The Breakdown - In The Shadow of Satoshi's Ghost: Why Bitcoin Mythology Matters

Episode Date: May 23, 2020

On Wednesday, a batch of coins mined just a month after bitcoin’s birth were moved. It was the first time since August 2017 that any bitcoin from early 2009 had been transferred, and the action set Bitcoin Twitter on fire. While a number of bitcoin archaeologists quickly and persuasively argued the tokens were almost assuredly not mined by bitcoin creator Satoshi Nakamoto, it was a moment that reinforced the living history in the bitcoin ecosystem.  In this episode, NLW looks at what makes the Satoshi mythology powerful:  Genuine technical innovation and problem solving that had stymied some brilliant minds for decades Incredible instincts around narrative and human psychology, as reflected in the “Chancellor on the Brink” message embedded in the Genesis Block and the ceremony around the halving The incredible contrariness of a creator withdrawing in a world where entrepreneurs are lionized like no one else in society And while the battles within the bitcoin community around interpretation may look more like the early history of religions than like a business ecosystem, NLW argues that fervor is a key part of what de-risks bitcoin, even for investors who don’t at all care about the mythology.   

Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond. This episode is sponsored by ArisX.com, the Stellar Development Foundation, and Grayscale Digital Large Cap Fund. The Breakdown is produced and distributed by CoinDesk. Here's your host, NLW. Welcome back to The Breakdown. It is Friday, May 22nd. We are on the verge of Memorial Day weekend, the historic Bexdown. beginning of summer around the U.S. And to celebrate going into this new season, this new period where we hopefully leave behind a lot of the pain of the last season, I wanted to celebrate and just discuss something that was uniquely Bitcoin from earlier this week.

On Wednesday, I tweeted out, as if Bitcoin didn't have so much else going for it right now, the absolute intrigue of the living history of it is insane. So this episode is about what I was talking about and why Bitcoin's mythology matters. At about 11 a.m. East Coast time on Wednesday, the world noticed that a Bitcoin transaction had occurred with Bitcoins that were more than 11 years old. These UTXOs, which refer to the specific bitcoins that were moved, date back to February 9, 2009, which was only one month after the creation of Bitcoin. So these coins were mined when Bitcoin was literally worth nothing. There was nothing to even theoretically give it a value, which means it was one of the very earliest miners who actually

had produced these coins, right? They were produced with a GPU most likely on just someone's random computer. And so immediately people got incredibly excited, wondering, is it possible? Was it possible that these were Satoshi coins? Obviously they were Satoshi era, just one month after the creation of Bitcoin, but were they the person themselves? Well, very quickly it became clear that it was unlikely that it was actually Satoshi. When the Whale Alerts account on crypto Twitter said that it might be, Jameson Lopp, who is a Bitcoin core developer and the CTO of Kasa, tweeted back, y'all need to up your analysis game. Nick Carter wrote, keep in mind, it's basically impossible to prove that Satoshi didn't mine these coins, but the best research we have suggests that Satoshi mined a specific

set of blocks, of which this is not one. He wrote, here's a visualization of the Potoshi pattern with the block that was just spent. The blocks believed to be Satoshi have a specific pattern in the nonce, which this block does not have. Basically, the point of this is that blockchain archaeologists, Bitcoin archaeologists, have already gone back to try to figure out which blocks they thought were Satoshes. It's part of why we have an estimate. of how many Bitcoin Satoshi actually mined, and this one wasn't among them. Now, there was some disagreement about that. Whale alerts, perhaps to save face, perhaps because they really believe it's true, commented to Coin desk in an article that they didn't

believe that the Potoshi pattern ruled out that it was actually Satoshi, so they were defending that illusion, basically, or defending that idea. But the more relevant piece of this was that These were some of the earliest bitcoins in existence that moved for the first time in 11 years. What's more, this is the first time since August 2017, as Antoine La Calvese pointed out, that someone spent coins from early 2009. Now, this happens very, very infrequently. The last time we heard of something from this really early era was, in March, a GPU miner, someone discovered that they had a trove of about 1,000 Bitcoin

from GPU mining in 2010, and they were able to sell it for something like $8 million. This happened right before the crash in March, Black Thursday. So that's the last time we saw even something from 2010, but like Antoine points out, it was August 2017, almost three years ago, that someone last spent coins from early 2009. People got incredibly excited about this. The internet was lit up. Satoshi was trending with more than 18,000 tweets for a while, alongside all of the whatever political rancor was trending that day.

