There are many ways to make money: you can earn, find, fake, steal it. Or if you're Satoshi Nakamoto, a supernaturally talented computer coder, you can invent it. He did that on the evening of January 3, 2009, when he pressed a button on his keyboard and created a new currency called Bitcoin. It was a bit and not a coin. There was no paper, copper or silver - only thirty-one thousand lines of code and an announcement on the Internet.
Nakamoto, who claims to be a thirty-six-year-old Japanese man, said he spent more than a year writing the software, partly because of anger over the recent financial crisis. He wanted to create a currency that is unpredictable for monetary policy as well as for bankers and politicians. Nakamoto's invention was completely controlled by software, which will release a total of twenty-one million bitcoins in the next twenty years, almost all of them. About every ten minutes, coins are distributed through a process similar to a lottery. Miners - people looking for coins - kept playing lotto; the fastest computer would win the most money.
The interest in Nakamoto's invention steadily increased. More and more people dedicated their computers to the lottery, and forty-four exchanges surfaced, so anyone with bitcoins could exchange them for official currencies like dollars or euros. Creative computer engineers could search for bitcoins. Everyone could buy them. Initially, a single bitcoin was worth less than a penny. But the merchants gradually accepted bitcoins, and by the end of 2010, their value began to rise rapidly. By June 2011, a bitcoin was worth more than twenty-nine dollars. Market fluctuations followed, and by September the exchange rate had fallen to five dollars. Nevertheless, Nakamoto had created $ 35 million in value with more than seven million Bitcoins in circulation.
And yet Nakamoto itself was a cipher. Before the debut of Bitcoin, there was no record of an encoder with that name. He used an e-mail address and a website that could not be found. In 2009 and 2010 he wrote hundreds of posts in perfect English, and although he invited and corresponded with other software developers to improve the code, he never revealed any personal detail. Then, in April 2011, he sent a message to a developer saying he had "moved on to other things". Since then nothing has been heard from him.
When Nakamoto disappeared, hundreds of people posted theories about his identity and whereabouts. Some wanted to know if you could trust him. Could he have created the currency to hoard and pay out coins?
However, it seemed that Nakamoto was motivated by politics, not crime. He launched the currency just months after the collapse of the global banking sector and published a five-hundred-word essay on traditional fiat or government-backed currencies. "The main problem with traditional currencies is the confidence needed to make it work," he wrote. "The central bank needs to be trusted not to devalue the currency, but the history of Fiat currencies is fraught with breaches of that trust. Banks must be trusted to keep our money and transfer it electronically, but they lend it in waves of credit bubbles with only a fraction of the reserve".
Banks, however, lend much more money than overzealous home buyers. For example, they also monitor payments so that no one can spend the same euro twice. Cash is immune to this problem: you can not give two people the same bill. With digital currency, however, there is a risk that someone can spend the same money several times.
Nakamoto has solved this problem using innovative cryptography. The Bitcoin software encrypts every transaction - the sender and the recipient are identified only by a series of numbers, but a public record of the movement of each coin is published throughout the network. Buyers and sellers remain anonymous, but anyone can see that a coin has moved from A to B, and Nakamoto's code can prevent A from issuing the coin a second time.
Nakamoto's software would allow people to send money directly to each other without middlemen, and no outside party could create more bitcoins. Central banks and governments did not matter. If Nakamoto had ruled the world, he would have just fired Ben Bernanke, closed the European Central Bank, and closed Western Union. "Everything is based on cryptographic evidence rather than trust," Nakamoto wrote in his 2009 essay.
Is the Bitcoin Blockchain safe
However, Bitcoin would be doomed to failure if the code was unreliable. Earlier this year (2011), Dan Kaminsky, a leading Internet security researcher, was studying the currency and was confident that he would find greater weaknesses. Kaminsky is known among hackers to have discovered in 2008 a fundamental flaw in the Internet that would have allowed an experienced programmer to take over a website or even close the Internet. Kaminsky drew the attention of the Department of Homeland Security and the executives of Microsoft and Cisco and worked with them to fix the problem. He is one of the most experienced practitioners of "penetration testing" the art of compromising the security of computer systems at the behest of owners who want to know their vulnerabilities. Bitcoin was an easy target in his opinion.
"When I looked at the code for the first time, I was sure I could crack it" Kaminsky said, noting that the programming style was dense and inscrutable. "The way the whole thing was formatted was crazy. Only the most paranoid and meticulous programmer in the world can avoid mistakes".
