For more than a decade, popular narratives have described Bitcoin as a system created to enable criminals and anarchists to hoodwink the government. As we celebrate Bitcoin's 11th birthday, we'd like to set the record straight.
Spoiler alert: After many years of research, our conclusion is that the Bitcoin blockchain was designed as an infrastructure that would allow complex enterprise applications to run in an efficient, fraud-resistant, and regulated manner.
Don't believe us? Here's the story behind Satoshi Nakamoto's invention of the Bitcoin blockchain.
Before Bitcoin's birth in 2009, computer scientist and auditor, Dr Craig Wright was working for the Australian entertainment group, Lasseters. Wright's assignment was to help the business launch an online casino by setting up the security and auditing systems in a regulatory compliant manner.
From a systems perspective, online gaming is a tricky beast. Think about it:
For each game, a virtual dealer has to play the house's moves while somehow guaranteeing players that the cards they were dealt were entirely random (and not fixed!). Each participant to the game has to purchase virtual gaming chips, and then gain or lose a number of these as their luck dictates. At the end of the day, affiliates and players need to be paid out according to the balance sheet. At the end of the month, government auditors demand to see the ledger, or track record, of every single transaction that had taken place to ensure that taxes were paid accurately and money laundering prevention protocols had been maintained.
In the case of Lasseters Online, auditors acted ferociously, demanding the shut down of operations at the end of each month. After all, how easy would it be to fudge the digital transaction records to get away with tax evasion?
Although Wright implemented systems that made Lasseters the first government-licensed online gaming venture, the United States' enactment of the Unlawful Internet Gambling Enforcement Act forced the business to close up shop in 2008. And just like that, Lasseters Online was no more.
Wright's experience at Lasseters tormented him with a few significant dilemmas:
Late in 2008, Dr Craig Wright (under the alias of Satoshi Nakamoto) published the Bitcoin Whitepaper to answer all of these questions, and more!
Many people falsely believe Bitcoin to be the first peer-to-peer cryptocurrency system. In reality, the first crypto industry was born in the 1990s. At its prime, this crypto sector had more cryptocurrencies and token systems than we have at present and was worth over 1 Trillion US dollars, or more than double the size of today's crypto sphere.
Although these cryptocurrencies had managed to solve the first of Wright's dilemmas by creating a digital form of money that enabled the flow of value across the Internet, it failed at the other criteria. It failed so badly that a government crackdown killed the entire industry in a single week in 2002.
From 1 Trillion to zero in one week. Why?
The cryptocurrencies of the '90s and many of today's cryptos failed to keep reliable records of all financial transactions to satisfy financial regulators that their operations were above board.
"Bitcoin's ONLY innovation is that it is PUBLIC." Dr Craig Wright
Wright was haunted by the billion-dollar losses and became intent on creating an infrastructure that cannot be shut down overnight.
The solution he came up with was remarkably simple, and yet, genius. The one thing that none of the crypto systems of the '90s had was a public record book or journal - a public ledger.
Wright's solution, the Bitcoin Blockchain, would publish its records to a public journal-like system which distributes identical copies around the world. Once a new batch of entries (a new block) was posted to the journal (the chain of blocks) by a distributed network of publishers (miners), it was out there for all to see - along with the details of the sender, and the exact time it was published to the journal. As there are many identical copies of the same journal in circulation, it's impossible for anyone to delete or alter an entry to suit their agenda without everyone else seeing the trick at work.
To recruit these publishers (miners) to verify and record new records and maintain the journal, Wright built an economic incentive scheme into the system that rewards miners for their work.
The security and reliability of the Bitcoin Blockchain is then the result of a simple premise: every record is public, in real-time and for all time. That's the secret as described in Section 3 of the Bitcoin Whitepaper.
If you consider the foundational importance of Bitcoin's public nature, you'll understand why there's no such thing as a private blockchain and why anonymous transactions can never work. A private blockchain has zero security or reliability because it's not cryptography that secures the network but the publication of records that secures your network.
Within the context of our story, Bitcoin can be described as follows:
Bitcoin is a multi-layered network that operates a programmable form of money with an immutable and public tracking record.
Some of the basic programming functions that can be applied to this money include automatically splitting a transaction between multiple recipients according to specific criteria, or only sending a transaction once certain conditions have been met (a time-lapse, for example).
Because the money is programmable, no central party is needed to receive and execute these transactions - the money simply passes from the sender directly to the recipient, or "peer-to-peer".
The tracking record (or ledger) is the combination of a series of chronologically ordered editions (blocks) made up of hundreds or thousands of timestamped transactions. The ledger is publicly available for anyone to view via any of its exact copies that have been distributed globally. The parties that maintain the ledger (miners) are incentivised to catch out anyone trying to alter the record, which makes the system immutable, or unchangeable.
More than a decade after Bitcoin's launch the pieces are finally starting to come together. An increasing number of people in the Bitcoin community, as well as business leaders from a variety of industries, are beginning to understand its potential as infrastructure for enterprise applications.
Stephan Nilsson, Founder and CEO of Norwegian supply-chain service provider UNISOT, is one of them. Having explored all public blockchain options, Nilsson is convinced that Bitcoin SV (the only blockchain to maintain the original Bitcoin protocol and vision) is the best solution for his supply-chain business:
"Since we are delivering enterprise solutions, we also need an enterprise blockchain with enterprise characteristics. So, we need it to be scalable, it has to be proven and verified, it has to be immutable, there are some blockchains out there that many companies are using, but it's not immutable. We need it to be stable and resilient. It has to be private and secure. It must have high availability, globally distributed, have low fees and predictable fees, and … we need to have legal tokens and legal smart contracts. They have to be legal if we're going to use it in an enterprise environment. And last, but not least, it has to be an open, including and censor-free community, or society. And what we found out; Bitcoin SV is the only blockchain having these characteristics."
Given the somewhat dramatic changes in our understanding of what Bitcoin is over the past 5 years, we are rewriting our earlier eBook on the topic.