This is a really exciting moment for people, and I think it's worth asking why, because not everyone felt this way. So let's talk about one critique. Commenting on Reddit, Greg Maxwell said, Ugh, nothing connects these coins to Satoshi. Also, the Bitcoin software generally tries to minimize change. This will result in big outputs being left alone in an active wallet that has smaller outputs,

so it's possible that the author of this transaction has been frequently active all along, and their wallet just got around to spending this particular coin. He went on to say, the only reason this is being treated as newsworthy is because of a symmetry break due to one of the earliest reports falsely presenting it as being connected to Bitcoin's creator. So his critique was two things. One, this could be an active user of Bitcoin whose wallet only thought to go get these older ones to move around. And two, that this was a non-news story. This was a non-event and it was only becoming an event because someone said they were Satoshi coins rather than just Satoshi era coins.

I think that the first point is super salient, right? And it gets to the idea of how Bitcoin wallets and how the Bitcoin software tries to spend newer UTXOs before it spends older. So this could, to Maxwell's point, just be someone who's really active. Basically, it doesn't mean that this person is someone who hasn't been active in Bitcoin for 11 years, even though the coins themselves are 11 years old. But I think that the second point is just kind of wrong. There were intimations pretty quickly that maybe this was Satoshi, but I don't think anyone actually got excited thinking that the ghost of

Satoshi had come back in some way. I think people got excited because there is a living history and a mythology to Bitcoin, which is part of the mystery and part of the excitement of it. And so that's what I want to talk about today, why that mythology matters. A lot of ink has been spilled. about Satoshi Nakamoto and the example of this person who pulled themselves out and the idea of an anonymous or pseudo-anonymous founder and all these sort of things. And frankly, I think we still don't appreciate just how much of a break with entrepreneurial history this is. I want to talk about why the Satoshi mythology itself is unique. First thing, the depth of the innovation is profound, and I think it would be easier to overlook this. For decades before Bitcoin was created,

People were trying to solve the problem of digital money, right? Bitcoin wasn't born out of nothing. Bitcoin was an outcome, a response to, and an evolution of work that had been going on for decades, from Chom, from Adam Back, from people like Nick Sabo, who got pieces of it, but couldn't figure out the full complex idea. They couldn't solve things like the double spend problem. Bitcoin was a pretty profound innovation in terms of the way that its system. was designed, and that is part of this. Part of it is that it did actually take an act of genius to create this system that had eluded so many other people that many would call geniuses for the decades previous. So I think that it's really important to remember in this Satoshi

mythology that there is genius in this system that has proven itself as its resilience continues to be shown year after year, you know, more than 11 years later. So that's part one. Part two is that in addition to this technical innovation, this profound and important technical innovation, Satoshi had pretty unique instincts as it related to narratives and storytelling. And there are a couple examples. The first was the message embedded in the Genesis block, that newspaper headline from that day, January 3rd, 2009, Chancellor on the brink of a second bailout for banks. building that in to the Genesis block forever made the point boldly and clearly to anyone

knew who came in that Bitcoin's design was a direct reaction, a direct counterpoint to the inflationary monetary policy that was gripping the world in the wake of the great financial crisis, in the wake of that crash. It is inarguable that Satoshi's intention was to design a system that was undebasable just from that alone. Hold aside anything he ever said again on Bitcoin talk or anything like that. It was built into the very first block of this entire system. That is a hugely powerful narrative hook that comes from, I think, a deep-seated insight in understanding how to make this thing appeal to different people, right, who weren't just curious about magic internet money and wanted a different way to transact. So that's part one. Here's another example. Here's

