The Lasting Impact of the Bitcoin Whitepaper
In 2008, Satoshi Nakamoto, published a whitepaper that established Bitcoin. Bitcoin: A Peer-to-Peer Electronic Cash System, with its blockchain technology and peer-to-peer payments created a revolution not just in payments but also a myriad of other industries that could exploit distributed ledger technology.
But, as a monetary historian, I see the whitepaper containing three fundamental concepts that we are still struggling to come to terms with. These are embodied in a single sentence in the paper: “We define an electronic coin as a chain of digital signatures.” This presents three revolutionary ideas: one, money does not need any connection to the physical; two, money exists only in the context of its payment system; three, money is itself a social technology that establishes value. Let’s take a quick look at these ideas.
Fiat currency is simply something that is declared to be money and is not backed by any tangible asset. While a fiat currency first appeared in the United States in 1862, in the form of United States Notes, the idea that money is always backed by something like gold, silver, or securities is an enduring one. In fact, many still struggle with this concept, wrongly pointing out that Bitcoin is worthless as it is nothing but a digital signature.
Bitcoin has value for the same reason any money has value, it is part of a payment ecosystem. Cowrie shells in colonial America, Rai stones in the islands of Yap, and dolphin teeth in the Solomons are just some examples of the many types of money that have value simply because everyone in a society agrees that they do. Even items that are claimed to have intrinsic value, like gold, become worthless if a society sees no value in them. Thomas More pointed this out in 1516 in Utopia.
And, it is fundamental that there be a consensus about what is money as money is essentially a social technology for establishing value. Money appears when a group agrees on a way to denominate value, be it a digital signature, a dollar, a pound of silver, or a seashell. This monetary unit is then used to track the credits and debits of individuals and institutions as they trade with each other. And, these monetary units can be used to transfer a debtor’s obligation to a third party now or in the future. Bitcoin fulfills all these roles.
However, would Satoshi Nakamoto have seen the past twelve years in this light? Perhaps. But, if we focus on the whitepaper, his concern was with speedy, anonymous, low cost, non-mediated, non-reversible transactions. So, far Bitcoin transactions (and many other blockchain transactions) have not been found to be all that speedy, anonymous, or low cost. And, despite the existence of distributed ledgers, there has been a fair amount of centralized oversight and some transactions have been famously reversed with new forks. It is a dictum of history that revolutions do not always turn out as the founders planned.
Yet, despite all this, Bitcoin and blockchain have fundamentally changed the monetary world. Blockchain is to money what the internet was to information. Money and what it can do is being reconceptualized. Terms like proof-of-work, distributed ledger technology, decentralized finance, programmable money, and smart contracts are now part of the lexicon of anyone serious about the future of money and finance. These words have the newness and foreignness that words like internet service provider, URL, and hypertext transfer protocol had a generation before. Now, the world has changed yet again, and it began in 2008 with a nine-page whitepaper.
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