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Bitcoin: De-Crypted

by Mare M. 10 months ago in bitcoin
Second Place in The Mystery of Bitcoin ChallengeSecond Place in The Mystery of Bitcoin Challenge

A simplification of the history and origin of Bitcoin

Bitcoin: De-Crypted
Photo by Dmitry Demidko on Unsplash

Today I'm here to talk to you about Bitcoin (BTC).

Where did it come from? Who created it? How? Why?

The best place to start is with a term you've probably heard before, even if you may not have understood it.

Blockchain.

To simplify the blockchain as much as possible, let's use an easy analogy: a bank ledger.

Back in the good old days—as in the days before the internet—people kept track of their banking transactions in little books called ledgers. They would record all of their purchases and deposits, enabling them to always know what their balance was at any given time.

Blockchain is essentially a bank ledger for Bitcoin, just on a much grander scale. It’s a complete recording of every single transaction ever made by anyone using Bitcoin.

The blockchain is maintained by workers referred to as miners. Going back to our bank ledger analogy, this would make them the auditors.

When you make a transaction in BTC, it goes to miners for verification of validity. Once this verification occurs, it's the miner’s job to publicly record it on the blockchain. Miners are then rewarded in the form of newly created Bitcoins.

The idea behind using miners to verify transactions is to ensure fraud doesn’t occur. When you use cash, you give someone 10$ and the cash is gone. With digital currency it’s obviously a little different as there is nothing tangible to spend. This verification system prevents people from doing what is referred to as double-spending—or spending the same Bitcoin multiple times.

The quantity of Bitcoin able to be mined - or kept in circulation, if you will - is capped through the software at 21 million, which means inflation can never occur. Because of other stipulations that regulate the number of coins mined, this is unlikely to happen until somewhere around the year 2140.

(Obviously we could get into a lot more detail in regards to mining, but for the purposes of this article we don’t need to get that technical.)

So, now that you have a basic understanding of the blockchain…let’s move on to Bitcoin itself.

The cryptocurrency Bitcoin was created by Satoshi Nakamoto, whose identity still remains anonymous.

What is known, is that on August 18th, 2008, someone registered the domain name bitcoin.org. Not long after this, in October of the same year, a link to a whitepaper - which is essentially an in-depth guide detailing a problem and a potential solution - was published under the name Satoshi Nakamoto. This paper used the word Bitcoin to describe a “Peer-to-Peer Electronic Cash System”.

In January 2009, Bitcoin’s “open-source” code was released on-line. This is where it gets a little bit more technical, but stay with me, as this is important.

By Markus Spiske on Unsplash

The term open-source means the software being used is not owned by any specific individual or company. It works as a collaborative effort, which - as we discussed above when we used the bank book example - is shared freely and with complete transparency.

In other words, it is decentralized. It takes away the risk that the party in the middle—the centralized issuer (such as a bank)—may fail to uphold their end of the bargain in a transaction.

Satoshi Nakamoto used this open-source code (software), and mined the first 50 Bitcoins, creating Block 0 in the “ledger”. This block is officially known as the genesis block.

The software was then downloaded by a man named Hal Finney, who received 10 Bitcoin from Nakamoto in the first transaction ever completed. It is estimated that while active Nakamoto mined over 1 million BTC. Then, sometime in late 2010, whoever was using the pseudonym Satoshi Nakamoto began to fade into the background, eventually disappearing altogether. The last known contact from the creator was in January 2011, suggesting he’d “moved on” from Bitcoin.

At one point, a Swiss coder took the initiative to try and use the time-stamps of Nakamoto’s posts to pin down where the inventor was geographically located. This led to the theory that Nakamoto lived in an area that used Eastern Standard Time (EST). Someone else noted that Nakamoto's posts used the British method of spelling; also, one of the headlines he’d encrypted in the genesis block was from a British newspaper. (This particular headline alluded to a coming bail-out of banks by the British government - more on that in a minute.)

Investigations to discover the true identity of Satoshi Nakamoto have been undertaken by many, including by The New York Times and the Fast Company. The Times came up with two potential candidates, whereas the Fast Company found what they believed to be evidence in the form of a patent. This patent was created by three inventors and put forward three days before the domain bitcoin.org was registered, including similar ideas to those presented in the mysterious whitepaper.

All of these people have denied being the mysterious Satoshi Nakamoto, as have others since considered—including Elon Musk.

One man in particular, an Australian computer scientist by the name of Dr. Craig S. Wright, did attempt to claim the identity of Nakamoto. This is widely believed to be an elaborate hoax; Wright’s resume includes a doctorate from an unstated institution, and a PhD from a university that subsequently went public claiming he was only awarded two masters.

As of today there is no solid evidence indicating who Satoshi Nakamoto might really be, though wild conspiracy theories suggest the likes of:

  • the US Government
  • the Chinese Communist Party
  • the Devil himself (seriously)
  • AI from the future

While I don't believe any of these theories to be valid, it's interesting to see the possibilities others have considered - however outlandish they might be.

So, without further ado, let’s get into what I feel are the most probable theories.

WHO:

By Tarik Haiga on Unsplash

Purely looking at it from a skill point of view, Nakamoto must be either a collaborative effort or an individual with truly incredible abilities in both economics and computer programming. I lean towards a team, simply because of the sheer complexity of the coding used.

Looking at where Nakamoto came from geographically, I believe the Swiss coder was on to something...

There was once a post that went around the internet stating,

“a jealous girlfriend does better research than the FBI”

Gentlemen, I hate to break it to you but it’s true—and all jealous girlfriends know to check the time-stamps on their partner’s internet posts.

The posting data compiled indicates Satoshi Nakamoto was least active between 06:00 - 1300 UTC, and most active between 16:00 UTC - 23:00 UTC.

