You know, I think there were a lot more people interested in the 90’s, but after more than a decade of failed Trusted Third Party based systems (DigiCash, etc.), they see it as a lost cause. I hope they can make the distinction, that this is the first time I know of that we’re trying a non-trust based system.
It became clear, though, that Satoshi’s program on its own was just a bunch of code, sitting on a server like so many other dreams hatched by programmers. Most of those dreams die, forgotten on a hard drive somewhere. Bitcoin needed more users and defenders like Hal to survive, and there weren’t many to be found. A week after the program was released, one writer on the Cryptography mailing list wrote: “No major government is likely to allow Bitcoin in its present form to operate on a large scale.”
Hal acknowledged that the author could prove to be right, but came to Satoshi’s defense again: “Bitcoin has a couple of things going for it: one is that it is distributed, with no single point of failure, no ‘mint,’ no company with officers that can be subpoenaed and arrested and shut down.”
Even Hal’s enthusiasm, though, appeared to flag at times. As his computer kept working at full capacity, trying to generate new coins, he began to worry about the carbon dioxide emissions caused by all the computers racing to mint coins. After his son, Jason, complained about the wear and tear it was causing to the computer, Hal turned off the Generate Coins option. Hal also had begun to fear that with a public ledger of all transactions—even if everyone was represented by a confusing-looking address—Bitcoin might not be as anonymous as he initially thought.
And then something much worse happened. Hal’s speech began slurring. He became increasingly sluggish during his marathon training. Soon, all his free moments were spent visiting doctors, trying to identify the mysterious ailment. Eventually it was diagnosed as Lou Gehrig’s disease, the degenerative condition that would gradually cause all his muscles to wither away inside his body. By the time he learned this, Hal was out of the Bitcoin game. He wouldn’t return until his condition was much worse and Bitcoin’s was much better.
CHAPTER 3
May 2009
In early May, a few months after Hal Finney’s last messages, Satoshi Nakamoto received an e-mail written in stilted but precise English.
“I have a good touch on Java and C languages from school courses (I’m studying CS), but not so very much development experience yet,” read the note, signed Martti Malmi.
This was clearly not the voice of a grizzled veteran of the Cypherpunk movement like Hal. But Martti displayed something more important at this point: eagerness.
“I would like to help with Bitcoin, if there’s something I can do,” he wrote.
Satoshi had gotten a few promising e-mails since Hal had disappeared two months earlier, but Martti was already demonstrating more commitment than the others. Before reaching out to Satoshi, Martti had written about Bitcoin on anti-state.org, a forum dedicated to the possibility of an anarchist society organized only by the market. Using the screen name Trickster, Martti gave a brief description of the Bitcoin idea and asked for thoughts:
A widespread adoption of such a system sounds like something that could have a devastating effect on the state’s ability to feed on its livestock. What do you think about this? I’m really excited about the thought of something practical that could truly bring us closer to freedom in our lifetime :-) Now we just need some convincing proof that the software and the system work securely enough to be taken into real use.
Martti included a link to this post in his first e-mail to Satoshi, and Satoshi quickly read it and responded.
“Your understanding of Bitcoin is spot on,” Satoshi told him.
MARTTI’S ENTHUSIASM HELPED CONFIRM the shift in strategy Satoshi had made since the beginning of the year. Back when Satoshi had first launched the software, his writings were drily focused on the technical specifications of the programming.
But after the first few weeks, Satoshi began emphasizing the broader ideological motivations for the software to help win over a broader audience, and privacy was only a part of it. In a February posting on the website of the P2P Foundation, a group dedicated to decentralized, peer-to-peer technology, Satoshi led off by talking about problems with traditional, or fiat, currencies, a term for money generated by government decree, or fiat.
“The root problem with conventional currency is all the trust that’s required to make it work,” Satoshi wrote. “The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.”
Currency debasement was not an issue the Cypherpunks had discussed much, but Satoshi made it clear with this posting, and not for the last time, that he had been thinking about more than just the concerns of the Cypherpunks when designing the Bitcoin software. The issue that Satoshi referred to here—currency debasement—was, in fact, a problem with existing monetary systems that had much more potential widespread appeal, especially in the wake of the government-sponsored bank bailouts that had occurred just a few months earlier in the United States.
Throughout history, central banks have been accused of debasing their currencies by printing too much new money—or reducing the precious metal content in coins—thus making the existing money worth less. This had been a passionate political cause, in certain circles, since the end of the gold standard, the policy by which every dollar was backed by a certain quantity of gold.
The gold standard was the most popular global monetary system at the start of the twentieth century. Not only did gold link paper money to something of physical substance; the standard also served as a mechanism for imposing restraint on central banks. The Federal Reserve and other central banks could print more money only if they managed to get their hands on more gold. If they ran out of gold, no more money and no more spending.
