Bitcoin Page 13

  It’s worth stressing that Bitcoin’s original release was 14,500 lines of, as described to me, ‘messy greenfield C++ code’. It’s not a trivial amount of code – but it’s achievable in this ten-month period. Perhaps it didn’t take as long as the 18 months Satoshi said it did.

  There was another bit of unusual timing.

  Just three days before Satoshi mined the first ever bitcoins and announced his creation, Szabo was on his site revising his 2005 and 2008 posts about bit gold. I managed to find the originals156 in an old archive and compared it to the tidied-up versions. Only typos were modified. Why would he suddenly make those modifications then? Why would you go back and edit that particular three-year-old blog entry?

  I did find another example of a modified post.157 The post was from November 2005, but it was modified in August 2008 – at the same time bitcoin.org was registered. The subject of the post was private and abstract money.

  Then, a week after bitcoin.org was registered, Szabo wrote on his blog:

  The unforgeable costliness pattern includes the following basic steps:

  (1) find or create a class of objects that is highly improbable, takes much effort to make, or both, and such that the measure of their costliness can be verified by other parties.

  (2) use the objects to enable a protocol or institution to cross trust boundaries

  There are some problems involved with implementing unforgeable costliness on a computer. If such problems can be overcome, we can achieve bit gold. This would be the first online currency based on highly distributed trust and unforgeable costliness rather than trust in a single entity and traditional accounting controls. 158

  Again, the similarities are uncanny.

  Between October 2008 and April 2009, the period when Bitcoin was first released into the open-source community, Szabo’s blog ceased to be updated. There were only ‘re-runs’ as Szabo called them.

  What was he doing that was taking up his time?

  The breach of trust that inspired Bitcoin

  ‘The root problem with conventional currency is all the trust that’s required to make it work’,159 said Satoshi when he announced Bitcoin to the P2P foundation.

  On his blog Nick Szabo wrote, ‘The problem, in a nutshell, is that our money currently depends on trust in a third party for its value.’160

  He continued, ‘all money mankind has ever used has been insecure in one way or another. This insecurity has been manifested in a wide variety of ways, from counterfeiting to theft, but the most pernicious of which has probably been inflation…Bit gold may provide us with a money of unprecedented security from these dangers.’161 Satoshi echoed him: ‘The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts…With e-currency based on cryptographic proof, without the need to trust a third party middleman, money can be secure.’162

  In his younger days on the Cypherpunks mailing list, Szabo was outspoken and strongly libertarian. He used to attend libertarian meetings in the early 1990s. On his website he has a link to famous Ronald Reagan quotes. He seemed to soften a little with age, but from 2007 he began to grow vocal again. He wrote a piece, entitled ‘Ten ways to make a political difference’.163 Most importantly, ‘Be prepared to vote with your feet,’ he suggested. ‘Add interstate and international diversity to your personal and business networks’ so that if you want to move somewhere else, ‘the exit costs will be low…Grow interpolitical roots so that no single polity can chop down your tree’.

  He argued that you should serve on a jury to influence the law in action. He recommended making your own laws – ‘draft your own contracts, wills prenuptial agreements, and property deeds’ and then added, ‘You will need to learn the real law they don’t teach in public schools.’

  This is all strongly libertarian and self-reliant. But the key point was that he was thinking of ways to take practical action.

  His tenth bit of advice made me laugh:

  10. Vote for and against politicians, but don’t be fooled – of all these ten ways to make a political difference, voting in a political election makes the least difference.

  Of particular relevance was his fifth recommendation:

  5. Make your own law: use strong security to protect the people, relationships, property, and data you value. Learn to defend yourself and your loved ones with weaponry. Write and use cryptography, smart contracts, bit gold, digital cash, and other security protocols made possible by computer science.

  I think it’s fair to say that the dominoes were all lining up.

  By early 2008, his political feeling was intensifying. He wrote, ‘This blog has never before expressed an opinion about a specific political election. Unenumerated takes a long view and electioneering is generally not the most effective means of political action. Occasionally, however, there is a remarkable exception.’ That exception was the outspoken libertarian Ron Paul, whose presidential candidacy Szabo fervently endorsed.

  Another post later that year compared Ben Bernanke, then head of the Federal Reserve Bank, to John Law, the speculator put in charge of the French central bank in the early 1800s who presided over the Mississippi Bubble. ‘John Law and the Mississippi Bubble are fairly well-known to economic historians,’ Szabo said. ‘But one wonders whether the supposed economic experts who run the U.S. Federal Reserve remember it.’164 Szabo did not like the fact that Bernanke was using high-risk debt as reserves.

  What is interesting is that these ‘angry’ posts came in 2008 – at the same time Bitcoin was being coded. Frustration was building in many people, particularly in relation to inflation. It seems Bitcoin was a practical response to it all.

  But he seems to have mellowed again. When I emailed Szabo to ask if he might answer some questions by email, he said: ‘Sure, as long as they’re non-political.’

