The Breakdown - What Satoshi Got Right About Bitcoin's Future

Starting point is 00:00:04 Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Sunday, March 3rd, and that means it's time for Long Read Sunday. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link at the show notes or go to bit.ly slash breakdown pod. Hello friends, it has been quite the week in Bitcoin. In fact, I am actually recording this a little bit earlier in the week, earlier than I normally do. And so I have no idea right now if Bitcoin is at

Starting point is 00:00:48 70,000 or 50,000 or where it is. But in addition to just crazy price movements and the return of some fairly mainstream attention, the last couple weeks saw one of the coolest and most interesting historical drops that we've had in a very long time. I'm talking, of course, about the set of emails from Bitcoin creator Satoshi Nakamoto that were released as part of a lawsuit against Craig Wright. Today we're reading a piece by Daniel Kuhn from Consensus Magazine called Five Things Satoshi Nakamoto correctly predicted about Bitcoin. Daniel writes,

Starting point is 00:01:23 correspondence between Satoshi Nakamoto and his earliest known collaborator, Marty Malmy, was released as part of an ongoing lawsuit in the United Kingdom regarding the true identity of Bitcoin pseudonymous creator. For some, the documents represent a new application, avenue of research, for anyone looking to finally identify who Satoshi really is. For others, the 120 pages of emails, also posted to GitHub, offer fresh insights into the character and personality of the long-gone developer. As Bitcoin historian and former CoinDesk editor Pete Rizzo noted, the emails largely conform to and confirm what the world already knows about Satoshi,

Starting point is 00:01:57 who between 2009 and 2011 was an active participant on message boards like Bitcoin Talk and the cryptography mailing list, and who cataloged his thoughts in a formal way. paper. However, new information has come to light via the document dump, including Satoshi's attempts to support early Bitcoin developers, his anxieties about developing a Bitcoin use case, and his prescience in anticipating some of the biggest debates that have defined Bitcoin's development, including over block size and energy consumption. Here are five things Satoshi Nakamoto predicted about Bitcoin before stepping away from the project. One, debates take energy. Proof of work, the algorithm backing Bitcoin is a fundamental

Starting point is 00:02:36 wasteful process by design. Even back in the days of Satoshi, people realized that if Bitcoin were to become successful, the hash power directed towards securing the network would be massive. Satoshi anticipated this debate and responded to critics, writing, ironic if we end up having to choose between economic liberty and conservation. In his message to Malmy, Satoshi notes that Bitcoin can only be truly peer-to-peer, quote, without a trusted third party, unlike the centralized attempts at electronic money that preceded the first cryptocurrency. They wrote, if it did grow to consume significant energy, I think it would still be less wasteful than the labor and resource-intensive conventional banking activity it would replace. Indeed, Galaxy Research published a report

Starting point is 00:03:15 that found the global banking system gets through 263 terawatt hours a year, or twice with the Bitcoin network uses. Two, rule of law. Today, Bitcoin is the only cryptocurrency recognized by U.S. financial regulators to be unquestionably a commodity because of the network's decentralized design and lack of a clear stakeholder. But in its early days, Satoshi must have been used to be keenly aware of the shadow cast by the U.S. Securities and Exchange Commission and the long arm of U.S. law. This might be why Satoshi took precautions around discussing Bitcoin as an investment, even if he did once say, quote, it might make sense just to get some in case it catches on. Satoshi told Mommy that he was, quote, uncomfortable with the language on Bitcoin's source

Starting point is 00:03:53 forge telling people to, quote, consider it an investment. He said it was okay if people came to the realization on their own, but that they should be wary of pitching it. Number three, not so anonymous. Similarly, privacy ads. Advocate Satoshi realized very early on that Bitcoin wasn't an anonymous technology, even if he tried to design it to be. At best, Satoshi wrote, Bitcoin can be pseudonymous if people take the appropriate precautions, like never reusing key pairs, and being careful not to link Bitcoin transactions to their real-world identities. He also worried it made Bitcoin sound shady, their word. Today, considering that most people acquire Bitcoin via exchanges that are legally

Starting point is 00:04:29 required to implement know-your-customer procedures to identify users, it's hard to remain private while using Bitcoin. It's unclear if Satoshi saw this coming, especially because Bitcoin was designed to obviate the need for intermediaries like exchanges, but he was still considering describing Bitcoin as private, lest it mislead users and so distrust of the project. Quote, I think we should de-emphasize the anonymous angle, he wrote to Malmy, who had said Bitcoin, quote, can be kept hidden in an FAQ, appoint Satoshi praise for being carefully worded. Satoshi went on, I think the people who want anonymous will still figure it out without us trumpeting it. Hello, Breakers. Today's episode is sponsored by Ledger. As another cycle ramps up, it's another chance to think about your Bitcoin custody best practices, and of course, to help all the new folks do the same.

Starting point is 00:05:17 Ledger is the global platform for securing Bitcoin and other crypto. Ledger combines both hardware wallets and the Ledger Live app to offer the best way to buy, sell, swap, and stake without sacrificing on security or self-custody. Ledger features cutting-edge technology in the form of a certified secure chip and a proprietary operating system, but also brings ease of use. This makes Ledger a safe and secure way to manage your digital assets without all the stress. Check out the link to the Bitcoin Ledger Nano in the show notes. 5% of all sales of the Bitcoin Ledger Nano go to support Bitcoin development. Thanks once again to Ledger for supporting the breakdown. 4. Any use cases? Satoshi and Maomi frequently discussed potential uses of Bitcoin, knowing that the network needed a killer use case or application to drive adoption.

