By Ryan Ripsman
The year is 2008. The world is in the midst of the worst recession since the great depression. After years of taking reckless risks, the banks are failing, and bringing the rest of the economy down with them. The people are angry. They are losing their jobs and their homes, while the government spends their money bailing out the banks: the institutions who are arguably responsible for the economic crisis. A paper appears on the world wide web, describing a revolutionary new type of currency. A currency that relies on the power of the people instead of on government and banking institutions.
Three months after the release of the paper, dubbed the Bitcoin Whitepaper, the world’s first cryptocurrency, bitcoin, goes live. Bitcoin was not an immediate success; it took almost two years for the price of bitcoin to reach one dollar. But from there, its price exploded. By the end of 2017, the price of bitcoin was over 20,000 dollars. In 2021, bitcoin reached a high of more than 60,000 dollars.
In tandem, with bitcoins’ meteoric rise, other cryptocurrencies have arisen using the same blockchain technology described in the bitcoin whitepaper. Today, there are over 7000 cryptocurrencies in use. While most of these cryptocurrencies are not widely used and worth very little, some have managed to emulate bitcoin’s success. Ethereum, bitcoins’ largest rival, reached a high price of nearly 5000 dollars. It is estimated that the cryptocurrency market has achieved a total value of 3 trillion dollars.
One of the central tenants of cryptocurrency has always been privacy. The blockchain technology described in the whitepaper was designed to allow users to perform transactions with complete anonymity. Today, cryptocurrencies are still synonymous with privacy. This privacy comes with a host of advantages and disadvantages. In today’s world, where information is considered a commodity, the privacy afforded by cryptocurrencies allow consumers to make their purchases anonymously, without worrying that a bank or some other institution is monitoring their transactions. However, the privacy afforded by cryptocurrencies has a dark side too. It enables cryptocurrencies to be used for criminal activities like money laundering.
While bitcoin has allowed people to liberate themselves from the tyranny of banks, as envisioned in the bitcoin whitepaper, not all the promises in the Bitcoin Whitepaper were fulfilled. The bitcoin whitepaper envisioned an online currency that would allow for a lower “minimum … transaction size” because a bank would not be needed to mediate transactions. However, most cryptocurrencies are not efficient for small transactions because of the design of the blockchain technology that forms the basis for all cryptocurrencies. The blockchain is a shared ledger that contains all the transactions completed with the cryptocurrency. Each transaction performed is saved in a block, which has a special design to ensure that no one can tamper with the chain. The block starts with a hash of the previous block. A hash is a function that converts information into a series of numbers. It can be performed easily, but it is extremely difficult to undo. The block contains a description of a set of transactions and the timestamps at which the transactions were completed. Finally, the block ends with a number called a nonce. This number, when added to the block, ensures that the hash of the block will begin with a certain number of zeros. Finding this number, a process called cryptocurrency mining, requires a lot of computing power. Because each block contains the hash of the previous block, no one can add or tamper with a block in the chain without rewriting all the blocks in the chain that come after, which would be virtually impossible. To incentivize users to mine cryptocurrency, the computer that successfully finds the required nonce receives some cryptocurrency as a reward. However, this cryptocurrency mining fee makes small cryptocurrency transactions expensive and impractical.
The bitcoin whitepaper was published under a false name, Satoshi Nakamota. While many theories have been floated, Satoshi Nakamota has never been definitively identified. It is unknown if he truly exists – some believe that Satoshi Nakamota is merely a pseudonym for a group of developers. If he does exist, Satoshi Nakamota would be fabulously rich. It has been speculated that Satoshi Nakamota’s hoard of bitcoin, which accounts for approximately 5% of all bitcoin holdings, is worth over 50 billion dollars.
Now, over 12 years have passed since the inception of bitcoin. Satoshi Nakamota has not been heard from in over 10 years. We are left to speculate on his views on the state of cryptocurrency today. Would he be proud of bitcoin’s success? Would he lament what cryptocurrencies have become? We may never know.