in order to ensure we can eradicate these three concerns.

It Starts With Being Brave

Taking control of personal data as one major aspect of internet life that needs to be addressed, we can pinpoint where awareness of this concern came in. Data scandals started to make news a few years back, with the biggest one being the Facebook Cambridge Analytica data scandal.

People’s eyes were opened as to how much data they inadvertently hand over to internet companies, helping line their pockets, while becoming a product. This awareness has seen the creation of privacy-protecting browsers, such as Brave, really take off.

By securing a user’s data, Brave promotes the protection of personal data when browsing the web. However, it also goes a step further in that it allows for adverts to be viewed by the user, but they are rewarded with a cryptocurrency called BAT.

More so, this BAT token can then be used to tip content creators online, replacing the need for them to use online, data-sapping, adverts in order to make a living. It is a sleek system that has the potential to really change the way data is viewed and handled online.

Filtering out Fake News

Fake news is a major scourge on the internet at the moment and one that is difficult to tackle due to the promulgation and sharing of information across the web. However, as this scourge becomes better understood, so options to fight it are emerging.

One such option is, through the use of the immutable blockchain, to create a permaweb. This permaweb becomes a place to upload data that cannot be alternate with, tampered, or changed once it is uploaded. It becomes a permanent record of what happened, without the possibility of censorship.

Arweave is one company at the coalface of the creation of a permaweb. By creating this decentralized internet, the Arweave team will be able to provide a reliable and referenceable place of information, free from censorship.

But in the fight against fake news, it will also add a layer of accountability to those posting such stories as they will be immutably tied to their post and have a responsibility to prove its truth.

Political Transparency

Linking back both to the issues of protection of data, and fake news is the issue with the sophisticated and target ad campaigns from political parties.

It has been suggested that in the 2016 US election, as many as 50,000 variations of adverts were being served every single day on Facebook, a near-impossible situation to monitor. And there are suggestions that some political adverts – in the US and around the world – are being used in unethical ways – to point voters to fake news sites, for instance, or to keep others away from the polls.

Again, it is this use of fake news and rich data that causes this kind of political obfuscation, but the real issue is that there is no obligation or responsibility from the political parties to label their marketing as coming from certain parties.

This is a big problem for the internet, and the vulnerable users who are exposed to it, but again, there are possible solutions being built. If we take deep fake videos as one example of a lack of political transparency, we can see companies delving in.

Axon Enterprise Inc., a tech manufacturer for US law enforcement, announced that it is exploring new data-tracking technology for its body cameras and will rely on blockchain technology to verify the authenticity of police bodycam videos.

This type of technology can also be applied to political videos and campaigns, and help eradicate such targeted, but hidden, agendas.

Building the Web We Want

In raising these issues of his internet, Brenner-Lee signed off the article saying:

“It has taken all of us to build the web we have, and now it is up to all of us to build the web we want – for everyone.”Indeed, the dynamic nature of the internet means that it can flow and change through time. These issues that have cropped up can be addressed, and they can be solved. Even quicker and better, with the use of emerging technologies. 

Featured image by Karlijn Prot on Unsplash.