Virtual Billions: The Genius, the Drug Lord, and the Ivy League Twins behind the Rise of Bitcoin
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Virtual Billions: The Genius, the Drug Lord, and the Ivy League Twins behind the Rise of Bitcoin
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Product Details
| ISBN-13: | 9781633881457 |
|---|---|
| Publisher: | Prometheus Books |
| Publication date: | 04/05/2016 |
| Sold by: | Barnes & Noble |
| Format: | eBook |
| Pages: | 319 |
| File size: | 3 MB |
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Virtual Billions
The Genius, the Drug Lord, and the Ivy League Twins Behind the Rise of Bitcoin
By Eric Geissinger
Prometheus Books
Copyright © 2016 Eric GeissingerAll rights reserved.
ISBN: 978-1-63388-145-7
CHAPTER 1
SATOSHI NAKAMOTO: WHAT HE INVENTED
WHO IS SATOSHI?
Bitcoin's inventor is an enigma named Satoshi Nakamoto. Satoshi might be a reclusive genius quietly living in rustic privacy, or a group of like-minded enthusiasts who cooperatively created Bitcoin, making it the "King James Bible of cryptocurrency." Nobody really knows, and speculation about his (or her or their) secret identity hasn't been fruitful, but it's been fun for the mass media to propose and investigate various alternatives. Here are a few possibilities that have been thrown out (and shot down) in recent years:
New Yorker, 2011. Suspects: Dr. Vili Lehdonvirta and/or cryptologist Michael Clear.
Evidence: Based on mutual association and Michael Clear's experience with cryptology, peer-to-peer networks, and interest in virtual currencies.
Fast Company, 2011. Suspects: Neal King, Vladimir Oksman, and Charles Bry.
Evidence: Based on patent filings and a curious chronology related to registering the bitcoin.org domain name. Forbes, 2013. Suspect: Shinichi Mochizuki, a Japanese mathematician.
Evidence: Based on his unusual publishing habits and evident brilliance. Plus he's Japanese.
Vice, 2013. Suspects: Gavin Andresen or Jed McCaleb.
Evidence: Both highly experienced programmers with vast experience in peer-to-peer networks. Gavin Andresen was Bitcoin project's lead developer for a long period of time; Jed McCaleb produced the Mt. Gox exchange and faded away from it just as Satoshi faded away from Bitcoin.
Newsweek, 2014. Suspect: Dorian Nakamoto.
Evidence: Widely publicized and discredited story about Dorian, an out-of-work engineer in Temple City, California. Dorian Nakamoto, who denies being Satoshi, is currently pondering litigation against Newsweek using a crowd-sourced legal fund.
Digital Gold, 2015, by Nathaniel Popper. Suspect: Nick Szabo.
Evidence: Szabo is an experienced programmer with close ties to a pre-Bitcoin digital currency called Bit gold, and has significant ongoing involvement with Bitcoin development and startups.
Wired, 2015. Suspect: Craig Steven Wright.
Evidence: Wright's 2008 blog included posts about Bitcoin that seem to predate Bitcoin's release. Wired also gained access to leaked documents from business ventures and financial records that point toward Wright being, at the least, Bitcoin's cocreator; however (as Wired admits) all these documents could have been forged.
None of these hypothesized Satoshis have (so far) withstood close scrutiny, and having run through all the obvious possibilities it's now clear Satoshi's real identity won't be known unless Satoshi directly reveals himself. As time passes this is increasingly unlikely.
Satoshi hasn't completely hidden his tracks — plenty of conclusions can be drawn from the evidence he's left behind, and fortunately (for the sake of a good story) Satoshi is probably not a group of people. Language experts, taking Satoshi's written corpus and shoving it through computational linguistic programs, report remarkably consistent results. The writing style of Satoshi's first few posts matches his last few posts and everything in between. Satoshi sometimes indulged in rapid-fire back-and-forth exchanges with correspondents, which would have been difficult or impossible to pull off if a committee was involved in reading and responding to every message. Satoshi writes in a natural style of English; despite his apparently Japanese name there are almost no grammatical errors in his writing and no mistakes of types often produced when native Japanese speakers learn and write English.
