Satoshi Nakamoto is a pioneer, a mystery, and a potential saviour. Having created what many would consider to be one of the most significant advancements in the evolution of currency, Satoshi has now receded back into the depths of internet anonymity from whence he came.
The name Satoshi Nakamoto is in fact a pseudonym and it remains unclear whether it describes a man, a woman, or a group of people. What is certain is that this entity is a cryptographic genius of the highest order. Back in 2007, Satoshi applied his knowledge to the world of economics and began to design a system that could conceivably liberate the mass of humanity from the clutches of traditional centralized money systems and the controllers thereof. On January 3rd 2009, his efforts were realized. Bitcoin was born.
In recent months, awareness of the existence of Bitcoin has been growing exponentially. Tech websites and economic periodicals are flush with reports of the rise of this new type of currency, the value of which has skyrocketed from $14 (USD) per Bitcoin (BTC) at the beginning of this year to $80/BTC at the time of writing this article (March 28th), which makes it the best performing currency of 2013. However, what sometimes seems to be missing is a true appreciation of just how much of a game-changer this phenomenon implies.
Economist Max Keiser has recently stated in an interview with Alex Jones that "Satoshi Nakamoto is the cyber-Christ" and that "Bitcoin is the Fed killer". Anyone who has followed detailed critiques of the Federal Reserve system (that would include Ron Paul supporters, followers of the Zeitgeist Movement, and basically anyone who has paid the least bit of attention to current money mechanics) would do well to pay attention and attempt to understand why Keiser would make such a bold statement. The basics of why Bitcoin is so important are as follows.
Bitcoin is the world's first completely decentralized money system. That means that there is no single point of failure. For Bitcoin to be shutdown, you basically have to get rid of the Internet. Because there is no central authority that can decide or influence how or when somebody can use Bitcoins, anybody has the hypothetical ability to send a million dollars worth of Bitcoins to anybody else, anywhere in the world as long as they have an internet connection. And they can do so with practically zero transaction fees and without having to wait for a third party to verify their request.
The verification process is written into the open-source code (available for anyone to read and review). It works by having people dedicate their computer's processing power to decoding complex mathematical equations that in turn enables transactions to take place. Whoever makes the effort to contribute this rather large amount of processing power (and hardware is now being built with this specific purpose in mind) is rewarded with a certain number of Bitcoins.
This is called Bitcoin mining. And that is the only way that new Bitcoins are introduced to the network. As time goes on, the amount of Bitcoins being rewarded will become smaller and the mathematical equations that miners are required to solve will become more complex as the sum total of Bitcoins in circulation approaches 21 million, which is the maximum amount of Bitcoins that can ever exist.
We are supposedly very far away from achieving the maximum number of Bitcoins but when this does happen, the motivation to continue to decode equations and verify transactions will come from miniscule transaction fees (usually less than 1 cent per transaction) that go to the miners. The fact that there is and will always be a limited amount of Bitcoins prevents the inflationary problems that we experience with regular currency. All this can take time to wrap your head around, but what is important is to recognize the distinct and significant improvements an adoption of Bitcoin would offer us.
One of those improvements is that we could have complete privacy and control with regard to our trading of goods and services. For the libertarians among us, this is obviously advantageous. Dissenters of the War on Drugs have already utilized this potential with the creation and widespread use of the infamous Silk Road website. For those who haven't heard, Silk Road is a worldwide online black marketplace which connects buyers and sellers of all sorts of illicit products and in particular, drugs, the selection of which is astonishing. This is only possible because of the anonymity that Bitcoin affords.
Another more basic improvement is the lack of transaction fees. It is estimated that merchants in the United States pay a total of up to 45 billion dollars a year in transaction fees. That money would remain out of the pockets of bankers and in the hands of people who conduct their business via Bitcoin.
Bankers would in fact become obsolete in a Bitcoin economy. If the bankers of the world have indeed been manipulating society for the sole purpose of their own enrichment, then this may be our best chance at escaping their economic controls over us once and for all.
But perhaps Bitcoin's most promising improvement is that it is a true peer to peer system, which means that its integrity is dependant on the contribution of its users. Just as the file-sharing phenomenon of torrents grows stronger with each computer that is added to the network (and thus facilitating greater and faster downloading/uploading capacity), the Bitcoin system grows more secure whenever someone decides to apply their processing power to the Bitcoin network.
