One of the core challenges of designing a digital currency involves something called the double-spending problem. Users willing to devote 27 bitcoin exchange power to running a special piece of software would be called miners and would form a network to maintain the block chain collectively. In the process, they would also generate new currency.
When Nakamoto’s paper came out in 2008, trust in the ability of governments and banks to manage the economy and the money supply was at its nadir. The US government was throwing dollars at Wall Street and the Detroit car companies. The price of gold was rising. Bitcoin’s chief proselytizer, Bruce Wagner, at one of the few New York City restaurants that accept the currency. Photo: Michael Schmelling Nakamoto himself mined the first 50 bitcoins—which came to be called the genesis block—on January 3, 2009.
For a year or so, his creation remained the province of a tiny group of early adopters. But slowly, word of bitcoin spread beyond the insular world of cryptography. It has won accolades from some of digital currency’s greatest minds. The small band of early bitcoiners all shared the communitarian spirit of an open source software project. 50 and created a site called the Bitcoin Faucet, where he gave them away for the hell of it.
Laszlo Hanyecz, a Florida programmer, conducted what bitcoiners think of as the first real-world bitcoin transaction, paying 10,000 bitcoins to get two pizzas delivered from Papa John’s. When they weren’t busy mining, the faithful tried to solve the mystery of the man they called simply Satoshi. Someone else wondered whether the name might be a sly portmanteau of four tech companies: SAmsung, TOSHIba, NAKAmichi, and MOTOrola. It seemed doubtful that Nakamoto was even Japanese. His English had the flawless, idiomatic ring of a native speaker. Perhaps, it was suggested, Nakamoto wasn’t one man but a mysterious group with an inscrutable purpose—a team at Google, maybe, or the National Security Agency.
Hanyecz, who was on bitcoin’s core developer team for a time. I always got the impression it almost wasn’t a real person. I’d get replies maybe every two weeks, as if someone would check it once in a while. Nakamoto revealed little about himself, limiting his online utterances to technical discussion of his source code.
On December 5, 2010, after bitcoiners started to call for Wikileaks to accept bitcoin donations, the normally terse and all-business Nakamoto weighed in with uncharacteristic vehemence. The project needs to grow gradually so the software can be strengthened along the way. Then, as unexpectedly as he had appeared, Nakamoto vanished. At 6:22 pm GMT on December 12, seven days after his Wikileaks plea, Nakamoto posted his final message to the bitcoin forum, concerning some minutiae in the latest version of the software. His email responses became more erratic, then stopped altogether. Andresen, who had taken over the role of lead developer, was now apparently one of just a few people with whom he was still communicating.
How They’re Made Bitcoin’s economy consists of a network of its users’ computers. At preset intervals, an algorithm releases new bitcoins into the network: 50 every 10 minutes, with the pace halving in increments until around 2140. The automated pace is meant to ensure regular growth of the monetary supply without interference by third parties, like a central bank, which can lead to hyperinflation. How They’re Mined To prevent fraud, the bitcoin software maintains a pseudonymous public ledger of every transaction.
Some bitcoiners’ computers validate transactions by cracking cryptographic puzzles, and the first to solve each puzzle receives 50 new bitcoins. How They’re Spent Once users download the bitcoin app to their machine, spending the currency is as easy as sending an email. They see the beauty of the technology. On the forum, you’ll see the spirit. It’s not just me, me, me. It’s what’s for the betterment of bitcoin.
Over just a few months, he has become bitcoin’s chief proselytizer. Wagner is not given to understatement. He is similarly excitable when predicting the future of bitcoin. This was something that was going to go up, up, up. For a while, he was right. Through 2009 and early 2010, bitcoins had no value at all, and for the first six months after they started trading in April 2010, the value of one bitcoin stayed below 14 cents. Then, as the currency gained viral traction in summer 2010, rising demand for a limited supply caused the price on online exchanges to start moving.