A survey of Satoshi's message board time stamps reveals he was almost always silent between the hours of one a.m. and seven a.m. Eastern Standard Time, making it likely that he lived in the United States and wasn't writing because he was sleeping. All this is speculation, of course, but based on hard evidence. More significantly, the majority of Satoshi's writings were produced when Bitcoin was far from a sure thing. In 2009, Bitcoin wasn't thought to have more than a chance in a million of surviving its first year, much less prospering. If Satoshi had purposefully altered his message board time stamps, and assiduously camouflaged his writing, he would have had to have done so from the very start — showing unbelievable prescience and patience.
Satoshi wasn't just Bitcoin's inventor; he was an early and active bitcoin miner and left traces in the public transaction ledger of the powerful machine (or suite of machines) he used to solve Bitcoin's hashing problems. Statistical analysis of Bitcoin mining rewards and a detailed inspection of public data, examining what happened to the bitcoins earned by his machine's mining, reveal that Satoshi was by far the most successful Bitcoin miner the world will ever see. Not only was Satoshi mining when the mining difficulty level was extremely low, he used computers constructed with Bitcoin mining in mind. It's estimated that Satoshi mined over 1.5 million bitcoins and spent around 500,000; of those he spent, most were used as "seed" donations for Bitcoin-related projects, not converted into cash. At least a million bitcoins remain unspent. Why? Satoshi might have lost the e-wallets containing them (unlikely), or grown bored of Bitcoin as a subject (possible), or he's holding on to them hoping for further price increases (probable). Satoshi is worth somewhere north of $250 million, down from a high of at least a billion (when bitcoins traded at $1,200 each), which briefly made him without doubt the most unlikely and anonymous billionaire the world has ever seen.
The Ockham's razor principle suggests giving primacy to explanations unburdened by a host of assumptions and hypothetical. If a shed burns down, it's possible the fire was caused by a cops-vs-robbers shootout, a thwarted alien invasion, or ... an electrical short. Yes, it's humdrum, and it's boring, but it doesn't require many assumptions. The shed had electricity, its wires were old, and something easily could have gone wrong. In this spirit, the extent of Satoshi's misdirection likely began and ended with his name. Satoshi wasn't part of a group so disciplined during Bitcoin's creation and subsequent development that nobody peeped a word about the wonderful prank they pulled on the world. He wasn't a government plant. There isn't a code-related reason the original Bitcoin client required more than one person; in the past, far more complicated programs have been written by a single programmer.
I'm not convinced it really matters if we ever discover the "real Satoshi," somebody we can shake hands with and talk to over coffee and award innovation prizes. What matters most, and the reason anyone's spent a second thinking about Satoshi, is Bitcoin. That Satoshi's creation proved reliable and resilient and found an eager and interested global audience is a testament to his creativity and his programming prowess.
Satoshi walked away from Bitcoin support and development on December 11, 2010, at 11:39:16 p.m. His final message board post was in response to a proposal that WikiLeaks accept Bitcoin, since all other avenues of financial support to the site had been cut off by various irate governments. Satoshi was, to put it bluntly, not interested: "It would have been nice to get this attention in any other context. WikiLeaks has kicked the hornet's nest, and the swarm is headed towards us." It wasn't clear that the Bitcoin network was mature enough, or stable enough, to handle a sudden influx of attention.
Satoshi was worried the United States government might attempt to shut down Bitcoin or conduct a massive search to identify and capture its creator. Satoshi, spooked by sudden celebrity, nervous about the government's far-reaching powers, and unsure about the future, faded away — his record is afterward blank. An army of volunteers took over Bitcoin development, and Satoshi hasn't been heard from again.
