Crypto Currency : Hints about Satoshi

You may know that Satoshi Nakamoto is the pseudonym adopted by the creator of Bitcoin. While his identity remains a mystery, he communicated extensively in Bitcoin’s early days. Let’s use this to dig a little bit into questions like when he started working on Bitcoin, to what extent he was influenced by the prior ideas we’ve looked at, and what motivated him.

Satoshi says he started coding Bitcoin around May 2007. I’ll take him at his word; the fact that he’s anonymous is not a reason to think he’d lie about things like that. He registered the domain in August 2008. And at that time, he started sending private emails to a few people who he thought might be interested in the proposal. Then a little later in October 2008, he publicly released a         white paper that described the protocol, and then soon after, he released the initial code for Bitcoin

as well. Then he stuck around for about two years, during which he posted lots of messages on forums, emailed with lots of people, and responded to people’s concerns. On the programming side, he submitted patches to the code. He maintained the source code in conjunction with other developers, fixing issues as they arose. By December 2010, others had slowly taken over the maintenance of the project, and he stopped communicating with them.

I’ve been referring to Satoshi Nakamoto as a “he,” but I have no particular reason to believe Satoshi is a man and not a woman. I’m just using the male pronoun since Satoshi is a male name. I’ve also been referring to him as a single individual. There is a theory that Satoshi Nakamoto might be a collection of individuals. I don’t buy this theory — I think Satoshi is probably just one person. The reason is that if we look at the entirety of the online interactions undertaken under the Satoshi pseudonym, if we

think about the two years that Satoshi spent replying to emails and patching code, it’s hard to imagine that this could be multiple people sharing user accounts and passwords, responding in a similar style and a similar voice, and making sure they didn’t contradict each other. It just seems a much simpler explanation that at least this portion of Satoshi’s activity was done by a single individual.

Furthermore, it’s clear from his writings and patches that this individual understood the full code base of Bitcoin and all its design aspects. So it’s very reasonable to assume that the same individual wrote the original code base and the white paper as well. Finally, it’s possible that Satoshi had help with the

original design. However, after Bitcoin’s release, we can see for ourselves that Satoshi was quick to attribute any help he received from other contributors. It would be out of character for him to mislead us about inventing something by himself if he had had help from other people.

Next, we might ask ourselves, “What did Satoshi know about the history of ecash?” To understand this better, we can start by looking at what he cites in his white paper as well as the references that existed on early versions of the Bitcoin website. In the white paper he cites some papers on basic cryptography and probability theory. He also cites the time-stamping work that we saw earlier, and it’s very natural to think that he based the design of the block chain on these references since the similarities are so apparent. He also cites the Hashcash proposal whose computational puzzle is very similar to the one that’s used in Bitcoin. He also has a reference to b-money. Later, on the website, he added references to Bitgold and as well to a scheme by Hal Finney for reusing computational puzzle solutions.

But, if we look at the email exchanges that were made public by people who corresponded with Satoshi Nakamoto in the early days, we find that the b-money proposal was actually added

after-the-fact, at the suggestion of Adam Back. Satoshi then emailed Wei Dai who created b-money and apparently, Dai was the one that told him about Bitgold. So these proposals weren’t probably inspirations for the original design. He later corresponded a lot with Hal Finney, and that’s quite a reasonable explanation for why he cites Finney’s work, at least on the website.

Based on this, it seems plausible that when creating Bitcoin, Hashcash and time-stamping were the only things from the history of ecash that Satoshi knew about or thought were relevant. After he came to know of b-money and Bitgold, however, he seems to have appreciated their relevance. In mid-2010, the Wikipedia article on Bitcoin was flagged for deletion Wikipedia’s editors because they thought it wasn’t noteworthy. So there was some discussion between Satoshi and others about how to word the article so that Wikipedia would accept it. To that end, Satoshi suggested this description of Bitcoin: “Bitcoin is an implementation of Wei Dai’s b-money proposal on Cypherpunks in 1998 and Nick Szabo’s Bitgold proposal.” So Satoshi, by this point, did see positioning Bitcoin as an extension of these two ideas or an implementation of these two prior systems as a good explanation of how it worked.

But, what about everything else — the Chaumian ecash schemes and the credit card proposals that we looked at? Did Satoshi know any of that history when designing Bitcoin? It’s hard to tell. He didn’t give any indication of knowing that history, but it’s just as likely that he didn’t reference this because

it wasn’t relevant to Bitcoin. Bitcoin uses a completely different decentralized model and so there’s no compelling reason to dwell on old centralized systems that failed.

Satoshi himself makes this point, by mentioning Chaumian ecash in passing, in one of his posts to the Bitcoin forums. Writing about another proposal called, he notes that they seem to be “talking about the old Chaumian central mint stuff, but maybe only because that was the only thing available. Maybe they would be interested in a new direction. A lot of people automatically dismiss

e-currency as a lost cause because of all the companies that failed since the 1990’s. I hope it’s obvious

it was only the centrally controlled nature of those systems that doomed them. I think this is the first time we’re trying a decentralized, non-trust-based system.” That gives us a pretty good idea what Satoshi thought of the earlier proposals, and specifically how he felt Bitcoin was different. Bitcoin’s decentralization is indeed a defining feature that sets it apart from almost everything we’ve look at.

