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Daniel Waterhouse is an English scientist and one of the three main characters of the Cycle. His evolution from the youthful, self-doubting son of a Puritan preacher into a politically and economically able rationalist is one of the primary themes of the Cycle. He describes himself thus: ...if Newton and Leibniz are sublime theologians, sir, I am an humble vicar. Technology is a sort of religious practice to me, a way of getting at the aeternal by way of the mundane.

Born in 1648 to and youngest son of Drake Waterhouse, a noted Puritan libelist, Daniel is introduced to John Wilkins, one of the founders of the Royal Society, who recognizes great intellectual potential in the boy. Wilkins plants the seeds of science in young Daniel's brain and arranges for Daniel to attend King's College at Cambridge. At Cambridge, Daniel befriends Roger Comstock (the future Marquis of Ravenscar), James Scott (the Duke of Monmouth and bastard son of King Charles II), and Isaac Newton. He also meets George Jeffreys and Louis Angelsey, the Earl of Upnor, who become his enemies because of their dislike for Daniel's religious beliefs. Daniel is forced to grow up very quickly when he witnesses the Earl of Upnor murder another Puritan student. Daniel's instinct is to report Upnor to the authorities for prosecution, but his friends who are more politically savvy than he fear that were Daniel to do this, Upnor's political connections would crush him; they contrive to keep him from reporting the crime while others conceal the evidence. Daniel is haunted by what he believes to have been a moral failure for this incident the rest of his life.

Daniel's association with Wilkins causes him to fall into the orbit of the newly-forming Royal Society and become a protege of Robert Hooke. During the plague year of 1665, Daniel spends most of a summer with the Royal Society in a variety of scientific experiments of sometimes questionable intellectual merit, and is taken into the confidence of the then-Duke of York, the future James II Stuart concerning his syphillis and charged with seeking a cure for James' children. Daniel does not find the cure, but is able to cultivate the political connection and stay close to the center of power after James becomes King.

After the plague is lifted in 1666, Daniel seeks to return to London to visit his father, but finds the city aflame and the authorities, led by the king himself, destroying buildings to prevent the spread of the Great Fire. Daniel arrives to see his father standing on the roof of his house, screaming religious epithets at Charles II and sees Charles II, after urging Drake to evacuate, fire a musket at a stack of barrels of gunpowder, exploding the Waterhouse home and killing Drake. In time, Daniel comes to realize that Charles had little choice but to do this, but he takes the loss hard. Wilkins becomes Daniel's full father figure after the Great Fire, until Wilkins eventually succumbs to jaundice caused by an overgrown bladder stone. Daniel finds his family engaged in land development and banking after the Great Fire, and while he does not personally understand the economic ventures underway, he benefits from them because of the sponsorship his family gives him with their new wealth.

Daniel's friendship with Isaac Newton deepens and at one point Newton seems to fall in love with Daniel, which horrifies both of the young men. Newton responds to his feelings by vowing celibacy and withdrawing into his studies and research, although he and Daniel maintain a lifelong platonic friendship. Daniel assists Newton making a large number of his early discoveries, often to Daniel's great discomfort and to the neglect of both of their studies. Daniel helps keep Newton alive by feeding him, by fostering Newton's political connections including helping get Newton a job at the Mint, and by serving as a conduit for Newton in the Royal Society during Newton's residency in Cambridge. Daniel himself enjoys the political and economic patronage of his college friend Roger Comstock, and despite friction over their lives, the two form a strong working partnership that benefits not only both men but also the welfare and advancement of England.

Daniel also forges a friendship and correspondence with Gottfried Leibniz, recognizing Leibniz as Newton's only significant intellectual rival. Daniel and Leibniz maintain a lifelong correspondence and Daniel's regard for Leibniz is so great that he names his son after the German scholar. Because of his friendship with Newton, Daniel is a key witness in the contest between Newton and Gottfried Leibniz regarding the invention of the calculus, and is ultimately recalled to England to resolve the debate. He finds a way to do so that preserves his friendship with both Newton and Leibniz. He shares Leibniz's disregard for alchemy in favor of more rational scientific pursuits, but eventually finds himself forced to master the mysteries of alchemy so as to save Newton's life, as well as the new economic System of the World, at the end of the Cycle. Because despite his contempt for alchemy he nevertheless observes it at work, Daniel seemingly alone of all the characters in Stephenson's work demonstrates an awareness of Enoch Root's seeming immortality.

Leibniz is instrumental in introducing Daniel to Eliza, upon whom Daniel forms a never-consummated crush, during the political machinations leading up to the Glorious Revolution that places William of Orange on the throne of England. Daniel is a key player in making this happen, allying with William Penn to assure William of the support of the English nobility for William's planned coup. Eliza spies upon Daniel for William's benefit to assure William that Daniel's support for the revolution is genuine; Daniel has used his unique perspective to take stock of the new king and found him wanting in both moral character and political ability. While Daniel endures political persecution for his behind-the-scenes preparation for the coup, he is vindicated after William takes power. His friends in the Royal Society reward him with a "pearl of great price," a surgery to remove a bladder stone that threatened to kill Daniel just as a similar ailment killed Daniel's first patron, the Bishop of Chester.

Later, Daniel emigrates to the Massachusetts Bay Colony, where he becomes something of a "mad scientist" figure, earning the amused contempt of more traditional scholars at Harvard as he founds the Massachusetts Bay Institute of Technological Arts, a transparent analogy for the real-life MIT, and devotes his energies to creating a mechanical computer, going so far as to create punch cards to control its functions. After his return to England to participate in resolving the calculus dispute, Daniel re-creates his punch card system for controlling machinery, and is one of the first to recognize the potential usefulness of the new Stirling engines. The Cycle closes with Daniel inspecting such an engine in use at a Cornish mine, as Daniel returns to America, representing the displacement of the superstitious, feudal, and parochial world into which Daniel was born by the triumphant industrial, scientific, and globalized world which Daniel helped create.

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