An evaluation of the document published by Satoshi Nakamoto on 31 October 2008 that „set a financial revolution in motion“.
Has it really only been twelve years since 31 October 2008, the day Satoshi Nakamoto published a modest nine-page document describing a new online payment system called „Bitcoin“? Depending on one’s point of view, that pseudonymous white paper (whose author, or authors, remains unknown) has triggered a fintech revolution or, as some believe, „the biggest scam in history“.
To celebrate the anniversary of the publication of „Bitcoin: A Peer-to-Peer Electronic Cash System,“ Cointelegraph invited several experts to comment on its author’s enduring vision. Would Satoshi Nakamoto be happy with how Bitcoin and blockchain technology have developed and evolved over the past 12 years?
James Angel, associate professor at Georgetown University’s McDonough School of Business, explained to Cointelegraph:
„He set in motion a financial revolution with the advent of DeFi apps, smart contracts and token offerings, as well as a payment revolution that is leading to Central Bank Digital Currency“.
Gina Pieters, Professor in the Faculty of Economics at the University of Chicago, commented:
„She would be happy to see the evolution and new applications of her vision.“
The influence of Bitcoin’s white paper (BTC) goes far beyond finance, according to Garrick Hileman, director of research at Blockchain.com:
„Its impact deserves the same consideration as other major technological innovations, such as the personal computer and the Internet.“
Satoshi’s vision was for a P2P digital money system, or decentralised, as indicated in the title of the white paper. The problem with digital commerce was to rely solely on „financial institutions as trusted third parties to process electronic payments,“ Satoshi wrote. This mechanism had inherent weaknesses. Transactions could be reversed, banks had to mediate disputes, and transaction costs were high. Satoshi’s solution is described in the second paragraph of the introduction to the white paper:
„We need an electronic payment system based on cryptographic evidence rather than trust, allowing any two counterparties to negotiate directly with each other without the need for a third party of trust.“
In the 12 years since the publication of the paper, the need for P2P transactions, without third parties interfering, has become a deep conviction among Bitcoin enthusiasts. On reflection, however, can we say that this aspect of Satoshi’s vision has been realised? David Yermack, professor of finance at Leonard N. Stern School of Business at the University of New York, explained to Cointelegraph:
„I think the biggest source of disappointment for Nakamoto is the increasing centralisation of blockchain governance in entities such as mining pools and even central banks, which are preparing to launch their own cryptocurrencies. Nakamoto’s mission was to challenge the hegemony of these institutions, and paradoxically it seems that the major digital currency issuers will be the central banks themselves.
Angel commented: „Satoshi would be stunned by the concentrated mining pool policies that currently dominate Bitcoin’s protocol. Instead, Pieters added that Satoshi would be disappointed that „Bitcoin’s main transactions do not take place through peer-to-peer exchanges, but are handled by centralised companies or exchanges.
The issue of fraud in digital transactions has always hovered over the industry, and Bitcoin Sunrise white paper has proposed a way to solve the long-standing problem of „double spending,“ where criminals spend the same money twice, which is not very complicated with e-currencies. The solution included a „distributed peer-to-peer time stamp server to generate computational evidence of the chronological order of transactions. In this way, Satoshi explained, „computationally impractical transactions to reverse would protect sellers from fraud.
Solving the problem of double spending is considered one of Satoshi’s greatest achievements today. Bitcoin’s blockchain has never been hacked (though the same cannot be said for the many crypto exchanges on which BTC trades). Nevertheless, the fraud associated with digital payments has not been expelled from the system. Would this have shocked Bitcoin’s founder?
