An evaluation of Satoshi Nakamoto’s document of October 31, 2008 which „set in motion a revolution in finance“.
It has only been a dozen years since October 31, 2008, that Satoshi Nakamoto published a modest nine-page article describing a new online payment system called „Bitcoin“? Depending on where you are, that pseudonymous whitepaper (its authors remain unidentified) fostered a fintech revolution or, as some believe, „the biggest scam in history“.
To mark the anniversary of the publication of ‚Bitcoin: A Peer-to-Peer Electronic Money System‘, Cointelegraph invited comments on the author’s enduring vision. Would Satoshi Nakamoto have been satisfied with the way Bitcoin and blockchain technology developed and evolved over the last 12 years?
James Angel, Associate Professor at Georgetown University’s McDonough School of Business, told Cointelegraph: „It has set in motion a revolution in finance with the rise of DeFi applications, smart contracts and currency offerings, and a payments revolution that is leading to digital central bank currencies. Gina Pieters, Assistant Professor of Instruction in the Department of Economics at the University of Chicago, told Cointelegraph: „I would be delighted to see the evolution and new applications of your vision.
The influence of the Bitcoin (BTC) white paper goes beyond finance, Garrick Hileman, head of research at Blockchain.com, told Cointelegraph: „Its impact is worthy of consideration along with other major technical innovations, such as the personal computer and the Internet.
Would Satoshi be disappointed?
Satoshi’s vision was a P2P, or decentralised, digital money system, as mentioned in the title of the whitepaper. The problem with digital commerce was that it relied exclusively on „financial institutions acting as trusted third parties to process electronic payments,“ Satoshi wrote. This had inherent weaknesses. Transactions could be reversed, banks had to mediate disputes, and transaction costs were high. Satoshi’s solution was presented in the second paragraph of the white paper’s introduction:
„What is needed is an electronic payment system based on cryptographic evidence rather than on trust, allowing two interested parties to conduct transactions directly with each other without the need for a trusted third party“.
In the 12 years since the publication of the paper, the need for P2P transactions, without interfering with third parties, became a kind of article of faith among bitcoiners. But, come to think of it, did this aspect of Satoshi’s vision come true? David Yermack, professor of finance at New York University’s Leonard N. Stern School of Business, told Cointelegrap:
„I think the biggest source of disappointment for Nakamoto would be the increasing centralization of blockchain governance in entities such as mining pools and even central banks, which are about to launch their own cryptomonies. Nakamoto’s mission was to challenge the hegemony of central banks, and ironically, it seems likely that the biggest issuers of digital coins will be the central banks themselves.
Angel went further: „Satoshi would be dismayed by the policy of the concentrated mining groups that currently dominate the Bitcoin protocol“. While Pieters added that Satoshi would be disappointed that „Bitcoin’s first transactions did not occur through peer-to-peer trading, but rather were mediated by exchanges or centralised companies“.
The issue of fraud in digital transactions has always been present, and in the Bitcoin whitepaper, Satoshi proposed a way to solve the classic problem of „double spending“, where criminals spend the same coin twice, something that is not difficult to do with electronic coins. He did this by using a „peer-to-peer time-stamp server to generate a computer test of the chronological order of transactions“. In this way, Satoshi explained, „Transactions whose reversal is not practical from a computer point of view would protect sellers from fraud“.
Solving the problem of double-crossing is considered one of Satoshi’s greatest achievements today. His Bitcoin block chain has never been hacked (although the same cannot be said for the many cryptosystems exchanges that handle BTC). Even so, the fraud associated with digital payments is not eliminated from the system – would this have discouraged the founder of Bitcoin?
Angel said that Satoshi „would have been disappointed if Bitcoin did not become a means of daily payment, but a store of value for fat cats and tax evaders. In addition, Satoshi „would have been saddened by the increased inequality that Bitcoin’s history has created, with some of the first users becoming whales and the other 99.99999% of the population not. Still, the creator of Bitcoin, whether male, female or group, is supposed to be impressed by the extent of BTC’s adoption, as described by Yermack:
„Nakamoto would be amazed at the growth of blockchain projects and the thousands of coins and digital tokens that have been created in the image of Bitcoin. One suggestive piece of evidence is that Nakamoto set the size of the blocks in the Bitcoin blockchain at 1 MB in 2010 and commented mysteriously that „we can always increase this later when necessary“.
