Understanding Bitcoin's Legacy: What Was Satoshi’s Bitcoin Vision?

On October 31, 2008, a mysterious figure named Satoshi Nakamoto shared a 9 page document with the world. That whitepaper was titled, “Bitcoin: A Peer-to-Peer Electronic Cash System”, and it explained Satoshi’s vision for a secure form of electronic money.

Satoshi’s whitepaper is still online and accessible today. The whitepaper clearly explains how bitcoin should work along with the intentions of bitcoin. Despite the fact that the whitepaper is fully available online for everyone to read, there’s a huge debate over Satoshi’s vision.

Just like the Bible and many other holy books, there’s considerable debate over every line in the whitepaper. The community also debates every email sent by Satoshi and every forum post written by Satoshi.

What did Satoshi mean when he called bitcoin a peer-to-peer electronic cash system? Did the whitepaper foresee the concentration of bitcoin mining power in pools? Where would Satoshi fall in the BCH versus BTC debate?

Meanwhile, there are some who claim that Satoshi’s whitepaper doesn’t matter. Satoshi isn’t god, and the bitcoin whitepaper isn’t the Bible. Bitcoin is an open source project and the goals of the project have changed over time.

This controversy was raging when bitcoin split into BTC and BCH in August 2017. This controversy continues to rage today as BCH could undergo its own split in November 2018.

Amidst all of this controversy, it’s helpful to analyze Satoshi’s original vision for bitcoin, as explained in the bitcoin whitepaper and other online postings from Satoshi Nakamoto. This is everything we know about Satoshi Nakamoto’s vision of bitcoin, cryptocurrency, and the world in general.

Bitcoin Is “A Peer-to-Peer Electronic Cash System”

First, let’s start with the very first words of the bitcoin whitepaper. The whitepaper is titled, “Bitcoin: A Peer-to-Peer Electronic Cash System.”

Those words might seem straightforward, but right away, we have controversy within the community. When you call something a ‘cash system’ it suggests that it should be used like cash – for everyday purchases, as a store of value, as a unit of exchange, and as a medium of transfer. It’s money.

Others, however, believe that bitcoin was never intended to be cash. Despite what Satoshi’s vision claims, many BTC supporters feel bitcoin works best when it has limited utility as cash, but acts purely as a store of value. Gold bars are difficult to transfer but are an effective store of value. Why can’t bitcoin be the same?

Wherever you stand on the BTC versus BCH debate, it’s helpful to read the words Satoshi wrote back in 2008:

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. Transactions that are computationally impractical to reverse would protect sellers from fraud, and routine escrow mechanisms could easily be implemented to protect buyers.

Satoshi Explains Proof of Work In The Bitcoin Whitepaper, But He Didn’t Invent It

Satoshi built off the work of previous cryptographic researchers, including Wei Dai’s B-money, and Adam Back’s Hashcash. B-money and Hashcash were the first proof of work protocols in the world.

The bitcoin whitepaper outlines the proof of work system, discussing how one CPU would equal one vote. As long as the majority of CPUs were acting in the best interest of the network, then the network would stay secure. Those CPUs would be motivated to act in the best interests of the network because they receive a reward for doing so and because it costs money to provide proofs of work to the network. This basic, economic system of costs and rewards is what secures bitcoin.

Here’s how Satoshi explains it:

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. Transactions that are computationally impractical to reverse would protect sellers from fraud, and routine escrow mechanisms could easily be implemented to protect buyers. 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.”

The network is also secured by a chain of linked signatures. Each block in the bitcoin blockchain contains a secure reference to the block before it and the block after it – a signature. In order to alter the bitcoin blockchain, a malicious actor would need an enormous amount of computing power to change all the blocks in the chain:

“For our timestamp network, we implement the proof-of-work by incrementing a nonce in the block until a value is found that gives the block's hash the required zero bits. Once the CPU effort has been expended to make it satisfy the proof-of-work, the block cannot be changed without redoing the work. As later blocks are chained after it, the work to change the block would include redoing all the blocks after it.”

This is the technical foundation for the bitcoin blockchain. It’s a chain of blocks secured by proof of work and economic incentives.

