Thoughts on The Bitcoin Whitepaper

OCTOBER 31st, A REVOLUTION

Much of history has hinged on October 31, 1517, when Martin Luther, a German monk who worked to reform Protestantism, affixed his prospectus of Ninety-Five theses (propositions) to the Church door. This prospectus was the direct catalyst to triggering the Reform movement that changed the entire world by ushering in a new approach to faith; the idea that faith cannot be dictated solely by religious institutions and clergymen, but rather to shift focus to the agency of the individual, and their own ability to interpret and decide their faith and its meaning.

The Ninety-Five Theses offer individuals, beaten down by institutions, rights and abilities they did not have before. Max Weber, a famous, prominent sociologist, writes in his book, The Protestant Ethic and Spirit of Capitalism, that the transition from traditional to modern society with the Protestant approach and considers The Ninety-Five Theses as the basis for the development of capitalism. Exactly 491 years from then, on October 31, 2008, emerges a new historical prospectus that rebels against the established order, its institutions, and their privileged decision-makers: Bitcoin: A Peer-to-Peer Electronic Cash System by Satoshi Nakamoto.

Nakamoto was operating under a pseudonym (Satoshi Nakamoto) when he decided to send his prospectus via email to a group that he’d selected. In the same spirit as that of the prospectus for a new order that came 491 years before it, the goals were simple: to liberate the individual by transferring power from powerful financial institutions and privileged decision-makers, and to instead endow the individual with a new kind of financial freedom. This transference of power would mean that individuals are able to control and use their money in unprecedented ways.

Satoshi Nakamoto was conscious and had a degree of trepidation about having provided a powerful instrument, the Bitcoin prospectus, to the individual; one that was in direct conflict with that of powerful financial institutions; one that could disrupt the power structures held by the big cats at the top.

As with Prometheus, who stole the fire from the gods and granted it to the people, Nakamoto was thus taking the ability to produce and transfer money, which was solely held by the States and few institutions, and gave it to individuals; to you, and me, and everyone we know.

Similarly to Luther’s Reformation, this provided a possibility to incite transformative change to the current status quo of the worldwide economic systems in place, and, in turn, has the power to alter the entire economic landscape that defines our times.

Nakamoto’s prospectus was taking the individual, who was reduced to a registration number in the eyes of the State and institutions, and placing the needs of the masses where they always should have been: in the very center of the system. This, in turn, creates a direct threat to the absolute power held by current financial institutions; choosing the same date that Luther had for the Reformation was indeed no coincidence, but a conscious knowing of what was to come.

INSTITUTIONS

In 1992, British anthropologist Robin Dunbar introduced the Dunbar’s number theory; a concept that hypothesizes that the cognitive limit on the number of people with whom individuals can efficiently and effectively establish a face-to-face relationship, is 150. When the number of individuals rises above this number, cohesion may suffer, and the sense of solidarity within the group may diminish. People are no longer able to perceive each other as a fully formed person, with hopes, dreams and interests, but they instead become a number; a homogenized face amongst the masses.

Interestingly, this also stretches to people who we see on a regular basis; neighbors, customers, people who we see on the school run each and every day, all become floating avatars of personhood, as opposed to a fully-formed human, like those who are in our personal lives.

If we consider our own approach to strangers, this theory is inevitably proven true, unless we are able to consciously work against it at every turn. The life of a person living in a large housing complex of 500+ apartments, working in a company with 2500 other employees, receiving their groceries through the internet, further isolates the individual.

When humans lived in tribes, nomadically, as they did for thousands of years, having the roof of 150 people was really no problem at all. Both leaders and followers alike were able to feel a sense of togetherness and obligation to the whole; to the collective. The needs of the individual weren’t extrapolated and divided by 1 million or even 1 billion, they were considered and implemented, because the 1 in 100 was much more powerful than the 1 in the 8 billion. Laws and norms suited the many, not the few.

