Bitcoin For Dummies - Peter Kent

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Bitcoin transactions can be trusted, even without a central “power” overseeing the system. (See Chapter 2 for an explanation of why.)

      

Satoshi Nakamoto (whoever he, she, or it is) didn’t use the words cryptocurrency, blockchain, or trustless anywhere in the whitepaper. Those are terms that others applied to the system later.

      The idea of blockchain had actually been around for a while — at least since 1991 — in fact, remember David Chaum of DigiCash fame? He had been working with the idea of a blockchain since the early 1990s.

      Of course, in January of 2009, Bitcoin had essentially no value. Still, the genesis block created by Nakamoto (the very first block of data in the blockchain creating the first 50 Bitcoins), along with subsequent blocks of data “mined” by Nakamoto (see Chapter 7), comprise perhaps a million Bitcoins: At current prices, that’s $47,369,000,000. Yes, close to 50 billion dollars!

      So who is this Satoshi Nakamoto? Nobody knows. Well, somebody must know, but either they’re not saying or they’ve been unable to convince anybody. In fact, it’s not even clear what Satoshi Nakamoto is. A man? A woman? A group of collaborators? An organization or firm? We don’t know for sure, though most assumptions seem to be that it’s a man or a group of two or three people. Perhaps not surprisingly, the most cited targets are generally cryptographers and mathematicians.

      There’s the actual Satoshi Nakamoto, of course — that was an obvious choice. A Japanese-American resident of California who was born Satoshi Nakamoto, and now goes by the name Dorian Prentice Satoshi Nakamoto, seems to have some of the skills needed to be the Nakamoto, but he denies being the founder of Bitcoin.

      Then there’s Nick Szabo, a digital-currency enthusiast who has been tagged as Nakamoto but denies it. Elon Musk has been “accused,” too, but he denies it (and we personally think he was probably too busy to find the time!). There’s Japanese mathematician Shinichi Mochizuki (he denies it), Finnish economic sociologist Dr. Vili Lehdonvirta (denies it), and Irish cryptography student Michael Clear (yep, denies it).

      The jury didn’t find that Craig Wright is Nakamoto, though — only that if he is, he doesn’t have to share his $50 billion with Kleiman’s estate. Not a bad deal. In fact, it’s such a good deal that Wright stated that he was relieved that all he has to pay is $100 million! Still, the case is not over. Whether Kleiman’s estate actually has ownership in the joint-venture company is unclear, and Wright might owe $100 million to his ex-wife. It doesn’t settle the question of whether or not Wright actually is Nakamoto. (Wright says that the jury found that he is Nakamoto; they didn’t.) That won’t be settled until Wright — or the real Satoshi Nakamoto — moves some of the Bitcoin out of the blockchain addresses owned by Nakamoto.

      Regardless, the Bitcoin network has continued to function as designed long after Satoshi Nakamoto mysteriously stopped participating in the network, shortly after claiming Julian Assange and Wikileaks had “kicked the hornets’ nest” once they began accepting Bitcoin for donations for their controversial reporting in 2010.

      So what is Bitcoin? Well, we can tell you what it isn’t very quickly. It’s not tangible — there’s nothing you can touch or hold. You can’t taste it or smell it. You can’t even see it. In fact — and we explain this in more detail in Chapter 2 — Bitcoin really isn’t. That is…there is no Bitcoin.

      So, when Satoshi Nakamoto created the first ever Bitcoin, how did he create it? Well, when we talk about Bitcoin being “created,” we’re really talking in shorthand. No Bitcoin thing was created. When Nakamoto first “created” Bitcoin, what he really did was to create a set of rules for a ledger in which he recorded the creation of Bitcoin. The ledger says, in effect, “50 new Bitcoin were created today.” And there you go, Bitcoin exists.

      When Nakamoto minted that first “genesis block,” the nature of the network was set in computational stone. Buried in the first block of data was a little additional text, words from the front page of that day’s New York Times (January 3, 2009): “Chancellor on Brink of Second Bailout for Banks.” Perhaps this was a hint at Nakamoto’s reason for creating the network, as an alternative to what he felt were the corrupt government-managed monetary systems.

      The ledger essentially records two things. The first is the creation of Bitcoin, which is done through a process called “mining.” Nakamoto “mined” those original 50 Bitcoins (however, the first 50 Bitcoins are unspendable due to the nature of the code). Mining continues, and in fact, new Bitcoins are created each time a new block of transactions is added to the Bitcoin blockchain, every ten minutes or so. (Chapter 7 explains how this “mining” process works.)

      However, there is a mathematical arrangement to all this: Bitcoins are created on a steady schedule, and every four years or so (during an event quaintly called the halvening), the number of Bitcoins created every ten minutes is halved. Right now, 6.25 Bitcoins are created every ten minutes, but sometime in 2024, that will be reduced to 3.125, then again halved four years later, and so on (every four years) until around the year 2140, when the maximum number of Bitcoins will finally be in circulation.

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