He had no idea that the blockchain would be overloaded in the next five or six years, Yermack continued, „and that a controversial debate, still unresolved today, would erupt between the different Bitcoin constituencies about the best way to further expand blockchain capacity.
Over the past 12 years, most of Satoshi’s original code has been altered or replaced, Hileman added, but even so, Bitcoin retains its core qualities, including „its fixed supply of 21 million coins, open access and resistance to censorship/manipulation. I believe Satoshi would be pleased with the ongoing software optimizations and improvements to these fundamental features that continue today.
Was Satoshi an environmentalist?
While the whitepaper says a lot about transaction fees, the power of the CPU, network nodes, test chain work, and even the problem of Player Wreck, it doesn’t say much about the larger world around, including the environment. Angel argues that Satoshi would be surprised at the environmental damage caused by the Bitcoin mining arms race, adding: „At current hash rates and mining efficiency, Bitcoin mining alone is consuming about seven gigawatts of electricity, equivalent to seven Chernobyl power plants.
And although little is known about Satoshi’s policy, its creation, in the form of the first encryption blockchain, would also be disturbed by the idea of central bank digital coins, and in some cases, „these coins are designed to involve repressive governments in even more surveillance and control over their populations,“ Angel added.
Focusing on the white paper itself, Franklin Noll, a monetary historian and president of Noll Historical Consulting, told Cointelegraph: „His concern was for fast, anonymous, low-cost, unmediated and non-reversible transactions. So far, Bitcoin transactions, and many other blockchain transactions, have not proven to be as fast, anonymous or low-cost,“ he added.
„I think Satoshi would like to see more use of non-custodial wallets to store and conduct Bitcoin transactions,“ added Hileman, who explained that custodial companies that administer private cryptographic keys on behalf of Bitcoin owners „look like traditional banks. Meanwhile, he believes that „Satoshi was not a fan of trusted financial intermediaries.
What is Satoshi’s legacy?
A little over a decade later, what is the significance of Satoshi Nakamoto’s whitepaper? In the financial arena, „he encouraged financial companies and central banks to prioritize the assessment of their technology, considering both the increasing digitization and the ‚always on‘ digital platforms,“ Pieters said, and continued: „In some cases, such as the renewed CBDC examinations, this has led to the exploration of new systems, even if it is not directly the adoption of blockchain technology.
„Bitcoin and blockchain have fundamentally changed the world of money,“ Noll added. „Terms like proof of work, distributed accounting technology, decentralised finance, programmable money and smart contracts are now part of the lexicon of anyone who is serious about the future of money and finance. Hileman added:
„We are also beginning to understand the potential impact of blockchain technology in areas outside of finance, such as digital identity, addressing false news and the manipulation of public elections.
„The publication of Nakamoto’s 2008 white paper was a major turning point in the financial record,“ said New York University’s Yermack. „We are only beginning to understand the ramifications, but they seem to be enormous.
A surprisingly modest document
One will not find the word „revolution“ in Satoshi’s document. It is not a question of reversing the economic order or reducing the gap between the rich and the poor. It is an unpretentious treaty on electronic payments: how they can be made to work effectively.
On his own terms, Satoshi was very successful. He promised a viable P2P digital payment system and delivered on it. The market value of Bitcoin is USD 251 billion 12 years after the idea was first floated.
If Bitcoin is also damaging the environment, inciting money launderers or supporting political regimes, it’s beyond the scope of your article. What can be said is that economic decentralisation continues to present governance challenges. How much „peer-to-peer“ does society really want? The global community at large will have to decide.
Twelve years after the publication of „Bitcoin: An Electronic Money System Between Peers“, it is worth remembering that „it is a dictum of history that revolutions do not always turn out as the founders planned,“ Noll told Cointelegraph.