another example, though, I think, of a narrative concession over a technical concession. And I saw someone, and I can't remember it now. I apologize to them. If you said this first, please let me know on Twitter and I'll cite you. But I noticed that someone said that it might have been more efficient from a technology perspective to just have the emissions continuously decline in some linear function, right? The whole idea of the Bitcoin system is that every four years, the rate at which it emits new Bitcoin as part of the block reward has. This creates this occasion, this ceremony that we call the having or the halfinning, depending on who you are. And the interesting note that this person made, I think now that I'm thinking about it, it might have been at Paul BTC on Twitter,

was that, sure, you could have just had a continuous decline. It would have made the same point to the world of a reduced emission schedule over time. But by having it be every four years, it creates this ceremony where the asset itself gets to graduate to its next level. It's almost akin to a high school career or a college career where it moves on to a new phase. And frankly, that's the way that we've seen it play out. We mark the history of Bitcoin as before or after different havings. It becomes the biggest occasion. I mean, think about how much time we spent at the end of last year and the beginning of this year talking about whether the halving was going to be the most significant event of the year and what it was going to mean and what would happen in terms of

hash rate and value and all these sort of things. Plus, plus, plus, plus, when this unbelievable, unexpected financial crisis hit and the money printer got revved up again, the having sat there as this mark, this moment where you could point to, on the one hand, every central bank in the world trying to figure out how much it could print to actually backstop the industries and the people in its borders, and on the other hand, this new, emergent, increasingly resilient and powerful economic system that was outside the existing system, reducing its issuance on this regularly scheduled, completely predictable, so planned and unchangeable to make it boring type of schedule. That monetary policy stood as so different from everything else in the world, but it might not

have felt that way, were there not this occasion, this ceremonial occasion? of the having to embody the idea. Ceremonies matter. Look back through any faith group, through any professional group, to any, any human society. Ceremonies that mark transitions are incredibly important. And by having the having be at this regular predictable schedule, it not only reinforced the predictable programmed nature of the Bitcoin monetary policy, it created a context for people to do what people do, which is create ritual, around it. So I think that that also, again, has to do with a pretty profound insight into human psychology and the way that we are social beings. That's part two. So part one, depth of

innovation was profound from a technological perspective. Step two is really profound and interesting instincts around narratives and storytelling and human psychology. Support for this podcast and this message come from Eris X. With Eris X, you can trade spot and regulated futures on cryptocurrencies through a licensed U.S.-based exchange. ArisX believes in fair access for all. Sign up today to take advantage of zero fees and learn more at ArisX.com slash consensus. This episode is also sponsored by the Stellar Foundation.

The Stellar Network connects your business to the global financial infrastructure, whether you're looking to power a payment application or issue digital assets like stable coins or digital dollars. Stellar is easy to learn and fast implement. Start your journey today at Stellar.org slash coin desk. Our final sponsor is Grayscale Digital Large Cap Fund. In times like these, diversification is key.

Consider Grayscale Digital Large Cap Fund, ticker symbol GDLC. It's the only publicly treated investment product that offers diversified exposure to large-cap digital currencies, all from your brokerage account. For more information, visit grayscale.co slash coin desk. That's G-R-A-Y scale.co slash CoinDesk. Step three, and I think this one might be the biggest. The withdrawal from fortune, fame, and influence is so, so at odds with the entire history of people making money in the world. Certainly at odds with the history or the recent history of entrepreneurship and entrepreneurs leveraging their lionization and their near-godlike status to move effortlessly from

entrepreneurship and technology to whatever field that they care about. The fact that so early in this asset's life, the creator of it removed themselves from even the day-to-day discussion, to say nothing of the fact that they're sitting on a fortune worth something between $5 to $20 billion based on what the Bitcoin price is at any given moment. Now, most people or a lot of people at least, think that that fact, the fact that these assets, these Bitcoin have never been moved is a reflection of the idea that Satoshi is deceased, that this person or persons are no longer with us. Most people can't imagine the idea of that many coins, that much fortune, that much wealth, just sitting there forever. So that's the way that people choose to interpret it.

