Nick Szabo – Who Is He and What Is His Influence on Modern Cryptocurrencies?

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Nicholas (Nick) Szabo is a renowned computer scientist, cryptographer, and legal scholar best known for his work on digital currencies concepts. He is a graduate of the University of Washington and is notable for his smart contracts invention. Szabo also holds a law degree from George Washington University Law School and an honorary professorship from Universidad Francisco Marroquin.

Szabo is among the most popular cryptographers and computer scientists of our time. His work and influence on the crypto sector are not to be looked down on. He has many inventions and innovations to his name, which are still reshaping the world. His connection and cooperation with other developers are also remarkable. He has worked with the likes of Satoshi Nakamoto on the Bitcoin project, a digital monetary system that is currently rewriting the rules of finance.

Szabo has also had another major project to his name, the Bitgold project. Bitgold pre-dates Bitcoin and modern cryptocurrencies. Even though it never got the attention it deserved, the Bitgold project serves as one of the most important inspirations for modern cryptocurrencies. Bitcoin creator Satoshi Nakamoto even confessed that Bitgold was among the projects that inspired him to build the Bitcoin network.

Szabo leads a private life that some may deem boring, but it is rather interesting to know about his exploits. He has managed to maintain his privacy, which no one knows the reason behind. However, institutions and individuals have conducted a few pieces of research to determine Szabo’s mark on the world. Most people are sure about his documented works like Bitgold, but interesting claims suggest that he could have been Satoshi Nakamoto.

Greats like Elon Musk have concluded that Szabo may be a Bitcoin founder, but the real question is why he could keep quite about such an achievement. If you have been looking for detailed information on who Nick Szabo is or what he has done for the world through cryptography, worry no more. Below is some information on why he will remain a key figure in the crypto space.

Who Is Nick Szabo?

Nick Szabo is a renowned cryptographer, among the most highly rated ones in the crypto space. Having pursued higher learning studies in computer science and law disciplinaries, Szabo has built a decorated career in cryptography. Some of his research has reshaped the world more widely than his popularity. These researches have best inspired the crypto space to reach the levels that it is at today.

Nick Szabo’s Research

Szabo is both a legal scholar and a computer scientist. He has researched different topics and come up with many projects. The most important projects that Szabo has worked on include:

What is Nick Szabo’s Crypto Journey?

Szabo was in the cryptography works and came up with cryptocurrency core ideas long before the first publicly launched cryptocurrency was hatched. He developed the concept of smart contracts in 1996. He was among the first developers to welcome the Bitcoin project by writing and reviewing it.

Even though the Bitcoin project was the first crypto project, it never relied on Szabo’s idea of smart contracts. The smart contracts functionality only came to life later with other projects like Ethereum and EOS, which paved the way for new cryptocurrencies. His smart contracts idea cannot stop levelling up. It is being incorporated in almost every latest blockchain technology, like what Ethereum did with Wei Dai to recall his contributions to the crypto space; a unit, one-millionth of ETH is known as Szabo.

Now, Szabo remains a necessary and unforgettable force in the crypto space and the world. 

Why Is Nick Szabo Leading a Private Life?

Most early cryptographers did works that could stir up the world’s stability and power, which led them to go private. Szabo is one such person. He does not like to open up about his personal life, and most of his biographical information isn’t available either.

Szabo prefers that words speak for him similar to Satoshi Nakamoto, who prefers code to speak for him. Szabo owns a blog page where he uploads his life and works information. To show how he hates exposing his personal life, he has uploaded reviews of his work in the biography section.

What Are the Key Projects of Nick Szabo?

Szabo has been a main actor in the crypto space, but not many people know that as most of his work is behind the scenes. It could be described that his greatest achievement is helping develop the core structure of digital currencies. Below is what his work on smart contracts and Bitgold is all about.

Smart Contracts Innovation

A contract functions through the concept of two parties outlining their responsibilities to each other legally for a given process or event. Szabo envisioned a contract that would be digital and would allow for better and safer transactions across networks.

Szabo worked on the smart contracts project and revealed his work in 1996. His work mainly aimed at allowing for transactions to be done without the need for third parties. He referred to traditional paper-based contracts as wet codes, and smart contracts as dry codes. According to him, wet codes should be a thing of the past since they require more resources to enforce than dry codes.

During the reveal of his work on Smart contracts, Szabo released a paper, “Trusted Third Parties Are Security Holes,” detailing how traditional contracts were faulty. It also outlined the basic principles of Smart Contracts design.

In the paper, he stated,

“The basic idea of smart contracts is that many kinds of contractual clauses (such as liens, bonding, delineation of property rights, etc.) can be embedded in the hardware and software we deal with, in such a way as to make breach of contract expensive (if desired, sometimes prohibitively so) for the breacher.” 

He explained that smart contracts would help monitor the performance of all principals in the contract. They would also allow for the verification of whether the agreed terms have been satisfied. Now, these innovation has realized his dream and even surpassed his expectations.