As society grew and changed, with single individuals or a single family/dynasty gaining much more vast and far reaching rule, wider nets of rules, laws and norms needed to be imposed in order to instill homogony that worked for those in power, rather than those who were working for those in power. For Prometheus, the gods held on to the one thing that was the difference between life and death: fire. In today’s society, financial institutions have absolute power over the most powerful tangible resource: money.

MONOPOLY OF THE INSTITUTIONS

Institutions will always have a purpose for existing and will purport as to why they exist and serve wider society. In theory, the State exists to manage cultural expectations and values within society, as well as to collect a percentage of wealth that is produced, in the form of taxes, that can then be put back into society in order to generate more wealth and prosperity for the members of that society.

In order to do this effectively, the State establishes bureaucratic institutions to realize this transfer of wealth. As for non-State-run institutions, we have commercial institutions whose raison d’être is to proliferate and magnify wealth. We then have financial institutions that are created to sort through issues relating to the preservation of wealth and of transactional and regulatory investments.

Educational institutions must foster and nurture individuals that will fit into society and feed back their time and wealth to create prosperity. Non-governmental organizations determine which fields will receive further wealth and financial benefits. Money has been the tangible representation of wealth, and ultimately power, for thousands of years, which in turn means that where the control and direction of currency lies, is also where the power lies.

Institutions are abstractly a collation of a building, an office, a number of employees, and the insignia or logos that accompany them — calling this an institution is based solely on the value that we attribute to them and their powers to control and change society.

The power that institutions have to incite change is assigned to them by various privileged decision-makers within society. These privileged decision-making positions exist as a very minute amount when compared to the amount of individuals that are controlled by them, who hold very little power when compared to the institutions.

The State enacts laws, has the backing of police and armed forces, collects bank deposits, controls monetary currency and runs State education schools. The end result is that the management and direction of the money is enclosed with an iron bubble of the privileged, in the form of institutions.

Individuals cannot move their money, make investments, or generate income without these institutions. They are surrounded and taken hostage by institutions on all sides. For each monetary transaction, they have to notify these institutions, get their permission, comply with their rules, and pay them for the transactions. Moreover, they are usually helpless against the possibility of institutions’ abuse, which always stands as a threat when processing their money. Although financial transparency is the primary discourse of institutions, it seldom applies.

INSTITUTIONAL CORRUPTION

As well as Satoshi Nakamoto’s Bitcoin prospectus coinciding with Luther’s prospectus, it also coincided with one of the biggest global crises of the Western world: the 2008 financial crisis — this was not a coincidental move by Nakamoto. Prior to the introduction of cryptocurrency, all production, value and management of currency was conducted by financial institutions.

Financial institutions are supposed to be both reliable and trustworthy — after all, they are in charge of the amounts of cash that most people will never see in their lifetime — however, in the 2008 crisis, it was observed that none of the giant banks that we thought to be built on trust, nor the credit-rating institutions responsible for supervising/rating them, nor even governmental safeguards, which were expected to manage and supervise, did what was expected of them.

To the contrary, these institutions, which held all of the keys of the kingdom to be able to see, block and safeguard the financial crisis, made almost all of the arrangements in favor of their own priorities, and those of their managers, but against the masses who could not find a place for themselves within these institutions.

Investment papers of no value were graded AAA, individuals investing in them were deceived, and when the events came into light, the US Federal Reserve closed the deficit by minting several times more dollars than the world had ever produced, that is, in favor of institutions that abused the trust of individuals instead of individuals who lost money. This proved that once again, enormous income transfers took place, removing wealth from society and placing into the pockets of those in power.

THE BITCOIN PROSPECTUS: A BLOW TO THE MONOPOLY OF INSTITUTIONS

What Satoshi Nakamoto presented in his Bitcoin prospectus was to show the technical feasibility of breaking the monopolies of unsupervised institutions in money minting and all monetary transfers. Nakamoto declared that he had laid the ground for a system where the individuals would safely transfer money, without the need for reliable third-party institutions.

This model presented that even when Dunbar’s number theory of 150 people is exceeded, and individuals do not know each other, the model that he put forward would still hold true and be a success. The Bitcoin prospectus, in a society of strangers mutual existence — as in almost all of today’s societies — has facilitated the security by data ledgers distributed to civilian individuals, that is, through the blockchain rather than institutions.

