Derek Magill

Roots of Bitcoin’s Cash vs Gold Debate

Reply to Satoshi from James A. Donald

 

This is the fourth essay in my series on Bitcoin’s history and original value proposition, all of which will be included in my upcoming book, All That Bitcoin is Not Gold.

The discussions about Bitcoin’s “cashness” vs its “goldness” are not something new. While they have developed an almost religious-like temperament in the past few years, from the moment Satoshi announced Bitcoin, “a peer-to-peer electronic cash system,” on the Cryptography Mailing List in 2008, he was met with skepticism that it could scale to become global money and arguments against its intended use as cash.

We very, very much need such a system, but the way I understand your proposal, it does not seem to scale to the required size…

If hundreds of millions of people are doing transactions, that is a lot of bandwidth – each must know all, or a substantial part thereof.

This email, from a man named James A. Donald, was the very first reply to Satoshi Nakamoto’s announcement, and it began a rather interesting conversation about the nature of Bitcoin, its purpose, and its potential, with clear lines drawn between two camps that have only gotten deeper and more explosive in the years that followed.

Satoshi’s reply is one that is regularly cited by big blockers and Bitcoin Cash users, as it makes clear that from the start [1], Bitcoin was intended to be digital cash that scales for the entire world that offered a substantial improvement over the existing system.

Long before the network gets anywhere near as large as that, it would be safe for users to use Simplified Payment Verification (section 8) to check for double spending, which only requires having the chain of block headers, or about 12KB per day. Only people trying to create new coins would need to run network nodes. At first, most users would run network nodes, but as the network grows beyond a certain point, it would be left more and more to specialists with server farms of specialized hardware. A server farm would only need to have one node on the network and the rest of the LAN connects with that one node.

The bandwidth might not be as prohibitive as you think. A typical transaction would be about 400 bytes (ECC is nicely compact). Each transaction has to be broadcast twice, so lets say 1KB per transaction. Visa processed 37 billion transactions in FY2008, or an average of 100 million transactions per day. That many transactions would take 100GB of bandwidth, or the size of 12 DVD or 2 HD quality movies, or about $18 worth of bandwidth at current prices. If the network were to get that big, it would take several years, and by then, sending 2 HD movies over the Internet would probably not seem like a big deal.

Satoshi might very well have been wrong about this. Perhaps Bitcoin truly cannot scale like he believed, but that he believed it could be digital cash that replaces the existing Visa system is absolutely indisputable and should not be written out of history.

Consider for example another related reply from Satoshi to James A. Donald that explains why Bitcoin is better than the credit card system:

Paper cheques can bounce up to a week or two later. Credit card transactions can be contested up to 60 to 180 days later. Bitcoin transactions can be sufficiently irreversible in an hour or two.

The original value proposition of Bitcoin was that, for many reasons including that it is peer-to-peer, has low fees, censorship resistance, non-reversibility and a deflationary nature, it was better than the existing internet payments system. It was cash with some gold-like properties, but it was still cash.

While we have Satoshi on one side arguing that Bitcoin is digital cash that can scale and James. A Donald (and cypherpunks) on the other arguing that Bitcoin is gold. It can’t scale:

…we will need a layer of account money on top of the bitcoins, supporting transactions of a hundred thousandth the size of the smallest coin, and to support anonymity, chaumian money on top of the account money.

Let us call a bitcoin bank a bink. The bitcoins stand in the same relation to account money as gold stood in the days of the gold standard. The binks, not trusting each other to be liquid when liquidity is most needed, settle out any net discrepancies with each other by moving bit coins around once every hundred thousand seconds or so, so bitcoins do not change owners that often. Most transactions cancel out at the account level. The binks demand bitcoins of each other only because they don’t want to hold account money for too long. So a relatively small amount of bitcoins infrequently transacted can support a somewhat larger amount of account money frequently transacted.

Donald’s argument makes a proto-case for the Lightning Network and for Bitcoin as a sort of “gold” settlement system, not a cash system. He goes on to repeat himself again throughout the email exchanges:

We can build a privacy layer on top of this – account money and chaumian money based on bitgold coins, much as the pre 1915 US banking system layered account money and bank notes on top of gold coins, and indeed we have to build a layer on top to bring the transaction cost down to the level that supports agents performing micro transactions, as needed for bandwidth control, file sharing, and charging non white listed people to send us communications.