  I asked him what his motivation was in designing bit gold to gain some insight into why he designed Bitcoin (assuming he did). ‘To become a reserve, high-powered currency,’ he said, ‘that could be a reserve for issuing more network-efficient currencies – like gold but better.’

  How Satoshi credited everyone except himself

  Satoshi was extremely careful to make sure that the likes of Adam Back and Wei Dai were properly referenced in his white paper. This much is clear from his emails prior to Bitcoin’s release.

  Why then did he omit any reference to Bitcoin’s closest precursor, bit gold? There was no mention of it or Szabo in the Bitcoin white paper.

  One interpretation of this is that Satoshi was not aware of Szabo. It was only after Adam Back’s prompt that Satoshi mentioned Wei Dai. Back never prompted Satoshi about Szabo. Back tells me: ‘I was probably aware of bit gold, but I wasn’t on the mailing list that it was announced on, so I was more familiar with b-money.’

  But it’s also easy to interpret Satoshi’s non-mention of Szabo as someone deliberately ignoring himself so as not to draw attention.

  When Finney first replied to Satoshi in November 2008, before the first coins had even been mined, he mentioned that Bitcoin might be an implementation of Szabo’s concept.165 Satoshi replied to just about every point Finney had made, but ignored the mention of Szabo.

  Only in 2010 when the Wikipedia page was being discussed did Satoshi acknowledge him, saying Bitcoin was an implementation of Szabo’s bit gold idea.166

  My interpretation is that he wanted to distance himself from the project.

  It’s also worth noting that when Satoshi first approached Back and Dai in August 2008, a few days prior to the release of the Bitcoin white paper, the product was just called ‘ecash’. Obviously he couldn’t call it that after David Chaum’s experience in the 1990s. The name Bitcoin appears to have been added at the last mi
nute – perhaps because he couldn’t think of anything better, and he couldn’t very well call it ‘bit gold’.

  In 2011 – suspiciously having ignored it till then, given what an advocate of digital cash he was – Szabo wrote a blog in defence of Bitcoin, after another blogger, Gwern, had described it as a perfect example of ‘worse is better’.167 Would Satoshi have bothered to do this? Perhaps as a red herring, yes. But anonymity is a delicate art. Silence is usually best. Red herrings are often what give you away. Would he have taken this risk? Unlikely, but maybe he felt the need to publicly defend his creation against the criticisms of a thinker he admired.

  The huge elephant in the room that I’ve ignored till now

  There is an elephant in the room. And I’ve ignored it till now. My whole theory sinks or swims by it.

  It’s this: how good was Szabo’s C++ code?

  Until we can find proof of Szabo’s ability with C++, and compare his C++ to the original Bitcoin code, we can’t draw conclusions. My theory would be dismissed in an instant if we could only see some examples of Szabo’s C++. But neither I, nor anyone I have asked, have been able to find any examples.

  My anonymous veteran coder emailed me and said, ‘I’ve found code by Szabo in several languages, which looked similar to Satoshi’s, but because they weren’t in C++ specifically I remain perplexed as to whether Szabo’s C++ smells like Satoshi’s. Frustrating as hell!’

  Wei Dai says Szabo is not known as a C++ coder,168 but, in fact, it seems that once upon a time he might have been. There is an old resume in which he advertises his skills. And while others dismiss C++, Szabo defended it to me, ‘C++ is a great language for implementing cryptographic primitives because of its efficiency.’

  All in all, we’re left with a flood of circumstantial evidence but no proof that Satoshi is Szabo.

  It would help if denials from Szabo that he is Satoshi had been a bit more forceful. Journalist Adrian Chen asked him in 2011, ‘Got any ideas/guesses as to who Satoshi is?’ Szabo replied: ‘I’m not going to contribute any further on this as I think he has made a great contribution and so I want to respect his desire for privacy.’169 Szabo says he has denied it to other journalists, but actual denials are hard to find.

  In my own correspondence with him, he was very helpful – but ignored every one of my questions about Satoshi and whether he had mined coins.

  Wei Dai and Nick Szabo came up with b-money and bit gold independently of each other. Adam Back tells me others came up with similar ideas to his own Hashcash. Perhaps something similar happened with Bitcoin. Perhaps Satoshi’s philosophical and technical roots have nothing to do with Cypherpunks. Perhaps they lie somewhere else altogether, somewhere that nobody has yet considered.

  It’s possible.

  But I doubt it.

  I think Nicholas Julius Szabo is Satoshi Nakamoto.

  Heck, their initials mirror – NS/SN. Was that another little Easter egg Satoshi left us?

  Postscript

  Since completing this manuscript, but before publication, I exchanged emails again with Nick Szabo – I felt it was right to alert him to the conclusions I’d drawn. I also sent him a copy of the book. He replied, ‘Thanks for letting me know. I’m afraid you got it wrong doxing me as Satoshi, but I’m used to it’.

  In June, Szabo began using Twitter, where he also denied being Satoshi, saying on June 6th, 2014, when it was suggested, ‘Not Satoshi, but thank you.’

  Szabo is well worth following on Twitter. I spent a fantastic morning looking through all the tweets he had made, retweeted or favourited. He’s as interesting and polymathic as ever.

