Who created Bitcoin?

In my previous post, I described Bitcoin as a network of connected devices. I stated that there are three main stakeholders tied to the Bitcoin network: 1. developers, 2. miners and 3. users. This post will focus on the contributions of the first developer(s).

Question #3: Who created Bitcoin?

Satoshi Nakamota, an unidentified person or group of people, created Bitcoin.

When you ask who “created” Bitcoin, what you’re really asking is:

1. Who conceived the idea?
2. Who built the software that miners can use to effectively run the network?

In November 2008, someone by the pseudonym Satoshi Nakamoto shared a white paper entitled “Bitcoin: A Peer-to-Peer Electronic Cash System.” (Did you click it? That’s really it. I provide a summary below.) Satoshi shared this document via an email to a group of elite cryptographers. The email read as follows:

The Idea: TLDR — Bitcoin White Paper

The white paper referenced in the email, proposed a network that combined concepts from previous attempts at electronic money systems, cryptography and game theory. Below is a section-by-section recap:

1. Introduction: As it stands, the use of third parties to manage digital transactions is costly, even if you don’t necessarily feel it everyday. The cost economics make it impractical for transactions below a certain size, ie. think of the credit/debit card minimums required when you pay at a store. A solution could be a new model for digital peer-to-peer transactions.
2. Transactions: We can think of digital monetary transactions as a sequence of approvals to transfer a coin from one person to another. Let’s say, I have a physical dollar and I write the number “0307” on the corner. When I give it to my friend Janelle, the transaction is recorded as “Mac gives Janelle dollar 0307.” Then, when Janelle gives it to Sharlene, the transaction is recorded as “Janelle gives Sharlene dollar 0307.” Now remove the physical dollar and imagine all these transactions are simply digitally recorded approvals. We’ve moved from physical to digital by earmarking each dollar, or in this case “coin.” This still leaves the double-spending problem. In other words, was “0307” ever really mine to spend or is it fake? Usually this is where a third party steps in to verify.
3. Timestamp Server: The solution to this problem begins by attaching a unique ID, called a “hash”, to act as a time-stamp for sets of transactions grouped into “blocks”. We then use the hash of each block as a necessary input to determine the hash of the following block, creating a chain.
4. Proof-of-Work: Figuring out the hash is very computational intensive. It can be compared to solving a Sudoko puzzle — difficult to solve but very easy to verify if you did it correctly. By making it difficult, it makes it so overtaking the network to verify fraudulent transactions for personal gain is very costly. Additionally, the “puzzles” become increasingly difficult as miners get better at solving them.
5. Network: This section outlines the 6 steps described in my previous post under “Bitcoin Network in Practice.” In short, the network functions by users broadcasting their transactions across the network, the miners aggregating the most recent transactions into a block, and then the miners competing to verify the transactions within the block and assign a hash to the complete block. The first miner to do this then proposes to all the others to add that block to the blockchain. If the majority agree, all miners update their stored version of the blockchain.
6. Incentives: Miners are rewarded with newly created bitcoin for adding to the blockchain. Their reward is then circulated into the wider bitcoin supply when they sell/pass the bitcoin along. Gold mining serves as the analogy — gold miners expend time and energy to find gold which is then passed on to others. Miners could also be incentivized by transaction fees. In other words, if I attach additional bitcoin to the transaction I would like verified, the miner that adds the block containing my personal transaction within it, earns the additional bitcoin for the effort they put forth.
7. Reclaiming disk space: After a certain number of blocks have been added, you can erase the underlying transactional data from previous blocks and only keep record of its hash to allow for more disk space.
8. Simplified payment verification: One could run a simplified version of the software that only stores blockchain hashes and no underlying transactional data. This would, however, make those running the software less likely to detect if someone were trying to overtake the network.
9. Combining and Splitting Value: Each transaction will have a set of inputs and outputs to optimize transaction processing. A transaction can have several inputs but there must be at least two outputs: amount sent and any change left from the transaction.
10. Privacy: Privacy in the network is limited because of having to broadcast transactions to all participants. However, Bitcoin addresses do not have to be associated with names, leaving room for some anonymity.
11. Calculations: The author provides calculations to demonstrate that if the probability of honest miners adding to the blockchain is greater than that of a dishonest one, it is extremely unlikely the dishonest one will be able to successfully get away with fraudulent activity.
12. Conclusion: “We have proposed a system for electronic transactions without relying on trust.” The solution is a peer-to-peer network which leverages a computational-intensive process of transaction recording to make it impractical for bad actors to overtake the network.

The Code: From White Paper to Bitcoin Implementation

While some read and responded with criticism or skepticism, a few did not, and offered to help Satoshi bring the idea to life. A month later, Satoshi created an account on SourceForge, an open-source code repository, to begin coding the first version of the Bitcoin software, also known as a Bitcoin implementation. By January 3rd of 2009, Satoshi mined the first Bitcoin block called the “genesis block.” Within a week, Bitcoin version 0.1 was released. And on January 12th, the first bitcoin transaction ever took place between Satoshi and computer scientist, Hal Finney, who had been extremely helpful to Satoshi throughout these development efforts.

Satoshi continued to grow the Bitcoin community online and lead all developer efforts as they improved upon the code over the next two years. But just as quickly as they appeared, Satoshi vanished. In December of 2010, Satoshi wrote that they were moving on to bigger and better things.

And that was the last time Satoshi was active in the community.

Although the code is open source, meaning anyone can view the code (since moved from SourceForge to Github) and request to contribute, there is someone responsible for overseeing the full repository. At that point, Satoshi handed the reigns to Gavin Andreesen, who managed the code until April 2014 when he appointed Wladimir van der Laan as his successor.

Satoshi did make one more appearance. Many are unsatisfied with the mysterious air surrounding Satoshi’s true identity and are determined to track them down. In March of 2014, the the hunt for Satoshi led to a media spotlight on systems engineer, Dorian Nakamota. Satoshi reappeared to say:

Conclusion

Personally, I think it much more likely that Satoshi is a group of people rather than a single person. But, it doesn’t really matter to me. The foundation was set and now it is up to present day developers and miners to ensure the Bitcoin network continues to operate safely.

More interesting than Satoshi’s identity is understanding their motivations for creating Bitcoin. That’ll be next.

(You can read more about the full history of Bitcoin here.)