Satoshi Was Not A Fan Of The Modern Banking System

Satoshi was clearly not a fan of the modern banking system. The bitcoin genesis block on January 3, 2009 famously contained a reference to a headline from the London Times from that date. The genesis block includes a statement saying, “The Times 03/Jan/2009 Chancellor on brink of second bailout.”

There’s more evidence that Satoshi was not a fan of the banking system: Satoshi listed his birthday as April 5, 1975.

April 5 is an important date because on April 5, 1933, US President Franklin D. Roosevelt signed an executive order demanding that all US citizens deliver all gold coin, gold bullion, and gold certificates to a Federal Reserve Bank. Overnight, the American government decided to seize the wealth of American citizens.

Satoshi also took issue with fractional reserve banking and the idea that the US Federal Reserve and other central banks can arbitrarily increase the money supply. They have the power to weaken our purchasing power over time. That’s why bitcoin was designed to be a deflationary currency: it has a fixed supply of 21 million bitcoins. The “inflation rate” of bitcoin – the block reward emissions – have also gone down over time from 50 BTC to 25 BTC to 12.5 BTC today, halving roughly every four years.

Satoshi Has A Problem With Centralized Banks Having Access To All Financial Information

In today’s global banking system, banks can easily monitor all transactions sent within their system. The public cannot see those transfers, because they’re held by the bank in centralized servers.

Satoshi sees this system as problematic in the bitcoin whitepaper. Bitcoin takes a different approach: it makes all transaction information public and allows anyone to see transactions, but it uses cryptography to secure the identities of those involved in each transaction.

Here’s how the whitepaper explains it:

“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 Bitcoin Whitepaper Focuses On Technical Discussion, But We Have Plenty Of Satoshi Forum Posts And Emails To Analyze

Much of the 9 page bitcoin whitepaper focuses on a technical discussion of bitcoin, including how proofs of work can be used to secure the network and how cryptographic hashes connect each block on the blockchain to one another.

Very little of the bitcoin whitepaper focuses on Satoshi’s personal views. He (or she, or they) doesn’t spend much time discussing his (or her, or their) personal opinions.

There are, however, other sources where we can learn more about Satoshi’s viewpoints. Satoshi continued working on bitcoin until abruptly disappearing in mid-2010. He made forum posts during this time. He interacted with other bitcoin developers.

Here are some other snippets that tell us more about Satoshi’s vision:

  • Satoshi emphasized bitcoin as a fast and cheap global payments network. He saw bitcoin being the form of electronic cash used by people in the developing parts of the world. He wanted to keep transaction fees cheap, allowing people anywhere in the world to break free of the global banking system.
  • Satoshi believed that creating a fast and cheap global payments network would help bitcoin become an effective store of value. The “value” of bitcoin would come from its usefulness as an international payment transfer system.
  • Satoshi was a participant in cryptography mailing lists and “cypherpunk” groups throughout the 1990s. These groups included many of the cryptography researchers mentioned in the bitcoin whitepaper. Cypherpunk is a libertarian movement based on the importance of anonymity, encryption, and privacy – all of which appeared to be important ideals for Satoshi.
  • You could argue that Satoshi wasn’t interested in wealth or fame. Bitcoin’s code has been open source from the very beginning. He didn’t patent it or try to sell it. Meanwhile, his stash of roughly a million bitcoins, mined during the early days of the bitcoin network, has never been moved (aside from a few test transactions back in 2009). At its height in December 2017, Satoshi’s stash of one million bitcoins was worth about $20 billion, which would have made him the 44th richest man on the planet. Satoshi, however, does not appear to have ever touched his wealth. At the same time, Satoshi has not publicly revealed himself, which suggests he doesn’t care much about fame.
  • Some argue that Satoshi was a libertarian anarchist; in a footnote of the bitcoin whitepaper, Satoshi writes about Wei Dai’s B-money proposal, saying, “I am fascinated by Tim May’s crypto-anarchy. Unlike the communities traditionally associated with the word ‘anarchy’, in a crypto-anarchy the government is not temporarily destroyed but permanently forbidden and permanently unnecessary. It’s a community where the threat of violence is impotent because violence is impossible, and violence is impossible because its participants cannot be linked to their true names or physical locations.” Some take this passage to mean that Satoshi was a libertarian anarchist – or at least against government oversight and governmental institutions.
  • Satoshi was against fractional reserve banking. In one forum post, Satoshi wrote that “Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with hardly a fraction in reserve.”
  • Satoshi was anti-government. Even if you don’t believe Satoshi was totally pro-anarchist, he was clearly libertarian or against government institutions. In one email, Satoshi wrote, “Yes, [we will not find a solution to political problems in cryptography,] but we can win a major battle in the arms race and gain a new territory of freedom for several years. Governments are good at cutting off the heads of a centrally controlled networks like Napster, but pure P2P networks like Gnutella and Tor seem to be holding their own.”