What we know about Satoshi comes from the Bitcoin code, the forum messages he posted, and his white paper, outlining how Bitcoin functions. From these hard data we have to extrapolate a living, breathing human being. Yet Satoshi's anonymity doesn't leave us without recourse — many argue that in Bitcoin Satoshi revealed some of the most interesting aspects of his worldview. Before Satoshi could create Bitcoin, he had to grapple with the concept of digital currency — and if such an idea made sense. Once he was convinced a digital currency was theoretically possible, Satoshi had to start the dirty work of coding it, debugging it, distributing it, and publicizing it.
Following Satoshi's lead, this chapter looks at currencies past and present and how they functioned (or failed to function), as well as the peculiar challenges presented by a digital currency, before grappling with the most obvious question of them all: What is Bitcoin?
A CURRENCY CONTRARIAN
Satoshi Nakamoto makes it clear from various forum posts that he had thought deeply about economics and understood how currencies operate and under what conditions they were typically stable and how they occasionally degenerated into instability. He knew of Ludwig von Mises's theories, developed in The Theory of Money and Credit (1912), which attempted to describe the true nature of money and how a currency necessarily arises out of a barter economy.
Satoshi knew the standard theories about how currencies developed and the forms they took and the materials often used in coinage, about the necessity of strong government control and powerful and respected legal institutions and the importance of contract law and everything else that goes along with a modern Western understanding on how economies really work. What's not clear is that Satoshi believed any of it.
In order to understand why so many people rejected the possibility of a digital currency, we first must consider what it means to say something is a "currency," how it might have been invented, and its various attributes (both necessary and discretionary). To illustrate the "traditional," commonsensical, and broadly accepted view of how currencies came into being, I'll run a little thought experiment following Ludwig von Mises's lead. It's a scenario set in a peaceful fictional village, and it goes something like this: In the beginning there were things, and these things mooed or cut well or had to be eaten before they started to go bad, and people living in small communities spent a lot of time running from house to house with a perfectly useful object they wanted to exchange for another perfectly useful object. In this way a sheep breeder eventually traded a sheep for the blacksmith's sharpest axe, and the jeweler gave a pretty little necklace to an expectant mother and was rewarded with two long and warm loaves of newly baked bread. Things went on like this for a while but it sure wasn't convenient. Sometimes nobody wanted a sheep, and the sheep seller wasted a whole day finding out. Sometimes the jeweler worked for a month on an exquisite clasp without finding anyone willing to make an equal trade.
Not everyone had problems moving their goods. In this fictional world, farmers growing long ears of Indian corn always found people willing to take it, since corn was a staple and used by many households. Farmers might not trade their entire wagonload on a given day, but they were sure to move a lot of it. The ease with which they bartered away piles of corn was soon noticed. The sheep breeder, for example, was tired of trying to guess when a family might splurge on meat, or when a wedding reception would involve mounds of charred mutton. One day a sheep breeder had a eureka moment: even if he didn't want corn, he could always trade a sheep to one of the many corn farmers in the area and receive a barrel of corn in return. Since corn was always in demand, he was certain to find people willing to trade for corn. The sheep breeder traded not because he wanted corn but because he desired corn's easily traded capacity. Corn became, in essence, an intermediary; even if the sheep breeder had far more corn than he needed for cooking or for storage, it was extremely useful as a tool for making small trades. You can't trade a sheep for a washcloth, but you can trade a small bowlful of corn.
Corn became more than a simple grain. The sheep breeder soon realized he could trade all his sheep for corn and accumulate a barn stuffed with corn for later use. No longer would he be forced to wander about, hoping to find a relatively prosperous mutton-loving peasant to cut a deal with. In addition, he was able to store the corn and trade it in the winter when other, less far-sighted villagers might be running low or without corn. Corn wasn't just useful — it could increase in value, giving him more real-world goods than if he had let his sheep grow another year. Other people saw what the clever sheep breeder was doing and soon everyone was trading for corn; corn had become not only a tangible thing you could stew and eat, but a form of money. Somebody said, for the first time, "I'll pay for it with corn," instead of "I'll trade corn for it." That was it, and there wasn't any looking back. The slow movement from object to symbol had begun, and it would be a difficult (almost impossible) transition to reverse.