But regardless, this person withdrew from the ecosystem, they didn't try to control it, and they didn't try to guide it past letting it actually live and get out into the world. Again, this is so different. In fact, if you look at what's going on in the rest of the world, how much of our conversations during this pandemic have been about individual figures, Bezos, Gates, Elon. Just today, the Atlantic put out a cover story, I guess it was yesterday, excuse me. The cult of Elon is cracking.

The SpaceX and Tesla's CEO's response to the coronavirus pandemic is starting to alienate his fans. We have this conversation because we have this super amplification mechanism around the cult of individuals. Social media has supercharged the great man of history theory as it relates to the tech billionaires that we see around us. And so again, this is so distinct and different from someone who chooses to withdraw. You're also seeing this do nothing increases. People are able to create more and more independent brands, right? Joe Rogan getting a reported $100 to $200 million from Spotify for his podcast, his conversations with his friends that have created a legion of fans who download what he does 190 million times per month without any startup financing, without anything other than his Rolodex, some people who work for him and his conversation. That's what created this $100 to $200 million value empire.

This is amplifying the idea of the individual. And so to have an individual withdrawal, I think, is really, really significantly breaking the mold of the time that we live in. I think that there's more important, though, than just kind of reverse-lionizing this person for getting out of the public spotlight. I think there's actually a distinct reason why it matters in the context of the Bitcoin system specifically. It matters because it lends huge credibility to the idea of the immutability of the monetary policy. In the absence of Satoshi, there is no one person in the Bitcoin. ecosystem with the influence to change it. Now, there's, I think, a pretty good argument that if Satoshi did credibly resurface at this point and try to start changing things, that person would

be rejected out of hand or pretty aggressively and probably have to fork off and do their own version of, you know, Bitcoin My Vision, because it has become something different and bigger than what that person started back 11 years ago, 12 years ago. But I think that from the standpoint of those actors, whether they're individuals or institutions who are coming in from the outside and seeing the immutability and the distinction and difference of Bitcoin's monetary policy as compared to, again, everything else in the world, the fact that there is no figurehead who could wake up and change their mind tomorrow, who has the ability to influence the system to tweet out and change the price, that is hugely appealing. Again, in a world where you have Elon saying that the

stock of Tesla is overpriced on Twitter, you know, like it's just so, so different. And I think it reinforces, again, the difference, the distinction, the idea that there is nothing that is less correlated with the rest of the world than Bitcoin, which is a huge draw for investors of every class of every category right now. There's another piece of this, though, too, which is that the withdrawal of Satoshi creates a unique opportunity to extend the hagiography, right? The saint making, the reverence, two early actors in the system. In other words, it creates the opportunity for people to lionize individual apostles who were what we call OGs or something like that. And that creates really interesting dynamics as well from the standpoint of network building.

We've already seen this in the context of VCs, right? So if you think about where Peter Thiel really became well known, it actually wasn't for his work on PayPal, although he was certainly known in tech circles for that. Where he broke out into a larger kind of influence sphere is because he wrote that $500,000 check to Facebook, to Mark Zuckerberg, before basically anyone else really got in. That was not only a winning bet from the standpoint of economics, it also was a massively powerful signal to the world of this person being able to see things differently. We see bits of this in the way that people treat people who got into Bitcoin really early, who built parts of Bitcoin really early, who built really companies on Bitcoin. And this is not to say that there's

exclusive reverence. There are plenty of fallen heroes. There are plenty of people who think that it's anathema to have heroes. That's kind of a feature, not a bug, of the Bitcoin ecosystem. But the point is that this idea that there's this set of early actors who are able to kind of give their perspective on things, to say I was there early, is actually really interesting in a historical context. I've talked through kind of the uniqueness of Satoshi, but there is precedent, I think that's worth exploring a little bit just for fun, which comes not from the world of technology and business, but from the world of religion.

