Bitcoin, Satoshi’s first email and the change in monetary theory
Bitcoin is software, collaboration, communication and computing via cryptography.
Bitcoin, or at least its birth certificate, turned 15 last Halloween. What is its impact in practice? We’ll tackle this topic in today’s article.
Satoshi Nakamoto’s first email
In 2008, on Halloween, on a cryptography discussion mailing list called Cryptography Mailing List, an anonymous participant, using the pseudonym Satoshi Nakamoto, announced the publication of an article and said:
“I have been working on a new electronic cash system that is entirely peer-to-peer, without a trusted third party validator”.
And so it was that Satoshi announced that he had solved one of the biggest problems in computer science — double spending — through a “direct” electronic money system, between people, point-to-point.
It was by email that the greatest masterpiece of monetary engineering was presented to the world, entitled “Bitcoin: A Peer-to-Peer Cash System”.
Anyone who wants to read the entire content of bitcoin’s birth certificate can download the Bitcoin White Paper, which is available in several languages, including Portuguese, on the Bitcoin.org website.
In its nine pages, Satoshi Nakamoto describes in detail what Bitcoin is, what it can become and how it works.
And the interesting thing is: you won’t find the word “blockchain” written in Satoshi’s paper. That’s because blockchain is what the “market” has decided to call the technology that makes crypto-asset transactions possible.
Curiosities aside, he, she, or the creators of Bitcoin…
Why does knowing who Satoshi Nakamoto is not matter?
Nobody has any idea who Satoshi Nakamoto is, or was; whether Satoshi is alive or not.
We can only say that Satoshi Nakamoto, regardless of his identity, had knowledge of computer science, cryptography, economics, politics and law, open source software, mathematical principles, game theory and monetary theory, and the security of physical and digital assets.
In fact, it doesn’t matter who Satoshi Nakamoto is, because he doesn’t control the Bitcoin network, and because he was smart enough and humble enough to recognize that his creation transcended his existence and would impact the relationship between citizens and governments, between governments and companies, as well as all industries and the various forms of power, bringing about a Change of Era.
Who were the recipients of Satoshi’s first email?
The people on that list in Satoshi’s e-mail, who were invited to participate in the administration of the Bitcoin network, were the cypherpunks. Who?
In the 1980s, Dr. David Chaum wrote extensively on topics such as anonymous digital money and pseudonymous reputation systems, which he described in his article “Security without Identification: Transaction Systems to Make Big Brother Obsolete”.
Over the next few years, these ideas merged into a movement. At the end of 1992, Eric Hughes, Timothy C May and John Gilmore founded a small group that met monthly at Gilmore’s company Cygnus Solutions in the San Francisco Bay Area.
The group was humorously named “cypherpunks” as a derivation of “cipher” and “cyberpunk”. The Cypherpunks mailing list was formed around the same time and, just a few months later, Eric Hughes published “A Cypherpunk’s Manifesto”.
Well, by publishing the first explanations of the Bitcoin “software”, Satoshi gives us the first hint of how Bitcoin works.
What is Bitcoin?
Bitcoin is software, Bitcoin is an application, among other things.
Anyone can download the software that “runs” the Bitcoin network, run it on their computer, be it a laptop or a desktop. Preferably on a computer that is permanently connected to the internet.
When Bitcoin began operating in 2009, the software was very lightweight — quite different from the mining farms we see today. But regardless of the computing power currently required, if you run this computer program on the Internet, it will connect to other people who are also running this program, even though you don’t know who these people are.
Bitcoin’s software doesn’t choose hardware, people or location.
It creates a random network, which we call a peer-to-peer (P2P) network, where all the participants in the system are equal.
There is no central or special computer that coordinates the Bitcoin software. The computers running the software are just talking to each other and creating a network.
Then, the software “randomly” connects to several other computers running the Bitcoin software and together they create a network, and this network is used to exchange and propagate transactions. These transactions are encoded in digital form, and contain information about the transfer of value and the authorization to transfer value between the participants in the bitcoin network.
Nobody controls this network, and this is an important concept:
Nobody controls the bitcoin network.
If you run one of these computers, you don’t control this network. You just run software through your computer that connects to other computers on the bitcoin network.
