Liberty, Equality, Neutrality
Kat Yan on Bitcoin
Year two-thousand-and-late. The Great Recession is on yet another world tour. The encore is on the runsheet. The audience never called for one. A new whitepaper has been circulating on The Cryptography Mailing List: ‘Bitcoin: A Peer-to-Peer Electronic Cash System’. Satoshi Nakamoto is presenting their 3008 year thesis on the future of the financial system. ①
In this whitepaper, Nakamoto will propose a solution to the problem of trust in digital transactions. In doing so, they will present a strong statement with significant stakes; Bitcoin’s release marked a real, meaningful possibility of departure from traditional financial institutions—the possibility of another, better way. It is with this blueprint that Bitcoin’s apostles would build and distribute their own ideologies, premised on the technical components in Nakamoto’s original text.
In the beginning, Nakamoto created the network and the coin. Its earliest adopters could only write Bitcoin’s apotheosis. The rest is revisionist history.
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Genesis
Unlike the business-to-business (B2B) sales collateral of today’s whitepapers, Nakamoto’s whitepaper is hard to read; more a cryptographic proof than a utopian treatise. The dense mathematical formulae and utilitarian diagrams alike translate in my mind as opaque, unintelligible blobs of esoteric symbols and dark matter. It presents a technical solution to a contemporary problem:
What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.
The whitepaper’s sparse prose similarly assumes a kind of prior knowledge or context—or at least a tacit agreement that Nakamoto’s premise for this novel solution is correct: if we are left to our own devices, human beings will inevitably behave in certain undesirable ways. This assumption is so deeply entrenched as an invisible ideological foundation of Bitcoin that few blockchains today have made significant deviations from this original mechanism design.
A few months after releasing the Bitcoin whitepaper, Nakamoto shares the first node client of the Bitcoin network. It is February 2009. Nakamoto heralds the prototype on P2P Foundation:
I've developed a new open source P2P e-cash system called Bitcoin. It's completely decentralized, with no central server or trusted parties, because everything is based on crypto proof instead of trust. [...]
The root problem with conventional currency is all the trust that's required to make it work. 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 and transactions effortless. [...]
Bitcoin [...] takes advantage of the nature of information being easy to spread but hard to stifle. [...]
The result is a distributed system with no single point of failure. Users hold the crypto keys to their own money and transact directly with each other, with the help of the P2P network to check for double-spending.
To an audience of forum peers in an open, participatory, commons-oriented network, Nakamoto gives little airtime to justifying the need for their solution. Neutrality and trustlessness are assumed to be desirable prerequisites for cryptographers. As the whitepaper was released in 2008, one can hardly blame them for such binary thinking. The psychosocial pretzel of ‘centralised government’ and its labyrinthine matrices of big-banks-bailouts-mortgage-defaults would hardly have given anyone at the time much reason to question this part-premise of Nakamoto’s thesis.
It is thus in the context of this political crucible that Nakamoto’s ostensibly ‘neutral’ design reads—or demands to be read—as opaquely ideological, albeit obscured by cryptographic jargon and dense formulae. Whether it was Bitcoin’s cryptographic heritage or merely the spirit of the times, the whitepaper’s fatalistic fable of byzantine leviathans has come to influence the sedimentary layer of future discourse on economics, governance, ownership, and even the environment. It is worth examining the implicit premises and assumptions at play in Nakamoto's whitepaper—not least because its publication has spawned new user expectations about platforms, trust, and privacy.
What is there left to say about Bitcoin in 2023? If I were a gambling man, I might say, ‘Bitcoin is dead.’ If I were a gambling man, I could also say, ‘Bitcoin will rise again.’ I will not insist on being verifiably wrong one way or another, so instead I will only say, ‘Bitcoin has already changed the world.’
For those of us who are not computer scientists, cryptographers, inventors of early crypto primitives, or founders of blockchains with a market cap in the hundreds of billions—for those of us who are English majors who got 11 per cent on the final exam in the very last maths class we'll ever take in Year 10—this is a eulogy for Bitcoin. Get in the robot, Elon. We’re going back to first principles.
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Incentive
I actually did this kind of backwards. I had to write all the code before I could convince myself that I could solve every problem, then I wrote the paper. I think I will be able to release the code sooner than I could write a detailed spec.