Those familiar with today’s arguments for small blocks, “digital gold” and second-layer scaling solutions will find these statements from Donald strikingly similar, though they are admirably absent of any of the insults and innuendo so regularly paired with these claims today which reveal more about the character of the attackers than their targets.

He makes one last argument in the discussion about the need to keep bandwidth prices low to maintain maximum censorship resistance, to which Satoshi doesn’t directly respond.

I think we need to concern ourselves with minimizing the data and bandwidth required by money issuers – for small coins, the protocol seems wasteful. It would be nice to have the full protocol for big coins, and some shortcut for small coins wherein people trust account based money for small amounts till they get wrapped up into big coins.

The smaller the data storage and bandwidth required for money issuers, the more resistant the system is the kind of government attacks on financial networks that we have recently seen.

Though we don’t have Satoshi’s direct reply to this, remember that he believed that Bitcoin “would be left more and more to specialists with server farms of specialized hardware” instead of individuals using equipment with small bandwidth requirements to secure the network. Since no reply was given, it’s likely he felt he had already made his case.

Unfortunately, the argument was not settled here and it continued for years until it led to the creation of the alt coin market and the ultimate splitting of Bitcoin into BCH and BTC.

It will be interesting to watch the development of the two chains to see whether Satoshi was correct or Donald was correct, but BTC investors who make the small block argument should understand that when they do, they are not using the words of Bitcoin’s creator, but the words of James A. Donald.

Bitcoin was not intended to be “gold,” but cash. It was intended to scale on-chain, not off-chain, and it was meant to compete with Visa and other existing payment solutions. When normal people first began signing up for Bitcoin, it was this value proposition that excited them.

Forgetting it might perhaps be dangerous for Bitcoin’s future.

Like this essay? You can support my Bitcoin writing here.

[1] It was in fact already clear from the white paper.

All that Bitcoin is Not Gold

I’m working on a new book on the history of Bitcoin, its original value proposition, and Satoshi’s Vision. It will be a compilation of essays and I’ve already begun (and will continue to) publish them as they’re written.

Szabo’s Influence on Bitcoin as “Satoshi”

Illustration from Satoshi Doodles

 

The following is a postscript to my essay, Szabo is Not Satoshi.

Many readers of my essay Szabo is Not Satoshi took the opportunity to “get me” by pointing out that nobody thinks Nick is Satoshi, that he has denied it outright and that therefore my essay was pointless.

Although I noted in the post that he has indeed denied it, I think it’s totally incorrect, perhaps even disingenuous, to claim that he doesn’t have a disproportionate influence on the credibility of certain narratives in Bitcoin because of the ongoing suspicion that he might be its creator or that he had at the very least a big influence on its origins.

That, and simple historical interest, are why I wrote it.

Now, I believe I’ve discredited that argument sufficiently but I’d like to point out in this essay several examples from real people that better show what I meant when I argued about the importance of the Szabo/Satoshi question. Szabo’s rumored direct or indirect ties to Satoshi have been and currently are being used to promote a specific agenda, right or wrong, and it’s worth being aware of so you’re able to think for yourself instead of outsourcing your thinking to others.

While I don’t want to comment on that agenda in this series of essays because I want them to be of interest to all people interested in Bitcoin, BCH, BTC or cryptocurrency in general, I do find it strange that prominent people in Bitcoin who claim that “Satoshi is not God” or that private key signature is the only thing that matters often so readily cash in on the Szabo/Satoshi myth when it serves their purpose.

We’ll begin first by looking at Bitcoin’s court-jester, Charlie Lee, who argued against Segwit 2X on the grounds that “Nick Szabo is the closest we have to Satoshi, if not Satoshi himself,” and he didn’t support the hard fork:

Charlie is an influential figure in Bitcoin and the broader cryptocurrency world. He’s not some fringe, anonymous theorist making wild claims that Szabo is Satoshi. He’s using his platform to push the idea as justification for his position in a very controversial discussion about scaling Bitcoin.

People who argue that my essay was premised on a non-issue are wrong here. When I wrote the following:

Although people rarely say it outright, there’s a subculture in Bitcoin that really wants to believe he is Satoshi because it lends more credibility to their position, despite the fact that he has denied it.