The restriction was suspended during the Great Depression, so that central banks around the world could print more money to stimulate the economy. After World War II, the world’s leading economies went back to a quasi–gold standard, with all currencies having a set value in gold—though it was no longer possible to actually turn dollars in to collect physical gold. In 1971 Richard Nixon finally decided to cut the value of the dollar loose from any anchor and end the gold standard permanently. The dollar and most other global currencies would be worth only as much as someone was willing to pay for them. Now the value of the dollar arose from the commitment of the United States government to take it for all debts and payments.
Most economists approve of the move away from the gold standard, as it allowed central banks to be more responsive to the ups and downs of the economy, putting more money into circulation when the economy grew or when people weren’t spending and the economy needed a jolt. But the policy has faced impassioned criticism, particularly from antigovernment circles, where many believe that the end of the gold standard allowed central banks to print money with no restraint, hurting the long-term value of the dollar and allowing for unbridled government spending.
Until 2008, though, this was a relatively niche issue, even among libertarians. That changed during the financial crisis, after the Federal Reserve helped bail out big banks and stimulate the economy by printing lots of money. This fanned fears that the new money flooding the market would make existing money and savings worth less. Suddenly, monetary policy was a mainstream political issue and the Fed was a sort of national villain, with “END THE FED” bumper stickers becoming a common sight. The issue became one of the first criticisms of the existing financial system that gained popular appeal after the financial crisis.
When Satoshi released Bitcoin, just months after these bank bailouts, the design provided a tidy solution for people worried about a currency with no restraints. While the Federal Reserve had no formal limits on how much new money it could create, Satoshi’s Bitcoin software had rules to ensure that new Bitcoins would be released only every ten minutes or so and that the process of creating new coins
would stop after 21 million were out in the world.
This apparently small detail in the system carried potentially great political significance in a world worried about unlimited printing of money. What’s more, the restraints on Bitcoin creation helped deal with one of the big issues that had bedeviled earlier digital moneys—the matter of how to convince users that the money would be worth something in the future. With a hard cap on the number of Bitcoins, users could reasonably believe that Bitcoins would become harder to get over time and thus would go up in value.
These rules were all a late addition to the code and Satoshi had not played them up early on. But now that he needed to sell it to the public, this feature of Bitcoin became a big draw. Martti Malmi, the young man who wrote to Satoshi in early May, proved the wisdom of emphasizing this. Martti didn’t know cryptography but as a political junkie he was immediately drawn to Bitcoin’s revolutionary potential.
“There’s no central bank to debase the currency with unlimited creation of new money,” Martti wrote on the anti-state.com forum.
This was the first but not the last time that the Bitcoin concept’s many layers, and its openness to new interpretations, would allow the project to pick up crucial new followers.
Satoshi quickly gave Martti practical suggestions for how he could help the project. The most important was the simplest: to leave his computer on with the Bitcoin program running. Five months after Bitcoin was launched, it was still not possible to trust that someone somewhere was running the Bitcoin program. When a new person tried to join, there were often no other computers or nodes to communicate with. It also meant that Satoshi’s computers were still generating almost all the coins. When Martti joined in, he quickly began winning them on his laptop, which he kept running except when he needed the computing power for his video games.
As to the more complicated programming needs, Satoshi told Martti that there was “not much that’s easy right now.” But, Satoshi added, the Bitcoin website did need introductory material for beginners and Martti seemed like the right person for the job.
“My writing is not that great—I am a much better coder,” Satoshi wrote, encouraging Martti to try his hand.
Two days later, Martti proved Satoshi right by sending a lengthy but accessible document addressing seven basic questions, ready to be posted on the Bitcoin website. Martti provided straightforward, if occasionally stilted, answers to questions like, “Is Bitcoin safe?” and “Why should I use Bitcoin?” To answer the latter, he cited the political motivations:
Be safe from the unfair monetary policies of the monopolistic central banks and the other risks of centralized power over a money supply. The limited inflation of the Bitcoin system’s money supply is distributed evenly (by CPU power) throughout the network, not monopolized to a banking elite.
Satoshi liked the document so much that Martti was quickly given full credentials for the Bitcoin website, allowing him to make any improvements he wanted. Satoshi particularly encouraged Martti to help make the site look more professional and get users up to speed.
WHEN MARTTI FOUND Bitcoin in the spring of 2009, he was in his second year at the Helsinki University of Technology. If Hal Finney was the opposite of the normal tech geek, Martti lived up to type. Lanky, with birdlike features, Martti shied away from social contact. He spoke in a slow, halting voice that sounded almost as if it were computer generated. He was happiest in his room with his computer, writing code, which he had learned to do at age twelve, or hammering away at enemies in online games, while listening to heavy metal music on headphones.
Martti’s reclusive, computer-centric life led him to the ideas behind Bitcoin, and ultimately to Bitcoin itself. The Internet had allowed a teenage Martti to discover and explore political ideas that were far from the Finnish social democratic consensus. The ideas of the libertarian economists he began following, which encouraged people to create their own destiny, aligned with Martti’s lone-wolf approach to life, even if it ignored the incredible education that Martti had received thanks to Finland’s strong government and high taxes. Who needs the state when you have talent and ideas?