—Satoshi Nakamoto
Bitcoin has few parameters for hidden privileges. It is the antithesis of ‘black box programming’, ② which is perhaps more startling—its rewards and incentives are transparently presented as the solutions themselves. This transparent righteousness makes sense when we identify the figure of Nakamoto’s paranoia, the ‘trusted central authority’ that surfaces in the whitepaper primarily in its inverse form. One by one, each of Nakamoto’s proposed solutions gives shape to Bitcoin’s ideological adversary. It is through these solutions that Nakamoto’s own assumptions and priorities begin to emerge. In particular, they are made manifest in bitcoin ③.
Nakamoto’s fixations and elisions in the whitepaper can seem necessary in retrospect, even neutral; after all, it is this unique set of personal choices and priorities that resulted in Bitcoin. Bitcoin in any other form would simply not work. As a protocol, Bitcoin has been described as ‘one big hairball’ ④ and ‘surprisingly robust’ ⑤ despite itself; it hangs together only somehow—by the tenacity of one figure singularly fixated on certain problems to the detriment of others.
James A. McDonald, a peer responding to Nakamoto on The Cryptography Mailing List, ⑥ even called them out for focusing too much on ‘attackers’ in their explanation of the protocol, to the detriment of understanding the protocol itself:
You keep discussing attacks. I find it hard to think about response to attack when it is not clear to me what normal behavior is in the case of good conduct by each and every party.
It is evident that Nakamoto was meticulously cautious about security—and perhaps for good reason, as it was a necessary component to uphold the other elements so indispensable to Bitcoin, i.e. immutability, privacy, and decentralisation. Their choices in this regard betrayed the relatively lower priority of other issues such as token price/value (‘I don't know a way for software to know the real world value of things’ ⑦), energy consumption (‘in our case, it is CPU time and electricity that is expended’), and transaction speed (‘they will get into a block before long’). When sharing the first prototype with the mailing list, Nakamoto concluded: ‘It’s based on open market competition, and there will probably always be nodes willing to process transactions for free.’ Their confidence was not misplaced; after all, who would better understand the incentive for node operators than the creator of that very incentive—of bitcoin?
From the wallpaper, it is evident that it would have been important to Nakamoto that bitcoin had value even if they were not particularly concerned about how or who set this value. From the section titled ‘Incentive’:
By convention, the first transaction in a block is a special transaction that starts a new coin owned by the creator of the block. This adds an incentive for nodes to support the network, and provides a way to initially distribute coins into circulation, since there is no central authority to issue them.
The decentralised security of the protocol requires a distributed network of users to operate nodes and validate blocks. Rewarding users for these actions with block rewards (bitcoin) solves two of Nakamoto’s problems: it gives node operators a reason to make this investment, and circulates coins without a central mint. Without any central authority to issue coins nor to manage their value, the value of bitcoin instead comes from the material expense of operating a node (i.e. your power bill) and running these computations at the expense of other computations (e.g. online spam). This incentive mechanism is how bitcoin’s value is derived: from the labour of finding and minting them into existence. Nakamoto’s reply on the cryptography mailing list suggests this is a convenient solution borne of necessity: ‘Coins have to get initially distributed somehow.’
By making it profitable to mine bitcoin and operate Bitcoin nodes, bitcoin’s value also serves to act as a disincentive for non-sanctioned behaviours. All anticipated bad actors are thus diverted to a more attractive task: mine bitcoin. Nakamoto approaches this from both directions—Bitcoin makes it extremely profitable to run nodes by offering bitcoin as a mining reward, and disincentivises bad actors against otherwise compromising the network by making it intentionally ‘impractical’ to behave in any unsanctioned way. Nakamoto thus proposes this incentive mechanism ‘may help encourage nodes to stay honest’:
If a greedy attacker is able to assemble more CPU power than all the honest nodes, he would have to choose between using it to defraud people by stealing back his payments, or using it to generate new coins. He ought to find it more profitable to play by the rules, such rules that favour him with more new coins than everyone else combined, than to undermine the system and the validity of his own wealth.