I was not speaking about theoretical people that I can imagine existing but have no evidence for. I was speaking about popular, influential “thought leaders” in Bitcoin cashing in on the Satoshi/Szabo issue. This has real consequences for the development of Bitcoin. If Charlie Lee is willing to push Szabo as evidence for something like Segwit 2x, others will as well.

But whichever side you’re on, you should have to provide actual evidence that Nick is Satoshi in order to argue that his opinion AS Satoshi or AS someone who laid all the foundations for Bitcoin matters.

Another well known figure in Bitcoin, Vijay Boyapati, has argued the latter, as has developer Tuur Demeester and others quoted below:

Though they are not directly claiming that Nick is in fact Satoshi, they’re arguing that Nick basically invented it with BitGold and Satoshi simply put his ideas into practice. They’re doing this to push a particular view of Bitcoin without having to reference what Satoshi himself actually said. In other words, though they don’t actually say it, “Szabo” here is essentially a substitute for “Satoshi.” He’s the “credential” for the “Bitcoin is gold,” “small blocks + Lightning” narrative that has taken over BTC.

Readers will have to refer to my essay on the subject for the full outline of why I think this is incorrect, but suffice it to say here that Wei Dai provides solid evidence against this and Nick Szabo’s own views on scaling Bitcoin clash directly with the well known views Satoshi had on scaling the protocol. There’s simply little reason to think he was involved in Bitcoin directly or that his writings had any important influence on its development.

Unfortunately, I think this evidence will be ignored by the people cited in this essay because it is much easier to stand on the shoulders of an authority figure than on the merit of one’s own arguments. The Szabo/Satoshi myth persists — and quick Twitter and Reddit searches can tell you how popular it is — because it is useful for pushing a particular view of Bitcoin, but I hope this essay has offered some clarity on the question to people in both BTC and BCH.

Szabo’s positions should be evaluated on their own, without reference to his unproven and baseless direct or indirect ties to Satoshi.

Like this essay? You can support my Bitcoin writing here.

Szabo is Not Satoshi

Illustration by Satoshi Doodles

 

After the popularity of my essay on Satoshi and micropayments, I had the idea of continuing down the historical rabbit hole for a while and looking further at some questions about Bitcoin’s history that I’ve found interesting for years.

This next essay in the series is about the question of Nick Szabo’s involvement in the creation of Bitcoin. I find the question interesting not strictly as a question of who Satoshi actually is, but more because the implications that might follow from the answer.

Szabo is a widely respected individual in Bitcoin and much of his writings, particularly on the origins of money, have been used as justification for the small blocks + Lightning Network approach to scaling Bitcoin. Although people rarely say it outright, there’s a subculture in Bitcoin that really wants to believe he is Satoshi because it lends more credibility to their position, despite the fact that he has denied it.

Though they might say the thoughts of Satoshi are irrelevant when they appear to clash with their view of scaling Bitcoin, there’s little doubt they would readily use the “Szabo is Satoshi therefore we’re right” argument if they ever got definitive proof that he was indeed Satoshi.

So the question of whether or not Szabo is Satoshi I think carries a good deal of practical weight for the future of Bitcoin, even if nobody will admit it now.

Unfortunately for this camp, the evidence we have suggests he’s very likely not Satoshi and in fact had no involvement whatsoever in the creation of Bitcoin. For my own part, I do not believe he is after putting this all together.

Before we review the evidence, let me just note that I’m not making an argument for small or larger blocks here. I hope this essay can be interesting and informative to anyone who wants to better understand the history of Bitcoin.

Bitgold by Szabo

 

First, Satoshi probably didn’t know about BitGold (or the other cypherpunk writings). In my work archiving all the known emails from Satoshi, I came across his communications with Wei Dai, the author of b-money, the first reference in the Bitcoin White Paper.

Satoshi was referred to Wei Dai after reaching out to Adam Back. As Adam wrote in a forum post:

…I believe it was me who got Wei Dai’s b-money reference added to Satoshi’s bitcoin paper when he emailed me about hashcash back in 2008.