Satoshi’s Vision Was For A Fast, Cheap, Peer-To-Peer, Cryptographically-Secured Electronic Cash

Ultimately, Satoshi’s vision can be summed up like this:

Satoshi Nakamoto wanted to create a peer-to-peer form of electronic cash. That electronic cash would be easy to transfer to anyone in the world without relying on the international banking system. That electronic cash would be secured through an innovative cryptographic verification scheme without the need for the verification of a centralized third party. That electronic cash would be cheap for anyone – from the wealthy to those in developing parts of the world – to use.

Would Satoshi Support BCH Or BTC?

This is where the BTC versus BCH controversy comes into effect. BTC has not yet created an effective scaling solution for bitcoin. The only feasible scaling solution BTC has proposed is the Lightning Network, which takes transactions off-chain in a way we’ve never before seen with bitcoin. Satoshi didn’t mention off-chain scaling. Instead, various Satoshi statements seem to insist that on-chain scaling is the only way forward.

BCH, meanwhile, claims to maintain Satoshi’s original vision by scaling on-chain. BCH developers have raised blocksize limits to 32MB – and possibly to 128MB in the near future. This has created new levels of transactional capacity on the BCH network while BTC remains stuck with 1MB blocksizes.

The argument against on-chain scaling and the BCH proposal is that it makes the bitcoin blockchain too large. Only large-scale miners will be able to run the network.

Satoshi actually addressed this in an email on November 2, 2008, saying:

“Long before the network gets anywhere near as large as that, it would be safe for users to use Simplified Payment Verification (section 8) to check for double spending…The bandwidth might not be as prohibitive as you think. A typical transaction would be about 400 bytes (ECC is nicely compact). Each transaction has to be broadcast twice, so lets say 1KB per transaction. Visa processed 37 billion transactions in FY2008, or an average of 100 million transactions per day. That many transactions would take 100GB of bandwidth, or the size of 12 DVD or 2 HD quality movies, or about $18 worth of bandwidth at current prices. If the network were to get that big, it would take several years, and by then, sending 2 HD movies over the Internet would probably not seem like a big deal.”

You can argue that Satoshi never believed the bitcoin network would grow as big as it did. That may be true – who could have foreseen bitcoin growing into what it is today? However, Satoshi’s early emails clearly show a reasonable solution to bitcoin scaling: computing power has continuously increased over time with Moore’s Law. Although Moore’s Law hasn’t been as accurate in the last few years, computing power continues to rapidly grow with the bitcoin network. This suggests on-chain scaling is the way forward.

Based on Satoshi’s original emails, it seems Satoshi would support BCH over BTC because of on-chain scaling versus off-chain scaling. But until Satoshi chimes in on the issue – say, by swapping his stash of one million bitcoins into BCH – it’s hard to say what Satoshi would support.

Understanding Bitcoin's Legacy Conclusion

Some claim the bitcoin whitepaper is like the Bible: you should read it yourself and make your own interpretation. Others claim that’s too dramatic, and that the bitcoin whitepaper is far from perfect.

There’s another problem with interpreting Satoshi’s vision: we have no idea who Satoshi is. It could be Craig Wright. It could be Dave Kleiman, Hal Finney, Nick Szabo, or someone else. It could be somebody we’ve never heard of. Satoshi could be alive or dead. Satoshi could be a government agency, a group of individuals, a female, a male – we just don’t know. That’s what makes it hard to interpret Satoshi’s vision.

We’ll let you make your own decision about your interpretation of Satoshi’s vision. You can read the bitcoin whitepaper on bitcoin.org.

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