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November 16, 2018 In Business

The Skeptic’s Guide: Who is Satoshki Nakamoto?

Photo by Jason Appelton of Pexels

Part 1.

             One of the biggest reasons to be skeptical and cautious around bitcoin is the fact that we do not know who invented the technology, or why. I speak of the great enigma that is Satoshi Nakamoto, author of the bitcoin whitepaper that kicked off the age of cryptocurrency. The name is very likely a pseudonym, used by a single person, or possibly a group of people. Like a character from a comic book, is Satoshi Nakamoto our vigilante hero, a Robin Hood against the tyranny of centralized currency, or is he our villain, with ulterior motives while seeking to usurp the status quo? In truth, he is probably neither, but the uncertainty surrounding the figure is a reason for caution. That being said, we have a few clues for who Satoshi Nakamoto might be and what their motives were. First, however, we need to explore the historical context of cryptocurrency.

As the name suggests, cryptocurrencies have their historical roots in cryptography; the practice and study of secure, encrypted communication between parties in the presence of malicious third-party ‘adversaries.’ For example, cryptography was used during the Second World War to send messages without adversary parties being able to translate them. In the late 1992, the cypherpunk movement was born, wherein a group of mathematicians, computer scientists and engineers formed a mailing list where they discussed the use of cryptography as a conduit for social and political change. The original cypherpunks had the goal of increasing individual privacy and security using cryptographically advanced privacy-enhancing technologies, thereby resisting the threat of any Orwellian big brother.

The cypherpunk movement was ahead of its time, as its proponents discussed concerns around online privacy, as well as government monitoring and corporate control of information; topics which have become prevalent in today’s internet age. Our first candidate for the face behind Satoshi Nakamoto is a person involved in this movement and a part of the cypherpunk mailing list: Hal Finney.

Finney wrote on the mailing list in 1992, “Here we are faced with the problems of loss of privacy, creeping computerization, massive databases, more centralization – and Chaum offers a completely different direction to go in, one which puts power into the hands of individuals rather than governments and corporations. The computer can be used as a tool to liberate and protect people, rather than to control them.” The referenced Chaum is David Chaum, inventor of digital cash and author of the 1985 paper “Security without Identification: Transaction Systems to Make Big Brother Obsolete,” which arguably sparked the cypherpunk movement1,2. The quote provides clues surrounding potential motives for creating bitcoin, namely putting power into the hands of the people–as with bitcoin’s decentralized, public, and transparent characteristics which ensure the technology’s independence from a central authority. This libertarian ideology is consistent both with the bitcoin currency as well as the cypherpunk movement, and provides key insights surrounding the goals of the technology. Indeed, most of bitcoin’s early adopters were libertarian.

When the genesis bitcoin block was mined by Nakamoto in January, 2009, Finney was the very first recipient of a bitcoin transaction. He was also the second person to mine the cryptocurrency, after Nakamoto. A purportedly brilliant computer scientist, Finney was the original developer of a reusable proof of work system in 2004, which served as a precursor to bitcoin’s proof of work system3,4.

Finney describes his reusable proof of work system in the cypherpunk mailing list: “This system receives hashcash as a Proof of Work (POW) token, and in exchange creates RSA-signed tokens which I call Reusable Proof of Work (RPOW) tokens. RPOWs can then be transferred from person to person and exchanged for new RPOWs at each step. Each RPOW or POW token can only be used once but since it gives birth to a new one, it is as though the same token can be handed from person to person.”5 Finney’s RPOW system is in effect a prototype of bitcoin’s proof of work system. The hashcash referenced in Finney’s email is a proof-of-work algorithm from the late 1990s used to limit email spam and denial-of-service attacks6. Finney used hashcash to effectively mine RPOW tokens in a system very similar to how bitcoin operates.

With the proper motives and expertise to design bitcoin, Finney has been speculated to be the cryptocurrency’s creator. Perhaps most damning of all, Finney had previously lived in a small town of 36,000 just a few blocks away from Dorian Prentice Satoshi Nakamoto, a Japanese-American physicist and engineer7. The coincidence seems too good to be true.

Finney has denied any involvement in the creation of bitcoin. Finney has provided evidence supporting his claim that he did not invent bitcoin; a series of emails exchanged with the Satoshi Nakamoto wherein Finney describes bugs in bitcoin’s early code. Nakamoto responds with thanks and fixes for the bugs.

Finney passed away with ALS in 2014, so we may never know for certain the extent of his involvement in bitcoin’s invention, although I suggest reading the seventh article referenced at the bottom of this page for more about his fascinating story. While Finney may not have been the inventor of bitcoin (and indeed, there seems to be a more likely candidate), he assuredly contributed to the technology via his involvement in the cypherpunk movement, development of the RPOW system that bitcoin uses, and help in ironing out the technology’s bugs in its early days. Finney’s small-town peer, Dorian Nakamoto has also been speculated to be bitcoin’s inventor, although he also denies any involvement, and appears to lack the flawless, colloquial English skills utilized by bitcoin’s inventor in his writings.

Which leads us to another candidate for bitcoin’s inventor, also a member of the cypherpunk mailing list and key contributor to the precursor technologies that led to bitcoin’s invention; Nick Szabo. We will explore his story in Part 2.

 References:

  1. Chaum, D., “Security without Identification: Transaction Systems to Make Big Brother Obsolete,” Comm. ACM, vol. 28, no. 10, 1985, pp. 1030–1044. https://www.cs.ru.nl/~jhh/pub/secsem/chaum1985bigbrother.pdf
  2. Narayanan, A. (2013). What happened to the crypto dream?, Part 1.IEEE Security & Privacy,11(2), 75-76. http://randomwalker.info/publications/crypto-dream-part1.pdf

 

  1. https://nakamotoinstitute.org/finney/rpow/

 

  1. https://nakamotoinstitute.org/finney/rpow/index.html

 

  1. https://nakamotoinstitute.org/rpow/

 

  1. Back, Adam., “Hashcash – A Denial of Service Counter Measure,” 2002. http://www.hashcash.org/hashcash.pdf

 

  1. https://www.forbes.com/sites/andygreenberg/2014/03/25/satoshi-nakamotos-neighbor-the-bitcoin-ghostwriter-who-wasnt/#4dfedaf34a37
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