Although Satoshi would go on to reference Wei Dai’s b-money in the Bitcoin White Paper, it seems clear he invented Bitcoin independently of b-money and did not know about it until later, whereas Szabo himself was already familiar with Wei Dai and b-money and would not have needed Adam Back to tell him about it.

Dai himself questions b-money’s influence on Bitcoin:

…my understanding is that the creator of Bitcoin, who goes by the name Satoshi Nakamoto, didn’t even read my article before reinventing the idea himself. He learned about it afterward and credited me in his paper. So my connection with the project is quite limited.

And although Satoshi would later reference BitGold and b-money in a forum post,

Bitcoin is an implementation of Wei Dai’s b-money proposal […] on Cypherpunks […] in 1998 and Nick Szabo’s Bitgold proposal

Satoshi was only crediting BitGold after the fact, just like Wei Dai believed he was crediting b-money after having already created Bitcoin. It is not evidence Satoshi was familiar with BitGold before creating Bitcoin, only that he learned about it at some point in the future.

Indeed, Wei himself corroborates this when he said in an interview in the Sunday Times

In Satoshi’s early emails to me he was apparently unaware of Nick Szabo’s ideas…

To which the reporter adds the following:

Wei forwards me the relevant emails, and it’s true: Satoshi had been ignorant of Szabo’s bit-gold plan until Wei mentioned it.

Of course, Wei could simply be wrong or Satoshi could have deliberately played ignorant, but looking at the second piece of evidence suggests even more clearly that Szabo is not Satoshi, namely that Szabo’s view of Bitcoin is the complete opposite of Satoshi’s view of Bitcoin.

reply to Satoshi from James A. Donald

 

To understand this, we need to go back to the roots of the Bitcoin scaling conflict, which began in November 2008 only hours after Satoshi announced Bitcoin on the Cryptography Mailing List.

Not many people know that the very first reply to Satoshi came from someone named “James A. Donald” who criticized Bitcoin for not being able to scale.

We very, very much need such a system, but the way I understand your proposal, it does not seem to scale to the required size.

Satoshi’s reply to this email is informative about his view of how Bitcoin could scale:

Long before the network gets anywhere near as large as that, it would be safe for users to use Simplified Payment Verification (section 8) to check for double spending, which only requires having the chain of block headers, or about 12KB per day. Only people trying to create new coins would need to run network nodes. At first, most users would run network nodes, but as the network grows beyond a certain point, it would be left more and more to specialists with server farms of specialized hardware. A server farm would only need to have one node on the network and the rest of the LAN connects with that one node…

The bandwidth might not be as prohibitive as you think.

So Satoshi was clear from the moment Bitcoin was announced that he believed Bitcoin could scale as electronic cash on-chain. Whether he was right or wrong, that was his position.

Donald would go on in later emails to disagree with this and argue that Bitcoin would need a layer of account money built on top of it, a sort of early argument for off-chain scaling.

we will need a layer of account money on top of the bitcoins, supporting transactions of a hundred thousandth the size of the smallest coin, and to support anonymity, chaumian money on top of the account money.Let us call a bitcoin bank a bink. The bitcoins stand in the same relation to account money as gold stood in the days of the gold standard…So a relatively small amount of bitcoins infrequently transacted can support a somewhat larger amount of account money frequently transacted.

Whether this argument is correct or not, it isn’t Satoshi’s vision. In fact, it much better aligns with Szabo’s views. Compare Donald’s vision for Bitcoin to Szabo’s vision of Bitcoin and the picture becomes clear:

They are almost identical. In fact, looking at these emails alone, we could more easily conclude that Szabo is James A. Donald than he is Satoshi Nakamoto. The vision for Bitcoin that Satoshi had simply doesn’t match that of Donald or Szabo and the only means by which we can salvage the Szabo = Satoshi claim is if this was all some elaborate ruse by Satoshi to argue for a position he didn’t actually believe.

This seems unlikely, especially given the last piece of evidence. Szabo’s apparent methodology and skillset is the opposite of Satoshi’s.

In the same Cryptography Mailing List thread, Satoshi would write the following:

I actually did this kind of backwards. I had to write all the code before I could convince myself that I could solve every problem, then I wrote the paper.

This is the exact opposite of the process by which Szabo apparently attempted to make BitGold a reality around the same time, in which a paper is first developed and then someone tries to put it into practice.