During his college years, Martti had become fascinated by the rise in Scandinavia of the Pirate Party, which promoted technology over political engagement as the way to move society. Napster and other music sharing services hadn’t waited for politics to reform copyright law; they forced the world to change. As Martti pondered these ideas he began wondering whether money might be the next thing vulnerable to technological disruption. After a brief spasm of random web searches, Martti had found his way to the primitive website at Bitcoin.org.
Within a few weeks of his initial exchanges with Satoshi, Martti had totally revamped the Bitcoin website. In place of Satoshi’s original version, which presented complicated descriptions of the code, Martti led off with a brief, crisp description of the big ideas, aimed at drawing in anyone with similar ideological interests.
“Be safe from the unstability caused by fractional reserve banking and the bad policies of the central banks,” read the newly designed site.
The onslaught of new users was slow to arrive, however. A few dozen people downloaded the Bitcoin program in June, to add to the few hundred who had downloaded it since its original release. Most had tried it once and then turned it off. But Martti kept at it. After releasing the new website, Martti turned to the software’s actual underlying code. He did not know C++, the programming language that Satoshi had written Bitcoin in, so Martti began teaching himself.
Martti had time for all of this because he failed to land a summer programming job—a failure that gave Bitcoin a much-needed boost over the next months. Martti got a part-time job through a temp agency, but he would spend many of his days and nights at the university computer lab and find himself emerging at dawn. As he learned C++, Martti was going through the laborious process of compiling his own version of the code that Satoshi had written, so that he could begin making changes to it. He and Satoshi communicated regularly and fell into an easy rapport.
While Satoshi never discussed anything personal in these e-mails, he would banter with Martti about little things. In one e-mail, Satoshi pointed to a recent exchange on the Bitcoin e-mail list in which a user referred to Bitcoin as a “cryptocurrency,” referring to the cryptographic functions that made it run.
“Maybe it’s a word we should use when describing Bitcoin. Do you like it?” Satoshi asked.
“It sounds good,” Martti replied. “A peer to peer cryptocurrency could be the slogan.”
As the year went on they also worked out other details, like the Bitcoin logo, which they mocked up on their computers and sent back and forth, coming up, finally, with a B with two lines coming out of the bottom and top.
They also batted back and forth potential improvements to the software. Martti proposed making Bitcoin launch automatically when someone turned on a computer, an easy way to get more nodes on the network.
Satoshi loved it: “Now that I think about it, you’ve put your finger on the most important missing feature right now that would make an order of magnitude difference in the number of nodes.”
Despite Martti’s relative lack of programming experience, Satoshi gave him full permission to make changes to the core Bitcoin software on the server where it was stored—something that, to this point, only Satoshi could do. Starting in August, the log of changes to the software showed that Martti was now the main actor. When the next version of Bitcoin, 0.2, was released, Satoshi gave credit for most of the improvements to Martti.
But both Satoshi and Martti were struggling with how to get more people to use Bitcoin in the first place. There were other computers on the network generating coins, but the majority of coins were still captured by Satoshi’s own computers. And throughout 2009 no one else was sending or receiving any Bitcoins. This was not a promising sign.
“It would help if there was something for people to use it for. We need an application to bootstrap it,” Satoshi
wrote to Martti in late August. “Any ideas?”
Returning to school for the fall semester, Martti worked on several fronts to address this. He was eager to set up an online forum where Bitcoin users could meet and talk. Long before Bitcoin, online forums had been where Martti had come out of his shell as a teenager, allowing him a social ease that he never had in real-life interactions. He could almost be someone else. Indeed, when Martti and Satoshi eventually set up a new Bitcoin forum, Martti gave himself the screen name that would become his alter ego in the Bitcoin world: sirius-m.
The name had a cosmic ring to it, and conveyed that this was “sirius business,” Martti thought to himself. But it also had a more playful meaning for Martti, who had used the alias in a Harry Potter role-playing game at age thirteen.
The Bitcoin forum went online in the fall of 2009 and soon attracted a few regulars. One of them, who called himself NewLibertyStandard, talked about the need for a website where people could buy and sell Bitcoins for real money. Martti had been talking with Satoshi about something similar, but he was all too glad to help NewLibertyStandard. In the very first recorded transaction of Bitcoin for United States dollars, Martti sent NewLibertyStandard 5,050 Bitcoins to use for seeding the new exchange. In return, Martti got $5.02 by PayPal.
This trade raised the obvious question of how much a Bitcoin should be worth. Given that no one had ever bought or sold one, NewLibertyStandard came up with his own method for determining its value—the rough cost of electricity needed to generate a coin, calculated using NewLibertyStandard’s own electricity bill. By this measure, one dollar was worth around one thousand Bitcoins for most of October and November 2009.
For Satoshi, though, more important than buying and selling Bitcoins was a way to buy and sell other things for Bitcoins. That, as Satoshi wrote to Martti, was the critical thing needed for enabling Bitcoin to catch on: “Not saying it can’t work without something, but a really specific transaction need that it fills would increase the certainty of success.”
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