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Everyone has heard of bitcoin, but few truly understand the concept and mechanics. The White Paper seeks to explain cryptocurrency and blockchain. Photo: Shutterstock

Review | Bitcoin, blockchain and cryptocurrency explained by its ‘creator’ in The White Paper

  • In the 10 years since bitcoin was introduced, fortunes have been made and lost, but many are confused about how it works
  • The complex ideas behind blockchain and cryptocurrency are explained by the mysterious Satoshi Nakamoto and other experts

The White Paper, by Satoshi Nakamoto, Ignota, 4/5 stars

Eight years ago, Visa, Mastercard and PayPal, which together dominated more than 97 per cent of the global market for payment services, cut off funding to WikiLeaks (people could still donate to the Ku Klux Klan, the English Defence League or Americans for Truth About Homosexuality).

The blockade, backed by Republican senators, was political. WikiLeaks had published Chelsea Manning’s material documenting US military drone strikes and civilian killings in Iraq; stopping the cash flow silenced Julian Assange’s outfit, albeit temporarily.

What could be done? Perhaps it was time for a cryptocurrency to stride from the proverbial phone booth, underpants over its tights, and save the day? After all, bitcoin’s philosophy was that it would cut out the middleman, whether state functionary or corporate lackey, and realise a radical future in which, for instance, Afghan women, prohibited from opening bank accounts, might work and get paid – in bitcoin.

White Paper by Satoshi Nakamoto.
Certainly, in December 2010 there was much enthusiasm among the so-called cypherpunks for WikiLeaks to link to bitcoin on its website for donations. In a fascinating thread on reproduced in The White Paper by Satoshi Nakamoto, Mike Gogulski wrote: “Screw big business.

“Google, Microsoft and Wal-Mart can all eat flaming death as far as I’m concerned … where systems like bitcoin can be helpful is in making both government and big business irrelevant and obsolete.”

Chelsea Manning was recently imprisoned for refusing to testify in a grand jury investigation into WikiLeaks. When Visa, Mastercard and PayPal cut off funding to WikiLeaks, many called for bitcoin to be used to support the organisation. Photo: EPA-EFE
Why aren’t we living in that radical future in 2019? One reason is bitcoin’s enemies made sure it never arrived. The Indian government, for instance, refused to recognise bitcoin as legal tender. Facebook refused cryptocurrency ads while developing its own. Earlier this month, it launched the cryptocurrency Libra, opening the possibility that Mark Zuckerberg’s techno-oligarchy is not just more valuable and powerful than many nation states but will be able to print its own money too.

What remains is nostalgia for the recent past, when the takedown of the powers that be seemed possible. On the same 2010 thread, another cypherpunk added: “Bring it on. Let’s encourage WikiLeaks to use Bitcoins.”

But it didn’t happen. Satoshi Nakamoto, the mysterious, pseudonymous, probably not Japanese but possibly British, perhaps even multiple bitcoin inventor, nixed the idea: “No, don’t ‘bring it on’ … I make this appeal to WikiLeaks not to try to use bitcoin. Bitcoin is a small beta community in its infancy … the heat you would bring would likely destroy us at this stage.”

Bitcoin was introduced as a way to circumvent middlemen by using a peer-to-peer payment system. Photo: Shutterstock
Bitcoin has since disappointed radicals who hoped it might spark revolution. 10 years ago the first bitcoin transaction took place. Since then, fortunes have been amassed (in December 2017, Nakamoto was worth more than US$19 billion, making him/her/they possibly the 44th richest person in the world, if he/she/they is a person), and fortunes have been lost since early 2018, when bitcoin’s bubble burst.

That failure is not just down to bitcoin’s enemies, but also internal problems. Power over the bitcoin network has concentrated in the hands of those few whose computer power and maths skills are sufficient to mine for bitcoin (mining involves using costly software to solve maths problems and miners help keep the bitcoin network secure by approving transactions).

Just as the Sex Pistols got co-opted by the business they postured as seeking to destroy, and just as the vision of a decentralised, uncensored, free internet foundered with its commercialisation, so bitcoin has been taken over by those whom economist Nouriel Roubini calls “charlatans and swindlers”.

I want to make your eyes shine in bright-eyed wonder as you reread the bitcoin white paper, just as mine did
Jaya Klara Brekke, bitcoin aficionado

What’s worth salvaging is not so much bitcoin, but Nakamoto’s vision for it. Like FBI agent Fox Mulder in The X-Files only more so, Nakamoto trusts no one and that philosophy has underpinned his/her/their invention. In bitcoin, cryptographic proof replaces the uncertain trust of humans in institutions.

The tricky notion of the blockchain is key to that: what it amounts to is that verified but unconfirmed transactions are aggregated into a block that is spread across the network of users and added to a stack of other blocks. This blockchain is held, at least in theory, by every user, in a “distributed ledger” that removes the need for a central third-party authority.

The purpose of this little book is to explain how the blockchain works and why it still inspires. It consists of Nakamoto’s breakthrough 2008 paper bitcoin: A Peer-to-Peer Electronic Cash System, a guide to it by blockchain aficionado Jaya Klara Brekke, along with appendices, an introduction by James Bridle and informative essays paralleling bitcoin with the cryptographic work at Bletchley Park that helped the Allies defeat the Nazis.

Cryptocurrency-jacking – in which devices are infected with invisible malicious cryptocurrency mining software that uses the computing power of victims’ devices to mine virtual currency – has been named as the main cybersecurity threat to businesses and consumers worldwide. Photo: AP

“I want to make your eyes shine in bright-eyed wonder as you reread the bitcoin white paper, just as mine did,” Brekke writes. That’s the peril and pleasure of the book: her guide mixes the off-putting ardour of a doorstep God botherer with excitement over the elegance and unrealised potential of Nakamoto’s idea.

Bitcoin may be in the recycling bin of radical initiatives, and Nakamoto unheard of since 2014, but the blockchain idea of a self-sustaining framework for the development of consensus is still worth developing – and not just to change how we spend. In our serially disappointed age, the blockchain suggests a way better than mere cynicism about state and privacy-violating corporations, albeit one that doesn’t seem ready to take over the world any time soon.