[bit gold] would greatly benefit from a demonstration, an experimental market (with e.g. a trusted third party substituted for the complex security that would be needed for a real system). Anybody want to help me code one up?

Part of the reason I think Satoshi was successful while so many before him failed was precisely because he took a practical approach to solving the problems, not a theoretical, academic one. Satoshi’s methodology is totally different than the cypherpunk movement which Szabo has contributed so much too.

And we also shouldn’t miss the fact that Satoshi wrote the code while Szabo was asking for help writing the BitGold code. Satoshi himself would write in an email:

I’m better with code than with words though.

Taken together, I think we should meet any claim to Szabo had something to do with the creation of Bitcoin with skepticism. He has denied being Satoshi, people who communicated with Satoshi have claimed he did not know about BitGold, b-money, or much of the rest of the cypherpunk literature, his vision of scaling Bitcoin runs contrary to the vision outlined by Satoshi, and his methodology is the total opposite.

As for how Bitcoin should scale, well that is a question being played out in real-time now with BCH and BTC. Like Satoshi, I prefer practical testing to theoretical arguments, and we should all be very excited to watch it happen.

Like this essay? You can support my Bitcoin writing here. And please see my followup essay.

Back to daily blogging

Some notes from Ayn Rand’s writing

 

I’ve taken a few months off writing daily and although I just recently published a book and feel like I’m a better writer now than I was at the start of 2018, I can feel my writing muscles atrophying a bit and want to commit to writing daily again.

Writing is a very strange thing to me. It’s one of the few activities I at once never grow tired of and yet am never quite satisfied with. Whether I like something I wrote in the past depends greatly on the particular day I’m looking at it, and whether I feel like I’m a competent writer or an amateur likewise changes a good deal from moment to moment. I think sometimes this constant pull back and forth is perhaps the reason I’ve struggled to write daily these past few months. Much better to only experience it once or twice a week than daily!

But in the end of the day, the only things that matter are the things you did do and the things you didn’t do but should have done. And when I think about my writing and incredible things it has brought my life, it’s easy to realize that any dissatisfaction can only go down to a certain point.

If it’s not perfect, well, at least it’s done. And at least I’ll have a record of all the imperfections I brought into the world over the years. Perhaps there will even be a few lasting pieces in there too. Almost anyone could hit a baseball well once in a while if they took enough swings.

There’s a story about quantity over quality in David Bayles and Ted Orland’s book, Art & Fear: 

The ceramics teacher announced on opening day that he was dividing the class into two groups. All those on the left side of the studio, he said, would be graded solely on the quantity of work they produced, all those on the right solely on its quality. His procedure was simple: on the final day of class he would bring in his bathroom scales and weigh the work of the “quantity” group: fifty pound of pots rated an “A”, forty pounds a “B”, and so on. Those being graded on “quality”, however, needed to produce only one pot — albeit a perfect one — to get an “A”. Well, came grading time and a curious fact emerged: the works of highest quality were all produced by the group being graded for quantity. It seems that while the “quantity” group was busily churning out piles of work – and learning from their mistakes — the “quality” group had sat theorizing about perfection, and in the end had little more to show for their efforts than grandiose theories and a pile of dead clay.

This is something we recognize in fitness easily — it’s better to do 50 pushups a day if the other option is obsessing over fitness plans and getting nothing done — yet with writing, and frankly any so-called “creative activity” (I hate that we have this weird distinction between creative and non-creative) we don’t apply that same standard.

I met a high school student at a conference I spoke at a while back who told me she wants to be a writer but she won’t publish anything until she considers herself to be “good” at writing. I reminded her that this was like a fat person abstaining from going to the gym until they’ve lost weight. It’s a comically stupid plan and I hope she got the point and has started publishing now because she will never become a great writer unless she produces a lot of junk first.

And I too want to be a great writer. The list of books I want to write grows longer and longer and I want to do it right by my standards and for my readers. The only thing I’ve known that helps me make progress towards getting there is daily blogging, and so let us begin again starting today.

Now a word on what you can expect as a reader of this blog…I’m unsure. Of course, I’ll continue writing about Bitcoin (BCH and BTC), my hatred for credentialism, charlatanism and college, thoughts on writing, personal notes and updates, but perhaps a lot more as well.

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