Not only is this effective in a practical sense, but even philosophically it seems to relate closely with a more cooperation-based approach to human relations. Movements such as Occupy Wall Street and the Evolver Spore network could reasonably be labeled peer to peer operations. To a certain extent, transformational events such as Burning Man could be considered peer to peer. Without the contributions and enthusiasm of its participants, it wouldn't exist.
An obvious question that appears quite often in discussions on Bitcoin is, "How practical is Bitcoin at this moment and what can I buy with it besides illegal drugs?" While this is a very legitimate concern and it would definitely be a bit premature to trade all your tradional money for Bitcoins, there is evidence to indicate that if interest in Bitcoin continues to increase at the same rate we've been witnessing in the past year, we could eventually hit a critical mass where the majority of our trading could be done via Bitcoin.
As for now, purchases made with Bitcoin are mostly limited to internet related services, although there is an Albertan man attempting to sell his home for $400,000 worth of Bitcoins, as well as a handful of restaurants around the world that have been toying with the idea of accepting the crypto-currency as payment for their services. All that would be needed is a wifi connection and a smart phone. And there already exists apps that are to designed to easily execute Bitcoin transactions.
Apart from actually being able to purchase commodities, many people see Bitcoin as not only an investment but a way to secure one's wealth in an increasingly unstable global economy. The recent economic crash in Cyprus and subsequent Bitcoin boom (from $40/BTC to over $80/BTC in about two weeks) is reportedly partly due to Russian investors (who apparently have massive holdings in that country's banks) buying up the new digital currency as a safeguard.
That would seem to be a testament to the overall security of Bitcoin, a topic which is often misunderstood. Several news outlets have been reporting that the Bitcoin network was hacked into back in June of 2011, causing the value to plummet. And critics have used this misinformation as fuel to scare off potential Bitcoin converts. But what actually happened is that a Bitcoin exchange company had its domain name hacked into and as users logged in, the intruder was able to syphon off a large number of Bitcoins, a situation which has nothing to do with the security of Bitcoin as a currency and is analogous to assuming a successful bank robbery makes a negative impression on the integrity of that bank's currency. Bitcoin is in fact so sophisticated in its cryptography that it has been acknowldged as being more secure than the encryption-based security systems of regular online banking.
Jeff Berwick, a Canadian investor and founder of Stockhouse.com has announced that he plans to release the first Bitcoin ATM in Cyprus. That way, when the traditional banks run out of money and cannot allow their clients to make their rightful withdrawals (as has happened in Cyprus), there will be a second option to obtain actual cash via a physical Bitcoin money machine. Berwick also stated, "I am convinced Bitcoin will be the currency of the future… and all the attacks on it by governments and central banks shows they know it."
The American government has in fact remained quite silent about Bitcoin until just recently when they decided to extend and enforce the same money laundering laws that exist for its own currency to alternative digital currencies. It will do this through the monitoring of transactions through Bitcoin exchange companies. Although this will undoubtedly create problems for the online world of illegal drug dealing, many proponents of Bitcoin see this mention as a stamp of legitimacy.
It is quite astonishing to think that an anonymously born Internet phenomenon could conceivably save us from global economic tyranny and collapse. It sounds like something from a William Gibson novel. However, we live in a world where most of the population blindly accepts having a quasi-private institution secretly control the creation of money, along with a government who will spend hundreds of billions of dollars bailing out bankrupt banks who themselves operate in the mind-numbing practice of fractional reserve banking.
It is impossible to overestimate the absurdity of our financial systems. It can be argued that they may have been useful at one time, and that they've helped propel our society into the technological wonderland of today. Unfortunately, the inconvenient side-effects seem to be quickly destroying ecological health on our planet thereby threatening our very existence as a species. As such, it is very much worth our while to seriously consider any sort of remotely viable alternative. Bitcoin may not be the answer to all the world's problems, but it might be a good starting point. I would encourage anyone who is not in the know to take a few hours and really learn how Bitcoin works and why people think it's important. There are now endless amounts of articles to read, many of which have just appeared in the past week or two.
Humanity may be a long way from the money-less utopia that many of us envision, although at certain times we can experience fleeting moments of how spiritually satisfying such a world would be. Burning Man, friendly community-based gatherings, and free hugs from random strangers offer a taste of this heavenly potential. But it's not the flick of a switch on a wall that will get us there. Just like everything else, we will get there one step at a time. And maybe, at least in terms of economic behaviour, Bitcoin is the next step.
Image by zcopley, courtesy of Creative Commons license.