First, let's talk early Christianity. What we know as the Bible, the Old Testament, the New Testament was not fully formed when Jesus was doing his thing back in the day. It was the byproduct of literally hundreds of years of intense competition and internecine warfare between different interpretations of which gospel, and what the teachings were and how to put them together and what should be canon and what shouldn't be canon.

And it actually took literally centrally for this to become formalized in what we now know as the Old Testament and the New Testament. It wasn't until the Council of Nicaea, which took place over the course of about five months in 325 AD, that what we think of as a Christian canon, Christian Orthodoxy, actually was brought together in an intentional way. I mean, these were not just questions of which Gospels were going to be considered part of the Bible, but questions as relevant as what was the relationship between Jesus as the Son and God as the Father, right? These were really pretty foundational issues, and it took until 325, 300 years after this person had lived for this to actually come together. Basically, the point here is that there's so much jostling and myth-making and attempts to, say, our views of the world are bigger, than yours and more correct. Our views of this key historical figure who has vanished are more

correct than yours. And I think that there are actually some precedence in how you see bits in warfare of the interpretation of Satoshi's writings and what thing was Bitcoin supposed to be. So you see some of that battle. This took place also not just in Christianity, but in Islam. And in fact, in some ways, the Islamic context for trying to interpret the word of the prophet, the Satoshi type figure, is even clearer, right? So Islamic jurisprudence, Islamic law is a collection of layered authority, basically. So you have at the very kind of core, the most authoritative on anything is what it said in the Quran. Unlike the Bible, the Quran is believed to be the literal word of God. It was actually given fully formed to Muhammad. That's the idea. So that is the single most important source of truth.

Anything that is written in the Quran is meant to be followed to the letter. Then there's the suna, as it's called, which is basically the teachings of the prophet, the teachings of Muhammad, that actually things that he talked about during his time being the prophet. So that is the second most authoritative source, is what he said in life. Now the third most authoritative is ishma or consensus, which is basically in the wake of Muhammad, the people who were around him, who were leaders, religious leaders, who would interpret different things that he said and come together to say, well, this is what was meant on this issue that he never exactly ruled on. Think about some issue that the Quran didn't speak to exactly and that Muhammad didn't speak to

exactly. Well, they use consensus of the set of religious leaders to try to get that. So that was the ishma. And then last is the idea of QIA or analogy. or ishtahad, which is reason. And these basically meant giving people the ability to reason based on what they had seen from those other three sources and make decisions for themselves on issues that weren't determined. And this was a lot, a very important part of this system for hundreds of years, this ishahad especially, it was the way that Muslims in the Middle Ages had the ability to

actually figure out new modern situations that those texts and those people that were 400 years in the past now hadn't spoken to. And it was interesting because if you actually get really into this, in the 11th century, as the Mongol invaders basically came throughout the Islamic world, they closed the door to Ishtahad. They basically said that Muslims were no longer allowed to use their own reason, to use their own analogy, to determine how to live. They had to just focus on the existing teachings. And there were reasons for that politically, but it was a pretty monumental point in the history of this religion and how it evolved from a social perspective. By the way, if you're wondering how the hell I know all this, I studied abroad in Cairo and

took a number of courses on Islamic jurisprudence randomly in another life. And I think that it's more interesting in the analogy than in the specific, which is to see that in both Christianity and Islam, you have these battles to basically interpret the word of some unimpeachable source. in the case of Christianity, it's Jesus and his teachings, in the case of Islam, it's the Quran itself as well as Muhammad. And in the Bitcoin case, there is this interesting battle that follows some of these almost religious lines around what is the intention, what were the words supposed to mean? I mean, you see these fights relitigated constantly on Twitter, and I think that that speaks to this shadow of Satoshi's ghost that we all live within. Now, I think that there's going to be some

of you out there who are saying, I don't think it's necessarily a good thing that there's analogy to these early combative religions in this Bitcoin system. And I think that there's one thing that you should take away or one thing that should ease those fears. There's no order in Bitcoin. There's no institution that runs Bitcoin. There's no institution that's trying to consolidate control of Bitcoin any more than within the context of a specific type of business, like a mining business trying to own a big part of the market share. There is no Orthodox Church. There is no Sunnis versus Shiites, or, you know, from an actual organization standpoint. So the actual risk of what this sort of religious battles, these holy battles of interpretation, are mitigated because