UTC - 5 hours is the equivalent of Eastern Standard Time (EST), and PT + 8 hours gives you Pacific Time (PT).

By Vince Veras on Unsplash

EST: Least active 1am - 8am. Peak from 11am - 6pm

PT: Least active from 10pm - 5am. Peak from 8am - 3pm.

Taking timing into account, it makes sense that Nakamoto lived on either the West or East Coast of the USA/Canada.

Now, let’s address the fact Nakamoto posted using “British” spelling. One of the examples given was the word colour. Americans spell it color, and while it's true the Brit’s use colour, there is another country that does as well—Canada.

Therefore, I conclude that whether Nakamoto was one person or a team, at least someone involved was Canadian.

HOW:

One of the biggest questions out there is how it’s been possible for the creator of Bitcoin to remain unknown.

There are plenty of reasons why Nakamoto would want to remain anonymous, including the obvious one—to avoid any potential legal ramifications. It’s no secret governments don’t take kindly to competition, and more than one individual has been charged with a criminal offence for attempting to create a competitive currency.

Another significant reason for anonymity is that for Bitcoin to succeed it cannot be seen as having a leader pushing its agenda.

A prime example of this is Charlie Lee, the creator of Litecoin (LTC). Lee found whenever he spoke publicly about LTC he was accused of manipulating the price for personal profit, and in the end decided to sell all of his holdings.

Having a leader creates the impression of personal biases, which belies the entire sentiment behind Bitcoin and other cryptocurrencies. Without a leader there can be more allowance for objective assessments of BTC, in regards to both value and the constantly evolving technology used.

The how of the inventor remaining anonymous is a little more obscure…

The alias Satoshi Nakamoto first appeared online in 2008, never prior. To me this indicates the pseudonym was created specifically for the development of a decentralized currency.

A secret isn’t a secret if someone else knows, and somehow, Satoshi has managed to keep this secret for well over a decade.

WHY:

The entire basis behind the creation of Bitcoin was to remove the middle-man - or centralized issuers, such as banks - taking away one of the largest elements of distrust in the current fiat system.

A perfect example of this loss of trust in the banking system was what happened in 2008. During the early 2000’s banks bought up a bunch of mortgages, correctly assuming they would make money off high-interest payments. They figured even if some of those people would have to default, they’d still make money from the rise of value in real estate.

By Joshua Hoehne on Unsplash

Financial institutions bundled large amounts of these mortgages together and sold shares of them to investors as something called a “mortgage-backed security”. Investor demand for these became so high banks decided to create more mortgages—and they did this by giving them to people with low credit ratings, who ordinarily wouldn't have qualified. They deemed this to be a safe venture as real estate prices were still on the rise; if someone was forced to default, the bank would get their house. They could then turn around and sell it for more than what was owed on the mortgage.

Win, win, right?

Then, some banks decided to use an even more aggressive tactic: they would initially give mortgages out with low-interest rates, then jack up the rates until the homeowner could no longer afford their payments. At this point, when the homeowner was forced to default, the bank would then sell their house at its increased value. Housing prices rose, becoming unaffordable, and homelessness increased—all so banks and investors could get richer.

Then it all came crashing down.

By Sigmund on Unsplash

People couldn’t afford to buy homes, and as demand came down so did property values. Banks started losing money, and further down the line so did investors.

But whose money was it the banks were losing?

Well...it was yours.

The money you put into banks isn’t just held there—it's used by the bank to gain more financial return through other investments.

The solution?

The Federal Reserve. The economy needs spending to keep it going, and to spend money people need to be able to access it. They don’t want to be told it’s not where they left it, safe and sound in their bank account.

So, the government and the reserve bailed out the banks, gave them a slap on the wrist, and put a law into effect to prevent them from using the same tactics in the future.

Despite this law, some analysts say banks still haven’t learned their lesson. Google something called a CLO and you’ll find out that a lot of banks are still playing the same game, only with small businesses instead of mortgages.

During a time when small-businesses are being snowballed out of business due to a pandemic, is that really where you want your money going?

Enter Bitcoin.

Satoshi Nakamoto wanted to create a system where this wasn’t possible. A system where people weren't required to trust that whoever they were giving their money to would safely hold it, and then return it to them at any given time.

By Hello I'm Nik 🎞 on Unsplash

After all, how many times have you tried to use your debit or credit card only to find it wouldn’t work?

Maybe it’s because your bank was having maintenance issues.

Maybe it’s because a merchant’s records were hacked and suddenly your card details were no longer safe from fraud, so the bank stopped your card as a “safety” mechanism.

I don’t know about you, but both of those things have happened to me, more than once. And the fact the bank was trying to help me “be safe”, didn’t help me pay for my hotel when I was on an overseas business trip.

CONCLUSION:

Satoshi Nakamoto’s goal of creating a “Peer-to-Peer Electronic Cash System” has become a reality. While a lot is unknown about the origins of Bitcoin there is no denying that for the foreseeable future the currency is here to stay.

Though the market remains volatile, with Bitcoin recently hitting another record high, interest in cryptocurrencies is growing. The crypto-platform Voyager announced at the end of December 2020 that their Assets Under Management totalled USD$230 million. By January 11th, it had risen to USD$350 million, and on January 15th they crossed the USD$500 line.

The first Bitcoin purchase on record was in the year 2010, for two pizzas which cost the purchaser 10,000 BTC. At the time of writing this, ten thousand BTC would be worth $340,930,000 USD.

Today BTC is being used to purchase everything from gas to real estate, and is even accepted by well-known companies such as Microsoft and Expedia.

We may never know who Satoshi Nakamoto is, but we can thank the inventor for creating an entirely new system of finance that is free of inflation, openly transparent, easy to use world-wide, and lacking any sort of political influence.

bitcoin

Mare M.

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