On the 31st October 2019 Satoshi Nakamoto’s baby turned 11 years old. It’s quite remarkable to think that in two years time the white paper that changed the world will be a teenager.
Of course more people are preoccupied with Halloween on this day, at least in Europe, and the UK delayed its Brexit as well for the second or third time (everyone is losing count), which grabbed the news headlines. However, it is somewhat sad to see that after 11 years, the mainstream media still ignores Bitcoin, and all the celebrations were left to the crypto-focused press.
The original white paper is only nine pages long and opens with a remarkably humble statement: “I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party.” Some might say that this is the understatement of the century, because the author makes it sound as if it is mundane, and yet 11 years on we know its potential to create billionaires, as well as spawning an entire crypto industry now filled with a host of altcoins, as well as goodness knows how many fintech startups related to cryptocurrency.
A groundbreaking white paper
We should never forget just how groundbreaking the bitcoin white paper was. For the first time somebody had delivered a blueprint for an anonymous, trustless, decentralised currency. Of course, it didn’t appear out of nowhere. Fore example, Nakamoto says in his white paper that the proof-of-work protocol was developed from Dai Wei’s B-money thereby ensuring a ‘one CPU one vote’ policy.
Another important aim was to be a deflationary currency. This was achieved by stating that a finite number of bitcoin would be available. In this case 21 million. Fiat currencies by contrast can be printed or minted whenever a central bank/government decides, and that is an inflationary move. Eventually you end up like Venezuela in a state of hyperinflation, if you keep printing money, but your national borrowing keeps growing and there’s nothing to repay it with. Then you see people with notes piled up in a shopping trolley just to buy a loaf of bread. This situation is alien to the bitcoin ecosystem.
Nakamoto had beef with fractional reserve banking
Satoshi Nakamoto was not a fan of the banks that run the global monetary system, precisely because of issues like hyperinflation. But his pet hate was fractional reserve banking. In this system a bank can accept deposits, make loans or investments, but it is only required to “hold reserves equal to only a fraction of its deposit liabilities,” as Martin Young explains at BTC News. The problem with this type of banking is that when the reserves don’t match the money deposited by customers, and there’s an event that creates a domino effect, then the bank collapses and the customers lose their money. Which is exactly what happened in 2008. Let’s not forget that Nakamoto published the white paper only six weeks after Lehmann Brothers spectacular crash.
Eleven years on, bitcoin has become iconic for its many supporters, and hated by a few. It is also true to say that the majority of people worldwide still don’t understand it, and are being fed all kinds of scary stories by the media, which doesn’t encourage them to understand the upside of cryptocurrency.
It may be true that we haven’t yet reached anywhere near the mass adoption figures that the first cypherpunks hoped for, but in another 11 years, I believe that celebrations of bitcoin’s birthday will be more widespread and that it will be more widely accepted. It may even be a lifebelt for many when the next global financial crisis hits us.