The Basic Principles of Smart Contract Design

The four basic objectives of a contract design, according to Nick Szabo, include:

  • Observability: He explained that the principals involved in the contract should freely observe each other’s performance.
  • Verifiability: The contract should allow a principal to notify the arbitrator that the contract has been breached or has been performed. The arbitrator should also have the ability to find out how the contract has performed through other means.
  • Privity: The knowledge and control over the performance of the contract or its contents should be confidentially addressed to the involved principals. It should also be done in the interests of the contract such that information that does not require action from either of the principals is left unshared.
  • Enforceability: The contract’s design should make it easy for enforcement.

The Bitgold Project

Bitgold is probably the project that made Szabo well known in the crypto space. He released a paper on the project, which many believe triggered the inception of Bitcoin. Szabo clearly explains that the problem with the traditional financial systems is the dependence on trusted third parties.

“It would be very nice if there were a protocol whereby unforgeable costly bits could be created online with minimal dependence on trusted third parties, and then securely stored, transferred, and assayed with similar minimal trust. Bit gold.”

Szabo views trusted third parties (TTPs) as a loophole in the financial systems. When a protocol is launched and relies on TTPs, it has to patch the holes created by incorporating the systems of the TTP, which increases its production and maintenance costs. Additionally, the third parties must be trusted, which goes wrong at times due to abuse of power by executives of TTPs.

How Does Bitgold Project Work?

Bitgold was a derived name from ‘Bit’ and ‘gold.’ In the Bitgold paper, Szabo explained the functionality of his project:

“Here are the main steps of the bit gold system that I envision:

1. A public string of bits, the “challenge string,” is created (see step 5).

2. Alice on her computer generates the proof of work string from the challenge bits using a benchmark function.

3. The proof of work is securely timestamped. This should work in a distributed fashion, with several different timestamp services so that no particular timestamp service need be substantially relied on.

4. Alice adds the challenge string and the timestamped proof of work string to a distributed property title registry for bit gold. Here, too, no single server is substantially relied on to properly operate the registry.

5. The last-created string of bit gold provides the challenge bits for the next-created string.

6. To verify that Alice is the owner of a particular string of bit gold, Bob checks the unforgeable chain of title in the bit gold title registry.

7. To assay the value of a string of bit gold, Bob checks and verifies the challenge bits, the proof of work string, and the timestamp.

Note that Alice’s control over her bit gold does not depend on her sole possession of the bits, but rather on her lead position in the unforgeable chain of title (chain of digital signatures) in the title registry.

All of this can be automated by software. The main limits to the security of the scheme are how well trust can be distributed in steps (3) and (4), and the problem of machine architecture which will be discussed below.”

The ideas from Bitgold paved the way for modern cryptocurrencies starting with Bitcoin. Of course Bitcoin was made as a remix of already existing technology and innovation, which Bitgold is one of them. Although Satoshi never mentioned Bitgold in his Bitcoin Whitepaper, there are alot of similarities and connections between the two projects.

What is the Difference Between Bitgold and Bitcoin?

Even though Bitgold and Bitcoin have many attributes in common, they also have some distinctions. One of the main differences between the two projects is that Bitcoin’s consensus algorithms count the network’s hashing power as votes during a consensus process while Bitgold counts addresses singly.

The other attribute that sets the two projects apart is that Bitcoin is more fungible than Bitgold. The fungibility of Bitcoin sets in due to the difficulty adjustment system embedded in its Proof-of-Work (PoW) algorithm.

However, the aims of the two projects align; doing away with TTPs, hedging against inflation, security transaction details, and creating a digital currency system that can be trusted.

What Is Nick Szabo’s Contribution to the Crypto space?

Nick Szabo has contributed largely to the crypto space through his research and career in cryptography. Below are some ways how he has influenced the crypto space:

Innovation of Smart Contracts

Nick first addressed smart contracts in 1994 and discussed them in the Bitgold paper. Szabo explained the need for automating contracts and doing away with paper contracts. His main aim was to replace TTPs and make contracts easier to enforce. This invention has become of great importance in the crypto space as almost the Decentralized Finance (DeFi) sector relies on it. Other large cryptos like Ethereum and Cardano support smart contracts that allow the hosting of other projects.

Proposing the Removal of TTPs

Trusted Third Parties have been a problem in the financial sector for a long time now. Szabo addressed them as a loophole in which a protocol needs more development after integrating with TTPs’ systems. The modern cryptocurrencies have done away with TTPs as they are built for decentralization which cannot be achieved through TTPs. This proposal will stick in the crypto history books forever.

Introduction of the Concept of Digital Money

Szabo was among the pioneers of digital money. He addressed the digitization of money in his Bitgold paper explaining how an electrical monetary system could work and solve issues with fiat. Although his project Bitgold did not launch, it inspired other projects like Bitcoin and became a cornerstone in the innovation of digital currencies. Now, all people can transact from anywhere in the world through cryptocurrencies.

The Generation of the Proof-Of-Work String From a Challenge String

Nick Szabo’s Bitgold worked on the concept of challenge strings generating Proof-of-Work strings. The Proof of Work would also have timestamps to ascertain their values. Like Bitcoin’s Proof-of-Work algorithm, some of the current blockchains were born of this idea. Although a newer Proof-of-Stake algorithm is becoming more widespread, the influence of PoW in the crypto space will never be forgotten.

