“Are you an electronic cheater?”
That’s what the old guy asked me as I rode past him.
Now he wasn’t talking about a hardware wallet and some bitcoin. He was referring to e-bikes.
As I pulled up beside him he told me I could go ahead, which was amusing, because he was weaving aimlessly back and forth. He literally couldn’t go much slower.
It struck me as a great metaphor for the financial space right now. There is the old system gyrating with increased volatility and chaos. And the new crypto system seems to be chugging along with a sense of purpose.
For whatever reason, as I passed him, I started thinking about Satoshi.
I wondered what I might find if I went back and revisited the various Satoshi posts and emails.
Was Satoshi, Wright? (Just messin’ with you.)
What impression would I have in retrospect?
And that took me over to the Nakamoto Institute for some investigation.
Going back to the source is an important exercise
The value of revisiting source documents is underrated. One of the challenges of the modern world is also one of its essential services, curation.
Over time a source document becomes overshadowed by narratives and interpretation. The narratives are then curated into a covering on top of the original thought, writing, or source.
And eventually, the narratives can shape the source into something that wasn’t intended to be.
So going back to the source and looking at these writings and documents is an important thing to do from time to time.
Given our current economic, social, and financial turmoil, this exercise is even more important.
Because after more than a decade of narratives, it’s important to go back to the source of truth. Then take your current perspective and see how it matches up with the vision.
Sometimes you see something you missed the last time.
The Bitcoin whitepaper is a marvel of clarity
If you haven’t read the Bitcoin whitepaper recently, the one thing that stands out is clarity.
It is punctuated by laser focus and brevity. The writing is crystal clear. It does an excellent job of communicating the complexities of the Bitcoin concept in simple easy to understand language.
Now, additional clarity was eventually required because after all, this was a major deviation from what existed at the time.
And you have to remember that the internet in 2008 was much different than it is today. Throughput for all of 2008 is probably less than one day’s worth today.
And the 2008 internet was infinitely more capable than any of the years preceding it.
So the idea required some context.
Looking back, we can’t completely imagine the context when the Bitcoin whitepaper appeared for the first time. There were some other e-currency examples that had come before, but this one was the one that stuck.
It’s kind of like the way many guitar players talk about hearing Eddie Van Halen for the first time. When they heard that first record, they knew it was special. And in that moment, they knew exactly what they wanted to do.
Satoshi struggled with the right publicity at the wrong time
In the emails and posts that followed the white paper, Satoshi provided a mix of clarity and stickhandled the development of the project. If you come from the startup space, reading through, you will see the lean, agile process as various releases are dropped.
You will also notice the challenge of PR and marketing.
It wasn’t easy to describe it to a wider audience.
And when a bunch of tech-minded people got ahold of it, the descriptions were so long that Wikipedia marked the first article version for deletion.
Then there was the realization that Wikileaks was going to use Bitcoin early on. There was a concern that this would attract nefarious forces that might interfere or disrupt the project as a result.
These seem like non-events looking back, but for the nascent project, this was a significant potential issue.
Then there were comments in online forums like slashdot that Satoshi referred to frequently as a potential issue. Too much attention at the wrong time is potentially a bigger problem than not enough.
After all, when you’re creating a potentially disruptive payment system quietly, out in the open, you don’t want to get disrupted before you get it moving. You never know who is watching and what incentives other forces have to take you down.
Describing Bitcoin was hard in 2010
Throughout 2009 and 2010, we can see Satoshi engaged in a discussion around what Bitcoin was and what it does.
The whitepaper may have been elegant, but once things got moving, early adopters and key developers got involved. Then it started to take on a life of its own.
In a February 11, 2009 post, Satoshi describes Bitcoin. The emphasis here was around the concept of money and the relationship with trust. Then he goes on to discuss the double spend problem, solution, and the network.
The nature of the system is the elimination of the need for a trusted third party. So the vetting function is moved from a person, or people, or an institution to software.
In particular, the whitepaper refers to commerce on the internet and the inherent value of a timestamp-based ledger system in that environment.
At the end of this post, he says that Bitcoin “…takes advantage of the nature of information being easy to spread but hard to stifle.” This observation was timely and prescient because we are watching this nature in the battle over free speech across social media, the press, and payments, going on today.
The Bitcoin whitepaper has some things that stand out today
The white paper has some lines that seem to stand out a bit more today, at least to me.
The statement about non-reversible payments is interesting. While it eliminates the role of the middlemen in mediation, it may require the presence of some form of escrow to eliminate fraud. He discusses escrow in the whitepaper shortly after and in other posts that follow.
The peer-to-peer network that tackles the double spending problem is inferred to be the answer. And it accomplishes this process with computational proof and chronological order of transactions.
This would represent a single source of truth.
In the second section, I found this statement to be interesting: “We define an electronic coin as a chain of digital signatures.” then, going on to describe how the coin is transferred. Today most coins are viewed as a form of token.
One of the most important parts of the white paper is the incentive section. Not because of what it says but because of what it implies.