  He tweets about law, smart contracts, maths (especially algebra), computer science, history, anthropology, politics and liberty, privacy, economics and finance. He seems to have a fondness for maps and to be especially interested in diet (in particular, its relationship with genes). He mentions Ethereum a great deal, but the subject he keeps coming back to is Bitcoin. His pinned tweet links to the ‘best computer science paper on Bitcoin’. He comments that, ‘scams are fuelled by misplaced trust. Trust math, (next best) traditional auditing. Make bad security fail early’. And he asserts that ‘Trusted third party: security hole (mtGox) or large traditional bureaucracy (bank). Choose your poison.’

  The first people he followed – Gavin Andreson, Andrew Miller and Peter Todd – were all heavily involved in Bitcoin from an early stage. The first companies he followed were Blockstream Project – which is ‘digitizing the entire planet’s assets for the betterment of all its occupants’ – Ethereum and Computer Science, which gives you daily tweets about computer science.

  Of note was one his retweets – Russian chess grand-master Garry Kasparov, who said: ‘Sorry, but I’m from a place where everything was “shared equally” and it wasn’t as nice as some of you seem to think it would be’. It’s libertarian stuff.

  Despite his denial, my conclusions (or my biases) remain unchanged.

  7

  Why Bitcoin is the Enemy of the State

  Congressman, as I have said to you before, the problem you are alluding to is the conversion of a commodity standard to fiat money…it is inevitable that the authority, which is the producer of the money supply, will have inordinate power.

  Alan Greenspan, former Chairman of the Federal Reserve Bank

  (N.B. If you have read Life After the State, you will already be familiar with the argument of this chapter.)

  Once upon a time, gold was money.

  On a gold standard, governments and banks could, broadly speaking, only print as many notes as they had the gold supply to back them. This placed a restriction on government, the same restriction we all have: we can only spend as much money as we have, or as people will lend us. (It is a little more complicated than that, but the broad point remains.)

  In 1914, shortly after the beginning of the First World War, the British, French and German governments all took their countries off the gold standard. They then printed the money they needed to pay for the war. What resulted was, as we all know, one of the most terrible wars in history. Four years of unrelenting horror. Some 37 million people died. A further 50–100 million lives were lost to the Spanish flu that followed (which probably had its origins on the Western Front).170

  If those governments could only have spent as much gold as they had in their vaults, the war would have had to end when the gold ran out. As they did not have enough gold to pay for the war to go on for long, the war really might have been over by Christmas.

  But by manipulating the money system and coming off the gold standard, they enabled themselves to both print money and run up deficits (spend more money than they earn). Thus it became possible for the war to continue in the terrible way that it did.

  This was the beginning of the ‘fiat money’ era – fiat, meaning money by command. You must accept this money as payment for goods and services, and pay taxes in it.

  As this money is not backed by anything tangible, there is (almost) no limit to how much can be created. This makes inflation of some kind almost inevitable. It also gives disproportionate power to the body that is able to create the money, particularly if no significant effort is needed to create it. As Alan Greenspan said, standing before Congress, ‘it is inevitable that the authority, which is the producer of the money supply, will have inordinate power’.171

  Without their control of money, none of the wars of the twentieth century could have dragged on to the same extent. No war has ever been fought on a transparent cash basis.

  ‘Without the money-counterfeiting tool of government,’ wrote American economist E. C. Riegel in 1949, ‘there could be no war except by popular mandate, because the price would have to be consciously and immediately paid. The would-be war-maker first of all conquers and subdues his own people by the narcotic of counterfeit money. If the people would hold the veto power of war, they must deny to their government the power to counterfeit money.’172

  Take away this power to create mon
ey and run deficits and suddenly the scope of a war is limited to the amount of money the government has. Independent money limits wars.

  To me, that is the most compelling argument there is in favour of independent money. It is a force for peace.

  I’m not saying there would be no wars – there were plenty of wars under a gold standard – usually entailing the abuse of that standard. But if money were beyond the control of government, wars could not be of the same magnitude as those that blighted the 20th century.

  But independent money doesn’t just limit wars. It limits everything a government does.

  The growth of the state

  At present we live in a world where the state looks after our birth, our education, our health, often our employment, our old age and even our burial.

  ’Twas not ever thus.

  In the UK the move towards the large state model began in the late 19th century. First, there was compulsory education. Then the Liberal Reforms of 1906–14 saw the introduction of state pensions, National Insurance and income tax. These were only small steps. It was with WWI and the abandonment of the gold standard that the role of the state in the life of an Englishman really began to grow.

  America was on its own path to large government. In 1913 income tax was introduced and the Federal Reserve Bank was created to manage the dollar. In 1932, to generate the funds he wanted for his New Deal, Roosevelt confiscated Americans’ gold, gave Americans dollars in exchange and then devalued the dollar. In the 1960s, under the presidency of Lyndon Johnson, the American state grew even further. Johnson’s War on Poverty saw the Social Security Act, the Food Stamp Act, the Economic Opportunity Act and the Elementary and Secondary Education Act signed into law.