Civil individuals synchronously keep every record, whilst institutions are kept completely outside the production and transfer of money, which substantively means that what goes on behind closed doors becomes irrelevant. Nakamoto, like Luther, gives individuals great power in the face of institutions abusing their trust. It is the devolution of power form the privileged minority, which is then given back to the individual. It is the reformation of deeply corrupt and unfair systems, in favor of the ordinary individual.

FROM CENTRALIZED CONTROL TO DECENTRALIZED FREEDOM: THE FIRST INTERNET-BASED REVOLUTION

In the present system, institutions are the center of gravity of the social structure. This central position applies to both pre-modern, modern and postmodern periods. In the pre-modern period, the state and institutions do not need excessive resources to monitor, control, and manage the individual.

The society comprises of small numbers of people and is low in complexity, which means that it is easy to spy on individuals. In the modern period, the State and institutions process the citizens with a serial number through their identities; establish a very dense surveillance network over the individual (such as birthplace, birthdate, the age that they should go to school, the school they should attend, as well as what income they should earn and how much tax they should pay to the state).

With the development of technology, the governments, which equipped their countries with telegraph and train networks, can easily reach every part of the country, affording them the ability to receive intel at every level. In addition to this, the State can also control forms of media, such as radio and television broadcasts, which in turn allows them to both spy on citizens and determine what they can see and hear, forming and molding their world perspective, as well as what they accept and reject.

This modernist tyranny reaches its zenith in Europe in the first half of the 20th century, through fascism in Italy and Nazism in Germany. In the post-modern era, the internet offers an advantage for individuals over institutions, as it presents an avenue for individuals to carry out their own research, and to explore a range of thoughts, opinions and facts. Twenty years ago, people of all ages would have sat in front of the TV to receive their news, but in the post-internet era, many people are choosing to find out their news from alternative news websites, YouTube channels and activists on social media, which are all freely available to explore in most countries.

This shake-up of information allows individuals the right to choose the place to receive information, share their thoughts and even create communities with like-minded people — this, in itself, has created a kind of revolution of information, whereby it is now decentralized. It is the first example that an individual can prevail over institutions in a community of over 150 people. It is the First Internet Revolution.

Despite this, equivalent developments had yet to occur in the financial sector. The Internet has allowed for information, ideas and discourse to be released from the grip of institutions and of the State, but yet the same issues and inequalities still existed in relation to money. To overcome this desperation, various movements soon emerge. The most influential one is the Cypherpunks movement, which preceded Satoshi Nakamoto’s Bitcoin prospectus.

CYPHERPUNKS

The internet in some ways presents as a double-edged sword; although it is a structure that supports the individual against institutions, it also makes it easier for the State and institutions to spy on the individual. The digital traces that individual users leave on the internet allow for their every move to be tracked, stored, and processed by algorithms based on artificial intelligence, thus causing a significant power imbalance between the two. The struggle between institutions and individuals, which has been continuing for years within the framework of daily life, has now transposed itself to the virtual realm.

Cypherpunks emerge in the late 1980s as the freedom fighters for individuals in the fight against institutions and the State in the virtual environment. The first aim of the Cypherpunks is to develop methods that will neutralize Big Brother’s surveillance of the individual. They consider encryption to be the most effective method of doing this. The second aim is to preclude the state and institutions from holding the financial power in hand by breaking their monopoly on the production and direction of money and to instead a transference of this power to the individual.

CRYPTO ANARCHIST MANIFESTO

Timothy May writes the movement’s manifesto in 1988: The Crypto Anarchist Manifesto. Referring to the Communist Manifesto written by Marx and Engels in 1848, The Crypto-Anarchist Manifesto begins with the statement, “A specter is haunting the world, the specter of crypto-anarchy” and ends up with “Arise, you have nothing to lose but your barbed wire fences!”.