All economic systems have both incentives and disincentives, including the Bitcoin software. Users (miners) are incentivized to participate and secure the network. But the network structure also disincentivizes abuse.
In our current financial system, the incentives and disincentives are increasingly less clear. For every disincentive enforcement, a fine represents a cost of doing business rather than a deterrent. This leaves the entire system open to abuse because the incentives for abuse appear to scale and pay off nicely.
Then finally, we see the new vision of what privacy is. This is a model where identities are hidden, but transactions are public rather than everything kept private.
From money supply to gold and derivatives
In a post written in February 2009, Satoshi talks about the fact that there is no entity to adjust the money supply. And a key point in this post was that he didn’t “know of a way for software to know the real-world value of things.”
That was an interesting statement. How many whitepapers are trying to describe a solution to this? This appears to be the major issue for algorithmic-based stablecoins like Terra Luna and their financial infrastructure.
In the next sentence, he says: “If there was some clever way or if we wanted to trust someone to actively manage the money supply to peg to something, the rules could have been programmed for that.”
Bitcoin wasn’t programmed for that, but this sounds like a precursor to a derivative product like a stablecoin.
Then he goes on to compare Bitcoin to precious metals in that value adjusts around supply, not the other way around. He talks about the positive feedback loop of a fixed supply and the value increases with the growth in users. Here he is laying the foundation for digital gold.
What is interesting is at the end of this post, he writes, “which could attract more users to take advantage of the increasing value.”
That’s interesting. What does he mean by that? Something to ponder.
Exploring the characteristics of Bitcoin
In August 2010, we can see Satoshi is seemingly aware of one of the pitfalls ahead. In this post, he clearly describes Bitcoin as being more like a collectible or a commodity. In other words, it’s not like a stock, which appears to show some understanding of a future Howey Test issue.
In the post from August 27, 2010, Satoshi describes something with various characteristics that would be the opposite of gold with one major “Magical property – (that it) can be transported over a communication channel.”
Which is interesting in one respect. This argument sounds like it could be taken directly from the era of the telegraph, where information was the item with just such a magical property.
In early August that year, he discussed the challenge with micropayments. In one post, he says how micropayments will be impractical. Then the following day, he lays out the case as if a precursor for the thinking behind the Lightning Network.
The discussion includes assumptions about the scaling potential based on bandwidth and storage changes over time. That they would grow while becoming cheaper at the same time. This has turned out to be an accurate assumption, but whether it will continue isn’t clear.
Even Bitcoin needed some marketing magic
Throughout, there is an attempt to create a description and explanation that was easy to grasp for a wider audience.
In July 2010 he described Bitcoin as “an implementation of Wei Dai’s b-money proposal on Cypherpunks in 1998 and Nick Szabo’s Bitgold proposal.” (You can find both of these along with several other key papers on the nakamotoinsitute.org site under literature.)
He was concerned about the problem with Wikipedia and the presentation of Bitcoin being too promotional. The key statement here was “Just letting people know what it is, where it fits into the electronic money space, not trying to convince them it’s good.”
In July of that year, there was a comparison to a credit card where he described Bitcoin as a “credit card processor with a new job.”
By the end of September, we can see Satoshi trying to get an elevator pitch created to get back up on Wikipedia.
It is also interesting that he is instrumental in developing the logo for Bitcoin. This logo was a brilliant marketing exercise. Remember, an electronic coin is defined in the whitepaper as a series of digital signatures, but the logo gives us something more familiar.
From there, the Bitcoin narrative has evolved to become a hedge, digital gold, the new reserve currency of the world, the only real form of money, and the only cryptocurrency. The narrative depends on the ideological camp you belong to.
More importantly, it was the catalyst for more than twenty thousand crypto, token, altcoin, and infrastructure projects across the globe.
The vision of Bitcoin is one of a new relationship
Going back to the source is important. It gives us some insight into the thinking and where that thinking leads to.
We can see how this project was very much a startup.
And we can see the vision is big but cautious. Nobody knew where it might go. And I would argue, we still don’t.
But, it is clear that we should think carefully about what might be coming.
Community-based currencies were not uncommon during the depression. There were more than 200 at one time in the US, according to Martin Armstrong of Armstrong Economics. Catherine Austin Fitts, in a recent podcast, said that in the current era, such an arrangement could work where the jurisdiction has control over its own food and energy.
This is a key thing to think about in the current environment where food and energy seem to be the target of nefarious forces that wish to control them.
If we think broadly about Satoshi’s vision, we can see in it a future vision of personal agency. One where middlemen cannot be relied on due to the abuse and distortion of incentives.
And where all of us will have to develop a new kind of economic relationship so that we can transact and prosper. With Bitcoin specifically and several parts of crypto generally, we have a payment system for value exchange and transfer, self-custody, and mobility.
With crypto, we have many of the elements available for current and future value discovery.
So is Bitcoin the answer? And what about the rest of crypto?
Only time and maybe Satoshi will tell.
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