Another interesting quote from Satoshi suggests that he might not be an academic. Most academic researchers think about ideas and write them down immediately, before they build the system.

Satoshi says that he took an opposite approach: “I actually did Bitcoin kind of backwards. I had to write all the code before I could convince myself that I could solve every problem, then I wrote the paper. I think I will be able to release the code sooner than I could write a detailed specification.”

Since there’s bit of myth around Satoshi, it’s worth mentioning that he made mistakes like everyone else and that wasn’t a perfect oracle of the future. There are bugs and questionable design choices in the original Bitcoin code as well as in its design. For example, there was a feature to send bitcoins to IP addresses that never caught on and, in retrospect, was a bad idea. When he described what Bitcoin was useful for, his scenarios were centered on the idea of using it across the internet. That use case is central to Bitcoin, of course, but it’s not the only one. He didn’t indicate a vision of going into a coffee shop and being able to pay for your coffee with Bitcoin, for example.

A final question we may ask ourselves, colored by what we understand from the history of digital  cash, is, “Why does Satoshi maintain his anonymity?” There are many possible reasons. To begin with, it might be just for fun. Many people write novels anonymously, and there are graffiti artists like Banksy who maintain their anonymity. In fact, in the community that Satoshi was involved in at that time, the Cypherpunk community and the cryptography mailing list, it was common practice for people to post anonymously.

On the other hand, there could have been legal worries behind Satoshi’s choice. Two U.S. companies, Liberty Reserve and e-Gold, ran into legal trouble for money laundering. In 2006, one of the founders of Liberty Reserve fled the United States, fearing that he would be indicted on money laundering charges. E-Gold’s founders, on the other hand, stayed in the United States, and one was actually indicted and eventually pled guilty to the charges. This guilty plea was registered just right before Satoshi set up the Bitcoin website and started emailing people about his proposal. That said, numerous people have invented ecash systems, and nobody else was scared of the legal implications or has chosen to remain anonymous. So this may have been the reason, it may not have been the reason.

It’s also worth recalling that certain aspects of ecash were patented, and that members of the Cypherpunk movement were concerned about implementing ecash systems due to these patents. In fact, one post to the cypherpunks mailing list proposed that a group of anonymous coders implement ecash so that if someone were to sue, they wouldn’t be able to find the coders. While it is difficult to think that Bitcoin would violate the ecash patents given how different its design is, perhaps Satoshi was being extra cautious. Or maybe he was just inspired by the idea of an anonymous coder from the cypherpunk community.

A final reason that’s often cited is personal security. We know that Satoshi has a lot of bitcoins from his mining early on, and due to Bitcoin’s success these are now worth a lot of money. I think this is a plausible reason. After all, choosing to be anonymous isn’t a decision you make once, it’s something that you do on a continual basis. That said, it probably wasn’t Satoshi’s original reason. The first time Satoshi used the name Satoshi Nakamoto, he hadn’t even released the whitepaper or the codebase for Bitcoin, and it’s hard to imagine that he had any idea that it would be as successful as it was. In fact,   at many points in its early history, Satoshi was optimistic but cautious about Bitcoin’s prospects. He seems to have understood that many previous efforts had failed and that Bitcoin might fail as well.

The success of Bitcoin is quite remarkable if you consider all the ventures that failed trying to do what it does. Bitcoin has several notable innovations including the block chain and a decentralized model that supports user-to-user transactions. It provides a practically useful but less-than-perfect level of anonymity for users. In Chapter 6 we’ll take a detailed look at anonymity in Bitcoin. In one sense it’s weaker than the strong anonymity in DigiCash, but in another sense it’s stronger. That’s because in DigiCash, it was only the senders of the money that maintained their anonymity, and not the merchants. Bitcoin gives both senders and merchants (whether users or merchants) the same level of anonymity.

Let me conclude with some lessons that we can learn from Bitcoin through the lens of the previous systems that we’ve looked at. The first is to not give up on a problem. Just because people failed for 20 years in developing digital cash doesn’t mean there isn’t a system out there that will work. The

second is to be willing to compromise. If you want perfect anonymity or perfect decentralization you’ll probably need to worsen other areas of your design. Bitcoin, in retrospect, seems to have made the right compromises. It scales back anonymity a little bit and requires participants to be online and connected to the peer-to-peer network, but this turned out to be acceptable to users.

A final lesson is success through numbers. Bitcoin was able to build up a community of passionate users as well as developers willing to contribute to the open-source technology. This is a markedly different approach than previous attempts at digital cash, which were typically developed by a company, with the only advocates for the technology being the employees of the company itself. Bitcoin’s current success is due in large part to the vibrant supporting community who pushed the technology, got people using it, and got merchants to adopt it.


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