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5 Things Satoshi Nakamoto Correctly Predicted About Bitcoin
Correspondence between Satoshi Nakamoto and his first known collaborator, Martti Malmi, was published as part of a ongoing case in the UK regarding the true identity of Bitcoin’s pseudonymous creator. For some, the documents represent a new avenue of research for anyone looking to finally identify who Satoshi really is. For others, the 120 pages of emails (also published on Github) offer a new insight into the character and personality of the long-dead developer.
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Like Bitcoin historian (and former CoinDesk editor) Pete Rizzo Notesthe emails largely conform and confirm what the world already knows about Satoshi, who between 2009 and 2011 was an active participant on forums like BitcoinTalk and the Cryptography mailing list, and who cataloged his thoughts in formal way White paper.
However, new information has emerged through the document dump, including Satoshi’s attempts to support early Bitcoin developers, his anxieties about developing a Bitcoin use case, and his prescience in anticipating some of the biggest debates that have defined the development of Bitcoin, including block size. and energy consumption.
Here are five things Satoshi Nakamoto predicted about Bitcoin before abandoning the project.
Proof-of-Work, the algorithm that supports Bitcoin, is a fundamentally expensive process in terms of design. Back in Satoshi’s time, people realized that if Bitcoin were successful, the hashpower to protect the network would be enormous. Satoshi anticipated this debate and responded to critics by writing, “Ironic if we end up having to choose between economic freedom and conservation.”
In his message to Malmi, Satoshi notes that Bitcoin can only be truly peer-to-peer “without a trusted third party,” unlike the centralized attempts at electronic money that preceded the first cryptocurrency. “If it grew to consume a significant amount of energy, I think it would still be less labor intensive [sic] and the resource-intensive conventional banking it would replace,” he wrote.
Today, bitcoin is the only cryptocurrency recognized by US financial regulators as indisputably a commodity, due to the network’s decentralized design and lack of a clear stakeholder. But in his early days, Satoshi must have been acutely aware of the shadow cast by the U.S. Securities and Exchange Commission and the long reach of U.S. law.
This may be why Satoshi has taken precautions in discussing bitcoin as an investment, although he once said, “It might make sense to take some of it in case it catches on.” Satoshi told Malmi that he was “uncomfortable” with the language in Bitcoin’s sourceforge that told people to “think of it as an investment.” He said that it was fine if people came to realization on their own, but that they should be careful about “promoting” it.
Similarly, privacy advocate Satoshi realized very early on that Bitcoin was not an anonymous technology, even though he tried to design it to be. At best, Satoshi wrote, Bitcoin can be pseudonymous if people take appropriate precautions (such as never reusing key pairs) and are careful not to link Bitcoin transactions to their real-world identities. He also worried that Bitcoin might seem “shady.”
Today, considering that most people purchase bitcoin through exchanges that are legally required to implement know-your-customer procedures to identify users, it is difficult to stay private while using Bitcoin. It’s unclear whether Satoshi expected this to happen, especially since Bitcoin was designed to obviate the need for intermediaries such as exchanges, but he was still considering describing Bitcoin as private, lest it mislead users and sow distrust in project comparisons.
“I think we should de-emphasize the anonymous aspect,” he wrote to Malmi, who had said Bitcoin “can be kept hidden” in an FAQ (a point Satoshi praised for being made “carefully”). “I think about people who want anonymity [sic] he’ll still be able to figure it out without us trumpeting him.
Satoshi and Malmi often discussed the potential uses of Bitcoin, knowing that the network needed a killer use case or application to drive adoption. Overall, Satoshi noted the blockchain’s timestamping characteristics, which could be used to help authenticate real-world events.
But Satoshi also thought about bitcoin’s place in the world of digital payments and thought it could be used to create more liquid markets around existing digital currencies like Freedom Reserve (now defunct). He predicted that those who wanted to improve their privacy could switch from bitcoin to the liberty reserve, to dollars, to gold or to PayPal, given that at the time it was easy to generate BTC simply by mining.
One avenue that Satoshi correctly predicted would be the viability of bitcoin for purchasing gift cards (which he called “paysafecards”), which is one of the most common uses of bitcoin today.
Rizzo noted that the emails also provide information on one of Bitcoin’s early backers, which was completely bootstrapped by Satoshi and never absorbed venture capital capital. According to comings and goings over the months, Satoshi reveals that he has found an anonymous donor interested in donating between $2,000 and $3,600 to support the development of Bitcoin. Although it took some time for the mysterious and still unknown benefactor to send the money (via post) to Malmi, the money went towards paying the website hosting costs and other incidentals.
While not a huge financial windfall, securing funds to offset the costs of volunteer work by developers shows, perhaps for the first time, that Satoshi was aware of the challenges of supporting open source development.
“It may be a long time before we get another donation like this, we should save a lot of it,” he wrote. Malmi was also told to take $1,000 of the donation towards an exchange she was developing, which could help support the BTC-USD exchange rate (which was then worth just a few cents).
If anything, this anticipates the current state of Advocacy for the development of Bitcoin, which is still ad hoc and probably insufficient. While it is becoming increasingly common for companies like Block, MicroStrategy and others to sponsor Bitcoin developers, over the years a number of contributors have moved away from the expensive labor of love.
Satoshi notes at several points that he is often too busy with work to give Bitcoin as much time and attention as it deserves. He’s grateful that developers like Malmi and Satoshi’s chosen successor, Gavin Andresen, were there to move the project forward.