It could be said that Nakamoto was successful, at least to a certain extent. It is burdensome to use the network as prescribed, much less exploit it in the precise way the protocol prohibits. As Nakamoto notes in a response on The Cryptography Mailing List, it is indeed more profitable to ‘play by the rules’ of the protocol’s design:
Even if a bad guy does overpower the network, it's not like he's instantly rich. All he can accomplish is to take back money he himself spent, like bouncing a check. [...] I don't think he could make as much money trying to pull a carding scheme like that as he could by generating bitcoins. With a zombie farm that big, he could generate more bitcoins than everyone else combined.
In Nakamoto’s lawful good utopia, all actors—be they good or bad in intent—stand to profit most when they behave as sanctioned by the network. All logical choices lead to mining bitcoin. Bitcoin’s programmatic scarcity also serves to redirect any so-called ‘bad actors’ towards more profitable goals and gives bitcoin additional value as a ‘referral reward’ for users to acquire more users. As the length of the ‘chain’ of verified transaction ‘blocks’ grows as a result of more users making more transactions, the computational cost of verifying each subsequent block—and mining each subsequent bitcoin—grows too. With fewer bitcoins to be mined over time, block rewards become smaller as new blocks are discovered. Over time, the expense of mining bitcoin correlates inversely with its rewards. This incentive structure disproportionately benefits earlier users, making it ever more costly for each subsequent user to acquire ever fewer bitcoins than the user who came before.
As Bitcoin has scaled, this asymmetry has become more and more overt. This is what it means to be ‘early’ in crypto—and why crypto has been referred to as a pyramid or Ponzi scheme. In an attempt to hardcode ‘neutrality’, Nakamoto’s solution engineered the precise conditions for Bitcoin’s current value proposition; its incentive structure has become its own built-in marketing loop and referral system. In both the whitepaper and in conversations with their contemporaries, Nakamoto indicates an awareness of this incentivised possibility but addresses it almost as an incidental, necessary side effect in service of either curtailing or promoting certain behaviours within the network. Responding to a forum comment not long after the whitepaper’s release, they write:
In this sense, it’s more typical of a precious metal. Instead of the supply changing to keep the value the same, the supply is predetermined and the value changes. As the number of users grows, the value per coin increases. It has the potential for a positive feedback loop; as users increase, the value goes up, which could attract more users to take advantage of the increasing value.
Nakamoto’s prophesy was sound, and Bitcoin’s commitment to free market principles and true decentralisation has given rise to its singular status as ‘digital gold’. Bitcoin’s volatility and scheduled deflation have proven it prohibitive to use as a currency; in an era where regulators are threatening to designate cryptocurrencies as securities (i.e. intangible, tradable investments like stocks or bonds), Bitcoin stands alone in its unequivocal status as a commodity. As an asset class, commodities are considered ‘basic goods’ (e.g. oil, gas, grain, gold, metal) with the following attributes: they hold value over time (‘store of value’) and possess inherent value. Their price also tends to rise in times of inflation (‘hedge against inflation’). Finally, they’re taxed more favourably than securities.
Laden with value both of the symbolic and dollar-sign variety, today’s ‘digital gold’ is a behemoth of asymmetric wealth distribution, thinly veiled anti-Semitism and Pepe the Frog memes. Bitcoin’s ideological resonance with libertarian technocrats, white supremacists and the alt-right, as well as its intensive energy and hardware appetites and consequent environmental impact, have attracted scrutiny across the political spectrum, so much so that the ‘Sovereign Individuals’ are organising collectively, while leftists find themselves in the dubious post of defending the status quo of the regulated financial system.
Nowhere is this strange vacillation more clear to me than in this exchange between Nakamoto and Hal Finney (the first recipient of a Bitcoin transaction and Nakamoto’s contemporary in the cryptography mailing list):
FINNEY: The bitcoin system turns out to be socially useful and valuable, so that node operators feel that they are making a beneficial contribution to the world by their efforts [...] In this case it seems to me that simple altruism can suffice to keep the network running properly.
NAKAMOTO: It's very attractive to the libertarian viewpoint if we can explain it properly. I'm better with code than with words though.