Whoever runs the Bitcoin software only connects to the other computers that are running the Bitcoin software, but nobody is in control. Nobody is in charge, just like when you run a computer that connects to the Internet and communicates with other computers on the Internet.
Collaboration, communication and computing via cryptography
The bitcoin software started working on January 3, 2009, and on that day, for the first time, a system was completely independent of a central authority and is completely independent of institutions. And this has an impact on the history of money, the history of trust, the history of institutions and corporations.
For the first time in human history, a system develops “trust” relationships as a result of collaboration, communication and computing through cryptography.
This system allows people to exchange value to transmit money and this money is called bitcoin.
So Bitcoin is an application, a piece of software that you run on your computer and that communicates with all the other computers running the Bitcoin software.
Bitcoin is the name of the network that runs Bitcoin, which is the collection of all these computers, around eleven thousand around the world, and anywhere there is internet.
And it’s all an infrastructure, which is used to create and transmit “value” in the form of transactions represented in a new asset —" bitcoin".
Bitcoin “money”?
Bitcoin “currency” is unlike any other form of “money” we’ve seen before. Oh, you can’t buy a cup of coffee with bitcoin? Perhaps you haven’t heard of the Lightning Network and the second layer solutions to solve the scalability of the bitcoin blockchain that are in full development.
Technology is not static, and just as the internet was slow in its early days and went down when your home phone rang, the infrastructure around bitcoin is also booming. And what may be true today may no longer be true tomorrow.
So, starting from the assumption that bitcoin is an asset that could become “currency” one day…
Bitcoin is “money” that doesn’t exist in physical form, and can be transacted globally, from anywhere in the world, by anyone, even without a bank account.
Here, it’s important to point out that for a long time now, most assets have been an abstract form of value that doesn’t represent value itself. And this is an interesting concept.
Money is not a valuable thing “in itself”. Money is something you exchange for something valuable.
Think of bananas. They are not good “money”, because bananas are the value you are trying to obtain; whereas money is something that has no intrinsic value, no value in itself, but which you exchange for bananas.
Money is simply a symbol and abstraction that represents something that can be carried, that I can give to someone tomorrow and that will probably be accepted in exchange for bananas.
This future promise of value is the essence of money, which is the ability to be an “abstract token” that is immutable, eternal, retains its value and represents the exchange of value in the future as a promise.
Note that, over time, these abstract things with no intrinsic value have become less and less physical and more and more abstract.
Bitcoin doesn’t exist in the physical world, but it impacts monetary theory
If you, at the dawn of civilization, said to someone: “Look, I’m not going to give you bananas for the work you’ve done, I’m going to give you a shiny gold coin. But don’t worry, because you can use it to get bananas.”
The answer you’d probably get is: “I’ve always had bananas in exchange for my work, and I think I’d like to eat bananas, not that yellow stuff.”
Two and a half thousand years later, who doesn’t think that this “yellow thing” is just as valuable, if not more valuable, than a banana!
Imagine that you now say: “I’ll give you a piece of paper instead of the yellow thing, but don’t worry, you can still convert it into bananas.”
Most people will probably say: “I don’t think that piece of paper is real money. I want the yellow thing”.
And some time later, you change your mind and say: “You know what? You’re not going to get the piece of paper either. We’re not going to give you a piece of paper for your work. Now, you’re going to look at the numbers, available on a web page, which represent the amount you have in the bank.
But don’t worry, you can still use it to buy food, products and services. And it really is money. You can’t touch it, you can’t have it physically, because it will just be a number.”
Bitcoin has no physical form. Bitcoin is totally intangible, and cannot be touched.
Bitcoin is simply a digital form of “money” totally different from anything we’ve seen so far.
Bitcoin is different from fiat currency and from a stock
Bitcoin is not an asset that is recorded in a database or in a company’s records.
It is not a digital form of “money” that represents a debt to a central bank or government. It is not an asset issued by a sovereign government, a central bank, a nation, or a king.
It is an asset issued through the execution of computer software on the internet, validated and recorded simultaneously and independently by each computer participating in the Bitcoin network.
As there is no centralized issuer, and all transactions are recorded on the network, bitcoin cannot be counterfeited, censored, seized or frozen.