Decentralization

Decentralization was one of the main issues that Szabo was addressing through his Bitgold project. He envisioned a world where people would have the freedom to access an electronic monetary system without the need for trusted parties.

Even though his idea was never incorporated into mainstream finance as he did not launch Bitgold, it is still reshaping the world. The crypto space is all about decentralization, and the latest iteration of the internet, Web 3, is on the horizon and campaigning for decentralization. Therefore, the idea of decentralization as Szabo’s contribution to the crypto space and the world will never be forgotten.

What does Nick Szabo Think About Digital Currencies?

Szabo has a blog page where he expresses his feelings about the innovations. He is skilled and knowledgeable about the history and digital currencies, which reflects in his writings. The kind of information that he shares there is invaluable. His collection of writings spans from 1993 to date.

He has come up with works on different topics, including Blockchain technology and cryptocurrency. In his writings, Szabo indulges his opinions on the crypto space. He once shared a tweet highlighting some areas that crypto projects could consider improving on. He said that more secure storage systems and decentralized exchanges would be important in the future. According to him, the upcoming and existing systems should focus more on consumers and thus must have user-friendly interfaces and systems.

Szabo has also criticized EOS for its centralization issues. He said that its centralized nature makes it vulnerable to attacks and is a poor project in terms of customer independence. He said that as long as EOS can seize or suspend accounts belonging to its users, it remains a bad alternative for users seeking its services.

Szabo has also published an analysis of the history and evolution of money. In this blog, he explains some useful information on cryptocurrency. He says that people exist in a state where many currencies are derived from an exchange system, a feature that is to be expected with the incoming technology.

Is Nick Szabo Satoshi Nakamoto?

Many instances have happened that point to the ‘fact’ that Nick Szabo was Satoshi Nakamoto. Nick has been claiming that all of the ‘news’ of being Satoshi Nakamoto was false, and he has no ties to Bitcoin’s development. One of the rarest details that ‘prove’ that Nick Szabo is the real Satoshi Nakamoto was his April 2008 post.

The post read: “Bit Gold would greatly benefit from a demonstration, an experimental market (with e.g. a trusted third party substituted for the complex security that would be needed for a real system). Anybody want to help me code one up?”

He later changed the dates of the post to appear as if he posted it in December of 2008 (After Satoshi’s Paper). More controversy also sparked when Satoshi Nakamoto never mentioned Nick’s work in his paper, considering that he based Bitcoin on several innovations like Bitgold. Crypto theorists also unearthed a funny controversy where Szabo never talked about Bitcoin in 2010 when Satoshi was actively working on it. However, after Satoshi stepped down, Nick began talking about Bitcoin again.

To make things more interesting, Nick never launched his Bitgold project but was requesting help from developers to come up with its code before the launch of Bitcoin. That shows how much Nick valued introducing an electronic monetary system, which differs from the reality that the Bitgold project has no active development.

Researchers fom Aston University, Birmingham, England, analyzed Nick’s literature against Satoshi Nakamoto’s. The team in the forensic Linguistics department concluded that due to the high similarity between Nick’s and Satoshi’s literature, he could be the true identity of the Bitcoin founder.

Tesla CEO Elon Musk said that although there is not enough evidence, Nick Szabo is the most probable candidate for the Satoshi Nakamoto identity.

He said: “It seems as though Nick Szabo is probably, more than anyone else, responsible for the evolution of those ideas,” he said. “He claims not to be Nakamoto, but I’m not sure that’s neither here nor there. But he seems to be the one more responsible for the ideas behind bitcoin than anyone else.”

There is still insufficient evidence supporting that Nich Szabo is the real Satoshi Nakamoto. However, it could be accurate that he is a member of the group called Satoshi Nakamoto or is the lone founder of Bitcoin, Satoshi Nakamoto. Maybe the future will tell if he is, then Satoshi remains a mystery.

Conclusion

Nicholas Szabo is one of the best cryptographers ever to walk the earth. Even with limited technological advancement in the 1990s, Szabo managed to hatch the ideas of smart contracts and Bitgold, which have gone a long way in reshaping the world. Being a computer scientist and a legal scholar, Szabo has gone out of his way to advise people on cryptocurrencies and their importance. He has published his writings and even attended conferences as a speaker.

Szabo’s brilliance reflects in his writings, as shown by his paper on Bitgold and several of his social media posts. Although the Bitgold project never launched, his ideas have played a big role in developing modern cryptocurrencies. This project can be termed his life’s work as it defines him the most today. 

His innovation on smart contracts has gone a long way to gaining use cases outside the crypto space. Now, people can use smart contracts to automate processes that would have rather required trusted third parties. In almost every place where blockchain technology is implemented, smart contracts are implemented. That innovation will go down in his memory for ages.

He is also rumoured to be Satoshi Nakamoto, even though no one is sure about that claim. Whether he is or is not Satoshi, Nick Szabo will always remain a respected pioneer in the crypto space.


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