Central bankers hate Bitcoin. For example, Christine Lagarde, the European Central Bank (ECB) President and former head of the International Monetary Fund (IMF), who was convicted of negligence in France back in 2018 after allowing a businessman to be paid €400 million in public funds, recently called for bad Bitcoin to be regulated globally.
Central bankers hate Bitcoin not because it is a scam, a bubble, or something only used by terrorists, criminals, or crackpots. The real reason why central bankers hate Bitcoin is because it is a genius form of money that exists outside of their system of centralized financial control. For this fundamental reason alone, Bitcoin is one of the most revolutionary and empowering technologies in the history of human civilization.
Bitcoin promotes freedom and individual sovereignty, allowing people to control their money whilst reducing the need for third parties. It is one of the few times in history that a system of money has been created that is not issued and controlled by a government or a central bank. Furthermore, it is probably the only system of workable money ever created that is decentralized and not privately controlled, as some private institutions have issued bank notes in the past.
Bitcoin is not owned by some faceless corporation, or corrupt central bank, and it does not have a stupid president or megalomaniac King. There is no CEO of Bitcoin, no company address, no helpline, no office – no centralized authority that can arbitrarily change the rules of the game. Essentially, Bitcoin is owned and controlled by those who buy and use it, governed only by its protocol.
Confiscate Bitcoin if You Can
An interesting story out of Germany in early February shows how difficult it is for governments to control and confiscate Bitcoin. German authorities tried to confiscate Bitcoin from a convicted fraudster, who reportedly owned around 1,700 Bitcoins, worth tens-of-millions of dollars. The fraudster however refused to give authorities the password to his wallet, leaving German authorities powerless and embarrassed.
To be clear, I am not endorsing criminal activity or fraud in any way here, and it is obvious there are many people running scams around Bitcoin. Yet any new goldrush produces fraudsters, and Bitcoin is extremely new, just over a decade old.
What the German case shows is that it is extremely difficult for any government to control Bitcoin. Considering that many governments around the world have imposed fascist-style restrictions in the name of fighting Covid-19, the value of having decentralized tools outside of government control has never been so clear.
Whether every aspect of Bitcoin is perfect is not my argument here. It is the ideas and design behind Bitcoin that is so exciting, and so revolutionary. Bitcoin has let the genie out of the bottle, and it can’t simply be shoved back in. Decentralized technologies that promote freedom and financial sovereignty are transforming the way we interact with each other and with institutions.
The people who designed Bitcoin were clearly polymaths, as Bitcoin intertwines numerous disciplines into a work of renaissance monetary art. From political to computer science, economics to mass psychology, philosophy to mathematics; Bitcoin is genius on so many levels, a masterpiece in the spirit of Michelangelo.
What is Bitcoin?
Well, as Satoshi Nakamoto titled the academic paper introducing Bitcoin back in 2008, Bitcoin is a system of peer-to-peer electronic cash. The fact that Satoshi used the word cash is important. At a time when elite special interests are pushing for centralized cashless societies, Satoshi launches a system of electronic cash that is decentralized and emphasises features of privacy and anonymity.
As central banks around the world are making plans to launch their own central bank digital currencies that will be totally centralized and totally traceable, Bitcoin will stand as the antithesis to these toilet paper currencies. Bitcoin is digital gold in many ways, whereas central bank digital currencies will be digital toilet paper. I will address central bank digital currencies in more detail however in a future video/article.
For now, back to Bitcoin. Part of how Bitcoin works is by allowing people to make peer-to-peer payments without the need for third parties. As Satoshi wrote in 2008:
“No mechanism exists to make payments over a communications channel without a trusted party. What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party” (Nakamoto 2008: 1).
“In this paper, we propose a solution to the double-spending problem using a peer-to-peer distributed timestamp server to generate computational proof of the chronological order of transactions. The system is secure as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes” (Nakamoto 2008: 1).