In his short manifesto, Timothy May credits computer technology as allowing any two people to be able to exchange messages and money without any form of institution and that they will be able to do this without even knowing each other, and that it will be accomplished through encryption software protocols. Timothy May accurately predicts the stage that will be made possible: 30 years later, and in the form of Nakamoto’s Bitcoin prospectus.

CYPHERPUNK MANIFESTO

The second manifesto written by Cypherpunks is Eric Hughes’ Cypherpunk Manifesto, written in 1993. Here is an extract:

“We must defend our own privacy if we expect to have any. We must come together and create systems, which allow anonymous transactions to take place… We, the Cypherpunks, are dedicated to building anonymous systems. We are defending our privacy with cryptography, anonymous mail forwarding systems, digital signatures, and electronic money.”

This presents as an abject refusal to allow States to continue to spy on individuals. It is the rebellion of individuals against the yoke of institutions for the sake of emancipation. The Cypherpunks were concerned with the design of a customized coin in order to take over the monopoly on the minting and direction of money from the State and institutions. Hughes’s statements are surmised up in this statement, given in 1984:

“I do not believe we shall ever have a good money again before we take it out of the hands of the governments. Though, we cannot do it violently. All we can do is find a roundabout way, which they cannot stop.”

ECASH

Cypherpunks’ first tryouts are ‘Ecash,’ a cryptocurrency launched by Chaum in 1990 through his electronic cash company, Digicash. Ecash stirred hope, but despite its claims to oppose institutions, it was in fact an institutionally controlled coin. If people were to choose an institutional currency, why would they choose that of a small, relatively unknown company, over that of the most powerful state in the world, the USA? This made Ecash a non-viable option. A decentralized, private coin was needed.

BIT GOLD

The first example of a decentralized cryptocurrency was developed by Nick Szabo in 1998: Bit Gold, which was distributed within the same framework that Bitcoin is today, however, it had not yet dealt with the double-spending problem. Instead of solving that problem via the “proof of work” method as is true for Bitcoin, Szabo tried to overcome it through the majority approval of the network participants. Nevertheless, he came remarkably close to catching the revolution that Bitcoin would bring.

Observing the philosophies of the Cypherpunks — namely: the cryptocurrency initiatives of David Chaum and Nick Szabo, Adam Back’s “Proof of Work” algorithm and Hal Finney’s “Secret key encryption” — Satoshi Nakamoto brought all these experiences together and developed a distributed (decentralized), non-corporate, and rare (limited supply) crypto-currency, which sorted out the double-spending problem.

Satoshi Nakamoto’s prospectus, “Bitcoin: The Peer-to-Peer Electronic Cash System” that they sent to Cypherpunks’ most popular email group, Cryptography, on October 31st, 2008, was the technical explanation of the ideal cryptocurrency, which Cypherpunks had been working on for 30 years. It was the second major reform, that is, the Second Internet Revolution, being announced on October 31st.

THE SECOND INTERNET REVOLUTION AND HYPER-INDIVIDUAL

The First Internet Revolution had wrenched the transfer of information, ideas, and commentary from the hands of the powerful financial institutions. However, it was still impossible to transfer value without having a ‘trusted’ institution’s backing.

With the prospectus of Satoshi Nakamoto, the situation has changed. Thanks to blockchain technology and Bitcoin, the value transference ability without ‘trusted’ institutions has evolved the individual from an incompetent figure under the institutions to the one having the capacity to transfer value besides data transfer: a hyper-individual.

Within this new world order, the State, central banks, banks, notaries, certifiers, all intermediary institutions are obsolete, and the individual becomes an independent receiver and emitter of values, information, interpretations, opinions. The individual now is a self-sufficient production unit, a production center, a value exchange platform, a communication network as well as an excellent receiver and emitter.

The individuals no longer need an institution, endorsement or assurance authority for any decision, message, opinion or value transfer. They are free of the contemptuous modernity reducing them to a number, which cannot receive and disseminate anything without institutions and reliable intermediaries. They are no longer just individuals that the bureaucracy sees in a heap; they are evolving to a self-sufficient new state of the hyper-individuals.

Thanks to Yalın Alpay for his ideas and publications.