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.
Anyway, Nakamoto didn’t stop there. In January of 2009, he/she/it launched the Bitcoin network. Nakamoto released some thirty-thousand lines of code that defined the network protocols and processes necessary to operate this peer-to-peer, decentralized money system. And Bitcoin was born.
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!
But Who Is Nakamoto?
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).
One of the loudest candidates is Craig Wright, an Australian computer scientist. He certainly claims he is Nakamoto, though he’s accused by many of carrying out an elaborate fraud. As we write these words, a jury found Wright liable to pay the estate of David Kleiman, a deceased friend and colleague, $100 million for misuse of funds in a joint venture they worked on. But separately, the jury also found that David Kleiman was not a partner in the creation of Bitcoin.
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.
Understanding What Bitcoin Actually Is
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.
What there is, though, is something known as the Bitcoin ledger (another word, by the way, that Satoshi Nakamoto didn’t use in his famous Bitcoin whitepaper, but that is what the data stored in the Bitcoin blockchain has come to be popularly known as). A ledger is a written record of transactions; your checkbook’s little account register is a form of ledger, for instance. (For those of you under 30, a check is a piece of paper you can write a number on, sign your name, and give to someone, and that someone can then give it to their bank and the bank gives them money…an amazingly efficient system.) Or consider a bank statement, showing money coming into and leaving your account. (All too often leaving.) That’s a form of ledger, too.
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.
The second thing that the ledger records is what happens to the Bitcoin once it has been created. As we discuss in Chapter 2, all Bitcoin is associated with “addresses” in the blockchain, and as people buy and sell Bitcoin, or use Bitcoin to buy something (essentially the same as selling Bitcoin), the coins get sent from one address in the blockchain to another. The Bitcoin ledger keeps track of where the Bitcoin flows, from address to address to address. Each address is under the control of someone, and thus the blockchain is, in effect, keeping track of who owns what. If the Bitcoin blockchain ledger says the address you control has 2 Bitcoins associated with it, then you control those 2 Bitcoins. (In Chapters 3 and 4, we explain how to exercise this control — that is, how you can transfer your Bitcoin to other addresses in return for governmental fiat currency