Angel argues that Satoshi „would have been disappointed to discover that Bitcoin has not become a means of payment for everyday expenses but rather a store of value for fearful rich people and tax evaders. Moreover, Satoshi would „disapprove of the increase in inequality created by Bitcoin’s history, with a few early adopters becoming whales and the remaining 99.99999% of the population as no-goods“. However, we can assume that the creator of Bitcoin, whether man, woman or group, would have been amazed at the scale of the adoption of BTC, as Yermack pointed out:
„Nakamoto would be amazed by the growth of blockchain projects and the thousands of digital coins and tokens that have been created in Bitcoin’s image. A striking testimony to this is that in 2010 Nakamoto set the size of the blocks on the Bitcoin blockchain at 1MB, commenting mysteriously that ‚we can always increase it later when necessary‘.“
He had no idea that the blockchain would become overloaded within the next five or six years, Yermack continued, „and that a controversial debate, still unresolved, would erupt among several Bitcoin supporters on how best to further expand the blockchain’s capacity“.
Over the past 12 years, much of Satoshi’s original software code has been altered or replaced, Hileman added, but Bitcoin has nevertheless retained its core qualities, including „the limited offer of 21 million coins, open access, and resistance to censoring/manipulation. I believe Satoshi would be pleased with the software optimizations and improvements underway for these important core features that continue to this day.
Although the white paper talks a lot about transaction fees, CPU power, network nodes, proof-of-work chains and even the Gambler’s Ruin problem, it doesn’t dwell on the world in general, including the environment. Angel argues that Satoshi would be shocked by the environmental damage caused by Bitcoin’s mining competition, he adds:
„At the current hash rate and mining efficiency, Bitcoin mining is consuming about seven gigawatts of electricity, the equivalent of seven Chernobyl power plants.“
Although little is known about Satoshi’s political ideas, his creation in the form of the first blockchain crypto would also be disturbed by the idea of the Central Bank Digital Currency, and in some cases „these currencies are designed to allow oppressive governments to implement even greater surveillance and control over populations,“ Angel added.
Focusing on the white paper, Franklin Noll, monetary historian and president of Noll Historical Consulting, explained to Cointelegraph:
„His goal was to enable rapid, anonymous, low-cost, unmediated and irreversible transactions. So far, Bitcoin’s transactions, and many other blockchain transactions, have not proved to be particularly fast, anonymous or low-cost“.
„I think Satoshi would like to see more use of non-custodial wallets to store and exchange Bitcoins,“ commented Hileman, explaining how custodian companies that handle private cryptographic keys on behalf of Bitcoin owners „resemble traditional banks. He also believes that „Satoshi was not a fan of third-party financial intermediaries.
After just over a decade, what is the significance of Satoshi Nakamoto’s white paper? In the finance industry, „he has encouraged financial companies and central banks to prioritise the evaluation of their technologies, considering both increased digitisation and ongoing digital platforms,“ said Pieters, continuing:
„In some cases, such as new CBDC research, this has led to explorations of new systems, although they do not directly involve the adoption of blockchain technology.“
„Bitcoin and blockchain have radically changed the monetary world,“ added Noll. „Terms such as proof-of-work, distributed register technology, decentralized finance, programmable money and smart contract are now part of the lexicon of anyone who is seriously interested in the future of money and finance.
„Moreover, we are only just beginning to understand the potential impact of blockchain technology in areas outside finance, such as digital identity, addressing false news and election fraud.“
„Nakamoto’s publication of the document in 2008 was a major breakthrough in financial reporting,“ explained NYU’s Yermack. „We are only beginning to understand its ramifications, but they seem to be extensive.“
The reader will not find the word „revolution“ in Satoshi’s document. Nowhere is there any talk of subverting the economic order or bridging the gap between rich and poor. It is an unpretentious treatise on electronic payments, which explains how to create a system in which they work effectively.
On his terms, Satoshi has achieved enormous success. He has promised a functional P2P digital payment system, and has kept his word. Bitcoin’s market value is $255 billion 12 years after the idea was launched.
Whether Bitcoin is also harming the environment, helping money launderers or supporting political regimes is beyond its remit. We can say that economic decentralisation continues to present governance challenges. How much „peer-to-peer“ does society really want? The global community will have to decide.
Twelve years after the publication of „Bitcoin: A Peer-to-Peer Electronic Cash System,“ we must remember that „as they say, revolutions do not always go as planned by the founders,“ Noll explained to Cointelegraph.