Satoshi’s “Fair” Bitcoin Distribution Analysis: Nakamoto’s Mining Activity Proves to be Optimal


Most bitcoiners assume that bitcoin creator Satoshi Nakamoto was able to mine over one million bitcoins during the early days of the bitcoin network. Some take that to assume that bitcoin’s distribution isn’t fair: Satoshi was able to mine more bitcoins than anyone else in history simply because he knew how to mine bitcoin before anyone else.

Was bitcoin’s distribution really fair? A new bitcoin mining study suggests that bitcoin’s distribution was fairer than you think.

In an article published by Dan Held on Picks & Shovels, Dan refutes the idea that bitcoin’s early mining was unfair, or that Satoshi effectively “pre-mined” the bitcoin network:

“As Bitcoin rises in popularity, and continues to challenge mainstream thought, there will be concerns around certain parameters of its existence. One of those is that the distribution of Bitcoin wasn’t “fair,” particularly in the earlier stages of network development. I’ll dive into the timeline surrounding Bitcoin’s launch, and provide a thorough debunking of unfair early distribution claims.”

Most people don’t care about Satoshi Nakamoto owning over one million bitcoins for two reasons. First, Satoshi has never moved those bitcoins aside from a few test transactions back in 2010. Second, Satoshi created bitcoin, and Satoshi deserved some reward for creating a breakthrough technology.

How did Satoshi mine one million bitcoins while also creating a fair mining system? Let’s take a closer look.

“Satoshi Didn’t Premine”

Some people believe that Satoshi effectively pre-mined the bitcoin network. Satoshi created bitcoin. Satoshi knew how to mine bitcoin. Satoshi mined bitcoin before most people had even heard of it.

That’s not really true, according to Dan Held.

Obviously, Satoshi’s mining activity doesn’t fit the definition of “pre-mine”: Satoshi didn’t mine the network before it became public. He didn’t mine all tokens in the network on day zero, and then allowed the public to mine shortly after.

Instead, as Dan Held explains, Satoshi gave everyone plenty of notice before launching the bitcoin genesis block:

“Satoshi didn’t premine. Satoshi gave everyone a two month heads up before mining the Genesis block, reaching out to the only other people who would possibly be interested in experimenting with a sovereign digital currency at the time, the cypherpunks (via public e-mail list). The whitepaper was published on October 31, 2008, then Bitcoin 0.1 software was released on January 9, 2009.”

Satoshi actually took steps to prove that he didn’t pre-mine. The bitcoin genesis block is unique because it contains no references to previous blocks. It could only be mined with custom code. Satoshi’s message from the January 3 edition of the London Times was chosen deliberately: it proved he didn’t pre-mine, because he couldn’t have known what the headline of the London Times was going to be on that date.

Furthermore, as Dan Held explains,

“Timestamps for subsequent blocks indicate that Nakamoto did not try to mine all the early blocks solely for himself. Before Satoshi’s invention, the concept of pre-mining didn’t exist. To be this prescient demonstrated incredible maturity.”

Satoshi Wasn’t The Only Early Miner

After the bitcoin code was released, several other individuals started mining.

“We know for a fact that Hal Finney was mining one day after the initial launch,” explains Dan Held. “Satoshi definitely wasn’t mining alone in the early days, granted the number participating was slim.”

We know Hal Finney was mining because on January 10, 2009, he published the first tweet about bitcoin in history. “Running bitcoin,” tweeted Hal Finney on January 10, 2009.

It also seems likely that Craig Wright and Dave Kleiman were early bitcoin miners. The pair reportedly amassed a fortune of over one million bitcoins while mining the network in 2009 and 2010.

Satoshi Reduced His Hashrate Every Day

During the early days of the bitcoin network, there wasn’t enough hashpower to trigger an upwards difficulty adjustment. The network could only be kept running at 144 blocks per day through Satoshi’s mining. Over time, Satoshi’s percentage of hashrate contributed to the bitcoin network gradually reduced:

“For the first year of Bitcoin’s existence, Satoshi and other miners couldn’t muster enough hashrate to mine more than 144 blocks/day and trigger an upwards difficulty adjustment. Satoshi mined because the network required a miner, he turned them off when there was a stable network that didn’t need his mining power. He reduced his % of the hashrate in a slow and steady manner.”

We’re Not 100% Certain That Satoshi Nakamoto Mined 1 Million Bitcoins

It’s generally assumed that Satoshi Nakamoto mined one million bitcoins during the early days of the network, and many people assume that Satoshi owns one million bitcoins to this day.

However, it’s far from a fact that Satoshi owns 1 million bitcoins. Most estimates, in fact, put the number closer to 600,000 or 700,000.

A study from BitMEX, for example, showed that it was possible a single dominant miner in 2009 could have mined 600,000 to 700,000 bitcoins, but that it was unlikely the miner could have mined one million bitcoins.

In short, we don’t know exactly how many bitcoins Satoshi owns – or if Satoshi even has access to those bitcoins in 2018.

Bitcoin’s Market Cap Was $0 In 2009 And 2010, And Most Early Miners Did Not Hodl

Another important thing to remember about the bitcoin network was that nobody knew bitcoins had value. Nobody expected bitcoin would one day grow to be worth $20,000 apiece. It’s unlikely that even Satoshi knew the full potential of what he had created.

During the early days of the bitcoin network, bitcoin didn’t have a “price”. There were no bitcoin exchanges. You could send bitcoins from one person to another, but there were no centralized exchanges where the market determined a price.

During these days, miners were spending money just to contribute to the bitcoin network. Miners were spending money on hardware and electricity to mine.

There were faucets setup during this period. Bitcoin developer Gavin Andresen, for example, created a bitcoin faucet filled with 10,000 bitcoins. That faucet gave away 5 bitcoins to anyone who asked nicely.

It wasn’t until May 2010 when bitcoins were exchanged for real-world value, when someone bought two pizzas using bitcoin. Since then, bitcoin has had some appreciable value.

This means the early bitcoin miners weren’t “taking advantage” of a low-difficulty network. They were spending resources to contribute to a project online with no guarantee that their contributions would deliver any return on investment. Most of these early bitcoin miners, by the way, sold their bitcoin as soon as it had any value.

As Dan Held explains,

“The early pioneers were the ones crazy enough to take the financial, temporal and social risks to participate in the Bitcoin project, keeping it alive and acting as arbiters of the system in its early days. Nearly all lost or sold all of their Bitcoins.”

“Unlike Every Other Founder in History, Satoshi Never Cashed Out”

Most Ponzi schemes follow a similar path: someone creates the scam, gets rich quick, cashes out, and causes everyone to lose money.

Even startups follow a similar path: the founding team amasses large shares of the company, and those shares rise in value over time before they eventually cash out.

As Dan Held points out, Satoshi is unique among startup founders and Ponzi scheme runners: he never cashed out:

“Unlike every other founder in history, Satoshi never cashed out,” explains Held.

“Satoshi wanted to signal to everyone that Bitcoin wasn’t a scam. The conservative deescalation of his mining contributions, his departure from the community, never spending any of his coins, nor using his influence for any purpose, shows that he wanted the world to make up their own mind about his project and judge it on its own terms.”

To this date, Satoshi’s bitcoins have never moved aside from a few test transactions in 2010.

Yes, Satoshi mined a high number of coins back in the early days of bitcoin. It does not appear, however, that he mined bitcoin to get rich quick.

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