The Corner

Economy & Business

Want to Know What ‘Permissionless Innovation’ Can Mean? Check Out Bitcoin

Over at the New York Times, Nathaniel Popper has a story about the quest for the mysterious innovator behind Bitcoin, Satoshi Nakamoto. It’s a very well-written article by a guy who obvious knows a ton about the cryptocurrency and its main player. Popper writes:

​The hunt for Satoshi Nakamoto, the elusive creator of Bitcoin, has captivated even those who think the virtual currency is some sort of online Ponzi scheme. A legend has emerged from a jumble of facts: Someone using the name Satoshi Nakamoto released the software for Bitcoin in early 2009 and communicated with the nascent currency’s users via email — but never by phone or in person. Then, in 2011, just as the technology began to attract wider attention, the emails stopped. Suddenly, Satoshi was gone, but the stories grew larger. …

Many in the Bitcoin community told me that, in deference to the Bitcoin creator’s clear desire for privacy, they didn’t want to see the wizard unmasked. But even among those who said this, few could resist debating the clues the founder left behind. 

Popper suggests who the creator of Bitcoin may be, but also recognizes that there’s no way to really prove it. 

In my opinion, an even more interesting piece of the story is how it shows – without taking anything away from the genius of whoever Satoshi Nakatomo was — that Bitcoin is also the story of many people, working separately, building building on each others’ insights and discoveries in a way that produced a huge innovation — which continues to be improved upon by other innovators.

As my colleague Andrea Castillo put it on Twitter

More from Popper:

It may be impossible to prove Satoshi’s identity until the person or people behind Bitcoin’s curtain decide to come forward and prove ownership of Satoshi’s old electronic accounts. At this point, the creator’s identity is no longer important to Bitcoin’s future. Since Satoshi stopped contributing to the project in 2011, most of the open-source code has been rewritten by a group of programmers whose identities are known.

But Mr. Szabo’s story provides insight into often misunderstood elements of Bitcoin’s creation. The software was not a bolt out of the blue, as is sometimes assumed, but was instead built on the ideas of multiple people over several decades. …

Many concepts central to Bitcoin were developed in an online community known as the Cypherpunks, a loosely organized group of digital privacy activists. As part of their mission, they set out to create digital money that would be as anonymous as physical cash. Mr. Szabo was a member, and in 1993, he wrote a message to fellow Cypherpunks describing the diverse motivations of attendees at a group meeting that had just taken place. …

Several experiments in digital cash circulated on the Cypherpunk lists in the 1990s. Adam Back, a British researcher, created one called hashcash that later became a central component of Bitcoin. Another, called b money, was designed by an intensely private computer engineer named Wei Dai.

When these experiments failed to take off, many Cypherpunks lost interest. But not Mr. Szabo. He worked for six months as a consultant for a company called DigiCash, he has written on his blog. In 1998, he sent the outline for his own version of digital money, which he called bit gold, to a small group that was still pursuing the project, including Mr. Dai and Hal Finney, a programmer based in Santa Barbara, Calif., who tried to create a working version of bit gold.

The concept behind bit gold was very similar to Bitcoin: It included a digital token that was scarce, like gold, and could be sent electronically without needing to pass through a central authority like a bank.

This history points to the important role that Mr. Szabo and several others played in developing the building blocks that went into Bitcoin. When Satoshi Nakamoto’s paper describing Bitcoin appeared in the fall of 2008, it cited Mr. Back’s hashcash. The first people Satoshi emailed privately were Mr. Back and Mr. Dai, both men have said. And Mr. Finney, who recently died, helped Satoshi improve the Bitcoin software in the fall of 2008, before it was publicly released, according to emails shared with me by Mr. Finney and his family.

This what “permissionless innovation” is about: a messy bottom-up process where the collaboration of many innovators, intended or not, can result in the creation of something new that makes our lives better.

Popper’s piece is here. He has a book coming out on Bitcoin this month, called “Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money.” I haven’t read it but I’ve heard lots of good things.

I mentioned Popper a few weeks ago in these pages in connection to an article by Felix Salmon claiming that there were no women in the Bitcoin world. Perhaps Salmon didn’t do a very good job representing Popper’s views on the topic. 

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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