Corn's transformation into currency wasn't smooth nor easy: trouble soon began. The villagers quickly realized corn was far from perfect. It was better than nothing, but not much: Due to corn hoarding and corn hauling and corn selling and corn growing, the villagers soon had corn stuffed everywhere, which the rats and mice greatly appreciated. After half their collective savings disappeared in a single month, corn was traded more frequently, saved less, and eaten far more often.
Corn lacked one of the four so-called necessary prerequisites of any self-respecting currency: durability. Left alone, corn dried out or rotted or was eaten by bugs. Something bad always happened.
The villagers struggled, but continued to use corn as a currency until a passing troubadour suffered a heart attack in the town square and died. He was buried and his clothing and possessions were taken up and divided among the villagers and everyone realized the troubadour was much more than he seemed. Hidden in his clothing was a vast array of silver coins, each one small and shining and perfect. There were, in total, five thousand, and when distributed each family got a gleaming handful. The next day somebody gave away a silver coin in return for a small bowl of porridge — because the porridge cooker liked the look of silver so much. The next day two silver coins were traded for a tough old chicken, only good for boiling. And so it went. Silver coins slowly became valuable; people enjoyed holding them and looking at them and passing them greedily through their hands late at night. Thus was born a currency based on silver, and silver had a useful characteristic that had so fatally undermined corn: durability.
Silver was fungible (meaning, one silver coin was like all the rest). You could even divide a silver coin, chop it into little bits, and have the blacksmith melt and repour a complete coin at a later date (he constructed a mold and was happy to do it for a mug of beer). The value of the silver currency didn't fluctuate according to the amount of silver discovered or coming into or leaving the village — demand was all that mattered — and the currency was worth exactly what people were willing to give for it. Sometimes a silver coin was worth ten chickens. Other times it was worth eight. When people starting hoarding silver, a single coin bought fifty chickens. When the coins were passed around like soiled baseball cards, one chicken would suffice. Thus was born a modern commodity-based currency, growing organically out of the economic activity of a village of savvy peasants.
That's it — the evolution of currency from a useful thing to something with symbolic value. It's a nice tale (for everyone except the troubadour), and economists around the world generally accept this theory of currency development as not only canonical but as defining what it means to be a currency in the first place. Currency begins with innate value. If you can eat it, like corn, or it's pretty and fairly useful, like silver in the hands of the jeweler, it has a shot at becoming more than something you trade with.
If you attempt to start a currency with something lacking innate value, this type of natural development (collect/hoard/trade) fails. Progress can't be made. Imagine hoarding deciduous leaves with an eye to trading them later in the year, hoping to get others to go along with your leaf-based currency scheme. You can be sure that in a week or a month nobody will give you anything, not even a tough half-starved chicken, for a leaf or a pile of leaves. Objection to a proposed trade: What am I supposed to do with a pile of leaves? Answer: Trade them to someone else for something you want. Objection to the answer: You mean I have to find somebody else as foolish as I've been? That's where it would end.
(Continues...)
Excerpted from Virtual Billions by Eric Geissinger. Copyright © 2016 Eric Geissinger. Excerpted by permission of Prometheus Books.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Table of Contents
Contents
Introduction: Spending Symbols and Buying Potatoes, 9,Chapter 1: Satoshi Nakamoto: What He Invented, 21,
Chapter 2: Satoshi Nakamoto: How Bitcoin Works, 41,
Chapter 3: Satoshi Nakamoto: A Rocket-Powered Launch, 79,
Chapter 4: Ross Ulbricht: Into the Dark, 121,
Chapter 5: Ross Ulbricht: The Rise and Fall of Silk Road, 157,
Chapter 6: The Winklevoss Twins: Born on Third Base, Hit a Double, 207,
Chapter 7: The Winklevoss Twins: The Fog of Success, 231,
Conclusion: Incremental Progress, 271,
Acknowledgments, 277,
Notes, 279,
Index, 315,