As I write this, I’m consumed by a deep fear that perhaps I don’t understand a thing about libertarianism and that perhaps unknowingly I have been one all this time. My only defence against such an accusation is that I really, really did not like Atlas Shrugged. Which one is the political faction that believes that people should (and will want to, out of pure altruism) coordinate together to do good things in the world? After all, the current financial system has not served me particularly well either; I suspect I don't really understand how it works, I don't really want to play the game, and so far my retirement plan looks something like ‘I guess I could just … die?’
For all the ways Bitcoin feels like a perverse marshmallow experiment to illuminate some damning insight into human behaviour, it nonetheless affords a certain ambivalence. Due to the narrowness of its original prescription and the sprawling scope of its many affordances, Bitcoin leaves as much to be desired as it does to be imagined. Nakamoto’s disappearance is perhaps prescient in this regard. Open-source and freely available for anyone to scrutinise, criticise, or capitalise upon, Bitcoin’s canonical text invites transformative work. ⑧ Contrary to popular allegations, blockchain is not just the domain of tax evaders, arms traders or illegal pipe-bomb makers. When most of the discourse around crypto is ‘number go up’, it’s understandable that one might ask, ‘what’s the point of blockchain?’
I'm probably overdue to disclose that this author owns a relatively insignificant but nonetheless non-zero amount of bitcoin. I should probably also disclose that this author, up until recently, worked in the crypto space, in what one might describe loosely as the ‘Department of Public Affairs’. I have not made much money off crypto, although I did make a decent salary in Australian dollars (‘fiat’). For a variety of reasons, I will not (and probably cannot, at my level of complicity) claim to be anti-blockchain. For those who are locked out of the traditional financial system, or for whatever reason find themselves in need of a distributed, decentralised, borderless network (e.g. escaping domestic violence, purchasing illicit drugs, collective decision-making and social coordination, invoicing clients, funding terrorist syndicates, protesting against the government, sending money overseas, resilience against censorship), blockchain offers a viable, if imperfect, alternative. When all that is solid melts into ether, blockchain persists.
In 2010, Nakamoto described Bitcoin as ‘a small beta community in its infancy’, insisting ‘[the] project needs to grow gradually so the software can be strengthened along the way.’ ⑨ As an MVP (Minimum Viable Product), blockchain has enabled endless variations on its theme—a testament to its decentralised, open-source ethos. After all, it would have been hubris for a nascent technology to comprehensively imagine or prescribe the ever-inventive ways to use and abuse the network. Bitcoin’s very nature as free, open-source software means that its own whitepaper could never prescribe a definitive roadmap for every future permutation. Circulated initially among a niche audience of cryptographers, Bitcoin seems more like an earnest attempt to solve a legitimate problem, and less like a predatory pyramid scheme designed to exploit mathematically-challenged laypersons. I think of Bitcoin as merely the beginning of a paradigm shift that still hasn’t quite crystallised. In its meteoric move from the margins to the mainstream, blockchain technology has been a victim of its own success. Like a child star, it was not ready for the sudden onslaught of proponents, critics, and attention.
For better or for worse, intentionally or incidentally, Nakamoto’s solution necessitated a built-in growth loop that became the precise mechanism by which Bitcoin soon infected the mainstream. Bitcoin was a protocol founded on a series of choices and assumptions about the world and its users, and its own success and immutability limit its ability to ever evolve past its own incentive mechanism. To do so goes against every incentive Nakamoto designed for the node operators or miners who would constitute the ‘voters’ under Bitcoin governance—no Bitcoin user who can afford the CPU power to meaningfully participate in such a vote would have any reason to ‘undermine the system and the validity of his own wealth’. And so despite Bitcoin’s purported neutrality and minimalism, the whitepaper is nonetheless a gene map for a virus, a proof for a prototype—such that each iteration would perpetuate a certain vision of the world: an ouroboros of self-fulfilling programming.
If we can learn anything from the trajectory of Bitcoin, it is one that bears repeating: that technology is not neutral, agnostic, or amoral. No matter the intentions or beliefs of their creators, those very same intentions and beliefs impose necessarily subjective values onto hardcoded systems that have very real, material consequences for the people who use them (and therefore also for the people who don’t). In turn, users themselves also have material consequences for these technologies. We act upon the technologies we use. We impose values upon them through interaction and iteration. We can even generate mutations the likes of which we may prefer not to imagine. Most importantly, we can intervene—in the comments, in pull requests, in hard forks, in mass exodus ⑩—and in doing so, engage critically with how such mechanisms are designed and implemented. As Vitalik Buterin, one of the founders of Ethereum, writes, ‘Of course, neutrality is never total. [...] But [...] some mechanisms are much more neutral than others.’