Satoshi then elaborates on the timestamp server concept:
“To accomplish this without a trusted party, transactions must be publicly announced , and we need a system for participants to agree on a single history of the order in which they were received. The payee needs proof that at the time of each transaction, the majority of nodes agreed it was the first received. The solution we propose begins with a timestamp server. A timestamp server works by taking a hash of a block of items to be timestamped and widely publishing the hash, such as in a newspaper or Usenet post” (Nakamoto 2008: 2).
Satoshi designed Bitcoin so that only a finite supply of Bitcoins would be released into the network, making Bitcoin anti-inflationary:
“Once a predetermined number of coins have entered circulation, the incentive can transition entirely to transaction fees and be completely inflation free” (Nakamoto 2008: 4).
The limit of the number of Bitcoins that can be mined is 21 million, with around 18 million been mined already. Every four years however, the number of Bitcoins released into the network is halved, with the last Bitcoin likely to be mined by 2140.
Satoshi also valued anonymity, writing in relation to privacy that:
“The traditional banking model achieves a level of privacy by limiting access to information to the parties involved and the trusted third party. The necessity to announce all transactions publicly precludes this method, but privacy can still be maintained by breaking the flow of information in another place: by keeping public keys anonymous. The public can see that someone is sending an amount to someone else, but without information linking the transaction to anyone. This is similar to the level of information released by stock exchanges, where the time and size of individual trades, the “tape”, is made public, but without telling who the parties were” (Nakamoto 2008: 6).
However, Satoshi admits that some linking is “unavoidable:”
“As an additional firewall, a new key pair should be used for each transaction to keep them from being linked to a common owner. Some linking is still unavoidable with multi-input transactions, which necessarily reveal that their inputs were owned by the same owner. The risk is that if the owner of a key is revealed, linking could reveal other transactions that belonged to the same owner” (Nakamoto 2008: 6).
Finally, Satoshi concludes by summing up the core features of Bitcoin:
“We have proposed a system for electronic transactions without relying on trust. We started with the usual framework of coins made from digital signatures, which provides strong control of ownership, but is incomplete without a way to prevent double-spending. To solve this, we proposed a peer-to-peer network using proof-of-work to record a public history of transactions that quickly becomes computationally impractical for an attacker to change if honest nodes control a majority of CPU power. The network is robust in its unstructured simplicity. Nodes work all at once with little coordination. They do not need to be identified, since messages are not routed to any particular place and only need to be delivered on a best effort basis. Nodes can leave and rejoin the network at will, accepting the proof-of-work chain as proof of what happened while they were gone. They vote with their CPU power, expressing their acceptance of valid blocks by working on extending them and rejecting invalid blocks by refusing to work on them. Any needed rules and incentives can be enforced with this consensus mechanism” (Nakamoto 2008: 8).
Who is Satoshi?
By this point, you may be wondering who Satoshi is? The truth is that we don’t know, and it is better that Satoshi never takes credit for his, her, or their creation. As soon as the true identity (or identities) of Satoshi is (are) revealed, Satoshi becomes an attack vector, and Bitcoin becomes all about Satoshi. However, we do have some clues as to who was behind this renaissance creation. Bitcoin really grew out of the cypherpunk movement, who were a broad group of computer scientists starting in the 1980s who valued privacy and cryptography.
One notable inspiration for Bitcoin was Bit Gold, a proposal made three years prior to Bitcoin by Nick Szabo, a legal scholar and computer scientist. Interestingly, Bitcoin shares many of the same features of Bit Gold. Szabo’s Bit Gold was proposed as a decentralized, trust-minimizing, anti-inflationary, digital form of money, that included a role for miners and used a proof of work system that was to be securely timestamped.
Bitcoin however was probably the creation of more than one person. After all, in Satoshi’s 2008 academic paper, the word “we” is frequently used. Although the people behind Bitcoin will probably never be known, what is clear is that decentralized technologies in the hands of the people keep centralized fascists awake at night.
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