Starting point is 00:06:03 Generally speaking, Satoshi noted the timestamping feature of the blockchain, which could be used to help authenticate events in the real world. But Satoshi also thought about Bitcoin's position within the world of digital payments and thought it could be used to create more liquid markets around existing digital currencies like Liberty Reserve, which is now defunct. He predicted that people wanting to improve their privacy could go from Bitcoin to Liberty Reserve to dollars, gold, or PayPal, given that at the time, it was easy to generate Bitcoin just by mining.

Starting point is 00:06:27 One avenue that Satoshi correctly predicted would be Bitcoin's viability for buying gift cards, which he referred to as pay-safe cards, which today is one of the most common uses of Bitcoin. 5. Developer patronage. Rizzo noted that the emails also give us insight into one of the earliest financial backers of Bitcoin, which was fully bootstrapped by Satoshi and never took in VC Capital. According to a back-and-forth over the course of months, Satoshi reveals that he has found an anonymous donor interested in donating between 2,000 and 3,600 to support development of Bitcoin. While it took some time for the mysterious and still unknown benefactor to send the cash via post to Malmy,

Starting point is 00:07:00 the money did go towards paying for website hosting costs and other incidentals. While this isn't a massive financial windfall, securing funds to offset the costs of volunteer work by developers shows, perhaps for the first time, that Satoshi was aware of challenges of supporting open source development. He wrote, It might be a long time before we get another donation like that. We should save a lot of it. Malmy was also told to take $1,000 of the donation to put towards an exchange he was developing,

Starting point is 00:07:24 which could have helped support the BTC-USD exchange rate, then worth just a few cents. If anything, this anticipates the current state of Bitcoin development patronage, which is still ad hoc and arguably insufficient. While it's becoming more common for firms like Block, Micro Strategy, and others to sponsor Bitcoin developers, over the years, a number of contributors have walked away from the costly labor of love. Satoshi notes at several points that he is often too busy with work to put as much time and attention towards Bitcoin as deserved.

Starting point is 00:07:49 He is thankful that developers like Malmy and Satoshi's hand-picked successor, Gavin Anderson, were around to carry the project forth. All right, back to NLW. I did a whole show about these Satoshi emails back, I think, last Monday. So if you're interested in more on them, I would recommend you go check that out. I think where I want to pick up this conversation is one of the points that I was making on that show, which is that the folks who are trying to read these emails as a quasi-religious text, showing Satoshi as some unfalable figure,

Starting point is 00:08:16 and his writing is sacrosanct in the way the Quran is or something like that, I think is not the right way to look at this. Daniel has posited this article as five things that Satoshi got right about the future of Bitcoin, or predicted correctly. But there is so much more that neither that person nor anyone could have possibly known about how it would evolve. Take, for example, this use case question. Satoshi was talking about things like timestamping features, whereas the killer use case of Bitcoin has clearly proven itself to be being a store of value that isn't owned by any one government. A store of value of a fixed supply asset. A store of value,

Starting point is 00:08:53 of an asset whose rules are mathematical, not dictated by people. It turns out, in the world that we live in, the world of the last decade and a half, that is an incredibly unique thing and a killer use case all on its own. This also gets me to the energy question, which is one that people have talked about a lot after these emails. One of the things that's always seemed clear is that the whole basis of the Bitcoin being wasteful argument rests on a presumption of Bitcoin not being a valuable thing. If you look at the people who scream and squawk that Bitcoin is wasteful, it tends to be people

Starting point is 00:09:26 who don't think that Bitcoin does anything for the world. It's people, in other words, who can't see the value of that use case that I just articulated. It's people who don't have problems with their banking infrastructure, who haven't had to deal with hyperinflation. And so because of that, it's not just that Bitcoin uses a lot of energy, it's that if push came to shove, they would think that any energy for that use case wouldn't be worth it. It's why this debate is so hard to have. It's not starting from a shared agreement that Bitcoin is a thing that even should exist. In fact, it's starting from a fundamental divide, where one side kind of doesn't think it should.

Starting point is 00:09:59 Satoshi clearly understood that there would be energy costs when it came to securing the Bitcoin network. They were just the first person to understand that those costs were worth it. I think if there's anything that would be most interesting for me to understand how Satoshi would think about now, it's the increasing hybridization of the Bitcoin system and the mainstream financial system. Obviously, we are living through that in the most dramatic way in the context of these ETFs, and different people have very different feelings about this. But I would be fascinated to know how the founder of this thing, who did have ambitions for it, would see the way that it's evolved. Would he view Bitcoin as infiltrating the

Starting point is 00:10:36 mainstream financial system, using it for its own purpose of spreading? Or would they be upset about the extent to which the mainstream financial system has imposed its norms, think KYC AML, for example, on the Bitcoin ecosystem. Or would it be both? That's the type of thing where it is sad that we don't have more information and up-to-date information about Sotoggi's perspective. But as I articulated in that previous show, the value to Bitcoin of its founder being well and truly gone is worth any amount of that loss. Anyways, interesting stuff. Thanks for another great piece, Daniel, and until next time, be safe and take care of each other. Peace.

The Breakdown - What Satoshi Got Right About Bitcoin's Future

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