The appearance of Bitcoin hasn’t changed the stakes; the technocrats and billionaires of the traditional financial system continue to want to inscribe their values on the financial systems of the future. Traditional techno-optimism is shaping up to look like some kind of feudalist exit fantasy of autocratic seasteading, digital landlords, and tradwifery. But public blockchains are an open book, and all fanfiction is canon. What other fantasies dare exist? Newton’s third law of my reimagined techno-optimism conjures direct democracy and collective cooperation by way of pluralistic poetry, community infrastructure, and crowdfunding a lesbian duck farm. If we can learn anything else from Bitcoin, it’s that it is possible to write a daring new fantasy across years and borders and languages—one that really changes the trajectory of the future.
In 2008, a pseudonymous random asked the world to trust them enough to download something from the internet. Before the first Bitcoin node ever went online, before the first block reward was ever mined, what was the ‘incentive’ for people to do such a thing? Little more than curiosity, openness, and a shared belief in Satoshi Nakamoto’s vision of the future. And above all, the desire to be a part of shaping that future. This is what Bitcoin represented first and foremost, even as Bitcoin now represents an increasing number of things for many people who may not have anything in common. Maybe the ship has sailed for Bitcoin. But we can build another ark. I don’t know what the future holds for blockchain, but I want to imagine that we can get somewhere better than where we are today. Speculation is the suspension of disbelief, of apathy. By engaging in it, we extend that belief into the material, economic, social world.
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Notes
① The working assumption seems to be that Nakamoto is a man, but most of the hackers and cryptographers I follow on ‘CT’ (crypto Twitter) are trans catgirls so I’m not entirely convinced one way or another.
② A ‘black box’ system’s inner workings and implementation are opaque. Instead of a whitepaper describing its mechanics, one would have to observe the system’s inputs and outputs. ③ As per crypto convention, I am using ‘bitcoin’ to refer to the cryptocurrency or token, and ‘Bitcoin’ when I am talking about the network.
④ McGrath Goodman, Leah, ‘Inside the Hunt for Bitcoin’s Mystery Founder’, Australian Financial Review, 9 March 2014.
⑤ Kaminsky, Dan, ‘I Tried Hacking Bitcoin and I Failed’, Business Insider, 13 April 2013.
⑥ I’m not in the habit of reading cryptography whitepapers, so without this context, I would’ve considered it a mere convention of the discipline to frame a solution by preempting a series of problems ever-escalating in paranoia.
⑦ See: http://p2pfoundation.ning.com/forum/topics/bitcoin-open-source?commentId=2003008%3AComment%3A9562
⑧ Or, put another way, one might boycott J.K. Rowling but still engage with Harry Potter fanfiction.
⑨ Wallace, Benjamin, ‘The Rise and Fall of Bitcoin’, Wired, 23 November 2011.
⑩ This perhaps begs the question of why engage at all; is a boycott an effective intervention? Speaking anecdotally as a tech industry dropout, it costs much less (to both your budget and your brand equity) to convert the uninformed and/or neutral than to convince crypto antis. Under the prioritisation frameworks of the average product-led tech company, the feedback you are most likely to seek and implement will be that of high-potential new (growth) or existing users (retention). The most reluctant user you would bother trying to serve or attract is the lapsed user, and they only matter to you because at one point they were a user. Why would you develop new features for people who don’t use your product, and don’t want to use your product? Caveat: crypto marketing campaigns do sometimes play with anti-crypto messaging for the sake of being controversial, but a marketing campaign does not necessarily require any change to the product itself beyond ensuring the servers can handle the anticipated traffic. In crypto, your boycott might be more of a vindication.
Kat Yan is a Cantonese Australian researcher, writer, and tech industry dropout. Their published work includes K-pop fanfiction, VICE articles, and podcast scripts for senior executives. They live on the unceded lands of the Wurundjeri Woi-wurrung people of the Kulin Nation.