It can be transmitted to and from anywhere in the world as information. It can be independently verified by anyone.
And it is not controlled by anyone. Its value is not controlled, its issuance is not controlled by anyone, its ownership is not controlled.
It is transmitted directly from one person to another “without intermediaries”.
If I use my cell phone to make a payment in bitcoin to someone, I am creating a digital transaction, and it is the computers participating in the bitcoin network that will verify that I own a certain number of Bitcoins and am able to transfer them to that someone, by proving my digital signature.
With my digital signature, I authorize the transfer of a certain amount of bitcoins to someone else, who can then control that amount of bitcoin received, by means of their own digital signature, by means of their own private cryptographic key.
But don’t worry, you don’t need to understand how digital signatures or private keys work to transact bitcoins.
When you use Bitcoin, you see an application
When you trade Bitcoins, you see an app on your cell phone or desktop. This app tells you that you have three Bitcoin, and allows you to enter a recipient’s address (a number like an e-mail address).
This same app allows you to select the amount of Bitcoin you want to transact, and when you click send in the app, it uses the digital signature and private key that is embedded in your device to create and sign a transaction.
This transaction will be announced to the entire Bitcoin network, which will know: “A has transferred an amount X in bitcoins to B”. And then the entire bitcoin network will know that this amount X belongs to someone else.
Bitcoin is neutral
The bitcoin network does not know who sent bitcoins to whom. When you make a Bitcoin transaction, it is not related or attached to identity
You don’t need to create an account on the bitcoin network. You don’t need to register, you don’t need to provide identity, name, location, address, age, gender, race, religion, nationality. You don’t even have to be a person to send bitcoins to someone.
Bitcoin allows, for the first time in history, non-human entities to actively control a value and own value.
I agree that this may seem strange, because we’ve never had this in any legal system in the world. There is the legal fiction of legal entities and corporations that can own assets, but legal entities can only exist as associations and corporations formed by living human beings.
In Bitcoin, a software agent that belongs to no one, through the use of cryptography, owns and trades in Bitcoin internationally. At least in the material, non-legal field.
And this creates some very interesting and also very disturbing possibilities. Imagine artificial intelligence systems owning and controlling money, with no “human being” involved.
You can have companies that have no directors, no human being in control that is totally controlled by software.
But on with our topic…
What do you need to get your hands on?
What does it take to acquire bitcoins and start trading? Just be able to download an app!
And note, this is something totally different from any money system we’ve ever had.
For the Internet generation, this is a very familiar concept. When you open a browser and start using the internet, you don’t need to register or get a license to surf the web. You don’t need to create an account to visit Wikipedia, or to do a Google search.
The only requirement to acquire and start trading bitcoins is that you be able to download, install and operate a web browser.
As soon as the Internet appeared, the idea of allowing every human being to communicate without borders, or without censorship on the World Wide Web was terrifying to people. For some people, it is still terrifying. Younger generations find it liberating in a global sense. And Bitcoin does that with money!
What happens when any human being on the planet, by the simple act of downloading and installing an app, can become a member of a global economy without borders, which has enabled people to transmit and receive money at will, anywhere in the world, 24 hours a day, uninterruptedly, for the last twelve years.
With fees that don’t depend on the amount of money you’re sending, but paid simply for the capacity you use on the network.
How much you pay to trade bitcoins
You can send a billion-dollar transaction in Bitcoin for less than 5 dollars, and the global average cost for an international transaction is around 200 dollars, according to the World Bank.
It is important to note that no matter how much you send in Bitcoins, the value of the transaction does not influence the price of the sending fee. It also doesn’t matter how far away you are, whether you’re sending bitcoins from a neighboring city, another country or another continent.
It also doesn’t matter whether the person sending bitcoins or the person receiving them is an individual or a company. It doesn’t matter if you’re sending them to someone who is rich or poor.
So Bitcoin completely changes monetary theory and finance. And this is just the tip of the iceberg, because blockchain, the technology that makes Bitcoin possible and enables value transactions without intermediaries, securely and from anywhere on the planet, opens up a whole range of applications as yet unimagined.
Bitcoin is not just “money” for the internet, but the “trust” revolution.