there's not an institution that can leverage them to ruin the system, to cause chaos in the system. It's really just about this battle for interpretation and trying to win the narrative to one side and attract people to it. And I would argue in some ways that the intensity of that debate of that argument is to Bitcoin's benefit in these early days. It creates an incredible in-groupness, an incredible depth of devotion to the project to help see it through these really early important stages. You have to remember that this is one of the most optimistic, arrogant projects that you can possibly imagine, trying to fundamentally change the way that money has been organized for centuries is so much more ambitious than the average tech company, not just

the average tech company, the most ambitious technology companies. This is a reimagination of society. This is why people bristle when it gets lumped in with other technologies, is that the intention is so much bigger, the implications are so much bigger, that having these sorts of holy battles, as strange as it seems, creates, I believe it reinforces these hoddlers of last resort. And frankly, those hoddlers of last resort are a big part of what creates confidence for other types of actors who, frankly, don't give a shi about any of this internecine warfare, about any of these battles to come in. Paul Tudor Jones doesn't care about the interpretation of Satoshi's every word. But what he does care about is the fact that the number of people who do,

who are holders to the death, creates a floor for an asset that he thinks because of its structural design could be really powerful. And I think that that's really important. As we look at this new set of actors that might come into this system, the strength and resilience of it is based in large part at least right now

and for some time to come on the resilience of the belief of the people who are in the system. And I think in that way, this mythology, this myth-making creates a huge part of the foundational layer of Bitcoin as an asset, which is the ecosystem of people who will be there to the end for it. And I think as silly as it sounds, that actually matters and it translates to de-risking this asset for people who don't have hands that strong,

who don't have that same belief system. Now, there are risks in the Satoshi myth and the Satoshi assets as well. We saw a pretty significant sell-off yesterday after this happened. I tend to be of the type of mind that thinks that when we try too hard to ascribe big changes in price to some event that happened, rather than the movement of large holders or the interest of large holders from kind of a day-in, day-out trading perspective, we're usually over-explaining things. However, it could be wrong. It could be that people were spooked. So why would people be spooked that these Satoshi era coins were moving? Well, part of the belief of the Bitcoin system or the base of it is that there's this 600, 700, 800,000, or a million coins that were mined by Satoshi that because they're

dead or because of what else are never going to move. Imagine if all of a sudden big pockets of those started to be sold off that would create incredible downward pressure on the price of the asset. So it's not a uniquely or exclusively rather good thing. There is a double edge to this sword. But I think that the point that I'm trying to make and have been trying to make throughout this is that the actual mythology of this pseudo-anonymous founder who has seemingly vanished from the earth is a really unique and powerful, at least in the early going, part of this system. And so what am I mean by that, at least in the early part? Bitcoin, every week that it goes longer, every time that people think it's dead and then it comes back, it gets more resilient. It gets more

resilient in terms of belief, people coming in, people assuming that it's always going to be there. Over time, the actual demonstrated resilience of the system will start to outweigh the theoretical resilience of the system that is embodied in these intense hodlers of last resort. In 100 or 200 years, if Bitcoin still exists, it won't be because there's still those hodlers of last resort who remember these Satoshi Times, who remember where they were, when they were reading Bitcoin Talk forums in 2011, 2012, it will be because the asset has literally existed. This is the idea of Lindy effects. But we are still in this very early stage and walking on fire. And during that time, I think that this Bitcoin myth-making matters. Anyways, guys, that is

definitely a post for a Friday for a long weekend. I hope you enjoy it. You can tell me I'm full of shit too, by the way. I will not mind, especially with this one. But that's my interpretation of what happened this week with these Satoshi era coins and why I think it's interesting. Anyways, guys, I hope you have an awesome Memorial Day weekend. I hope it's beautiful where you are. And as always, thank you for listening. I appreciate you. Be safe and take care of each other.

Peace.