Kaminsky lives in Seattle, but when he visited his family in San Francisco in July, he retired to the basement of his mother's house to work on his Bitcoin attacks. In a windowless room full of computers, Kaminsky paced and talked to himself to get an idea of the Bitcoin network. He quickly identified nine ways to compromise the system, and searched Nakamoto's code for an insertion point for his first attack. But when he found the right place, a message was waiting for him. "Attack removed" it said. The same thing happened again and again and made Kaminsky angry. "I came up with wonderful mistakes" he said. "But every time I went in the code, there was a line that addressed the problem".
He was like a burglar who was sure he could break into a shore by digging a tunnel, piercing a wall or climbing down a fox, and in each attempt he discovered a freshly cast cement lock with a shield that told him to go home. "I've never seen anything like it" Kaminsky said, still in awe.
Kaminsky announced the skills that Nakamoto would need to do it. "He's a world-class programmer with a deep understanding of the C ++ programming language" he said. "He understands economics, cryptography and peer-to-peer networking".
"Either there is a team of people who have worked on it" said Kaminsky, "or this guy is a genius".
Kaminsky was not alone in this assessment. Shortly after the introduction of the currency Nakamoto published a nine-page technical document describing how Bitcoin works. This document contained three references to the work of Stuart Haber, a H.P. Labs at Princeton. Haber is director of the International Association for Cryptologic Research and knew all about Bitcoin. "Whoever did that had a deep understanding of cryptography" Haber said when I called. "They have read the scientific papers, have a strong intelligence and combine the concepts in a really new way".
Haber noted that the Cryptographers community is very small: about three hundred people per year attend the main conference, the annual gathering in Santa Barbara. Most likely, Nakamoto belonged to this island world.
Nakamoto had good reason to hide
People who experiment with currency tend to get into trouble. In 1998, a Hawaiian named Bernard of NotHaus began producing silver and gold coins, which he called Liberty Dollars. Nine years later, the US government accused Emergency House of "conspiring against the United States". He was found guilty and awaits the conviction. "It is a violation of the federal law for individuals ... to create private coin or currency systems that compete with the official coins and currencies of the United States" as the F.B.I. the end of the process announced.
Online currencies are not excluded. In 2007, the federal government filed charges against e-Gold, a company that sold a digital currency redeemable for gold. The government argued that the project allowed money laundering and child pornography, as users did not have to provide thorough IDs. The company's owners were found guilty of operating an unlicensed money-carrying business and the CEO was sentenced to months of house-arrest. The company was effectively closed.
Nakamoto seemed to be doing the same thing as these other currency developers balking at authorities. He competed with the dollar, assuring users' anonymity, making Bitcoin attractive to criminals. This winter, a website called Silk Road was launched, where users could buy and sell heroin, LSD and marijuana as long as they paid with Bitcoin.
However, Lewis Solomon, emeritus professor at the George Washington University Law School who has written on alternative currencies, argues that the creation of Bitcoin could be legal. "Bitcoin is in a gray area, partly because we do not know if it should be treated as a currency, as a commodity like gold, or possibly even as a security" he says.
However, gray areas are dangerous, which is why Nakamoto Bitcoin has secretly constructed. This may also explain why he created the code using the same peer-to-peer technology that allows for piracy and music sharing: users connect to each other rather than to a centralized server. There is no controlling company, no office that could be searched, and no one who could be arrested.
Analysis of Satoshi Nakamoto
The extensive online postings of Nakamoto have some special features. First of all, there is the perfect English. Within two years he wrote about eighty thousand words - the approximate length of a novel - and made just a few typos. He dealt with topics ranging from the theories of the Austrian economist Ludwig von Mises to the history of commodity markets. Perhaps the most interesting thing was when he created the first fifty bitcoins known today as the Genesis Block. He permanently embedded a short line of text in the data: "The Times 03 / Jan / 2009 Chancellor just before the second rescue operation for banks".
This is a reference to a Times of London article stating that the UK government failed to stimulate the economy. Nakamoto seemed to say that it was time to try something new. The text, hidden in a jumble of codes, was a kind of digital battle cry. It also showed that Nakamoto read a British newspaper. He used the British spelling ("favor," "color," "gray," "modernized") and eventually described something as "bloody hard". One flat was a flat, math was maths, and his comments usually occurred after normal business hours ended in the UK. In a first post in which Bitcoin was announced, he used an American spelling. But after that, of course, a British style seemed to flow.
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