Satoshi Nakamoto is Not an Individual.
A Delusion of the Great Man Theory
The identity of Satoshi Nakamoto, the pseudonymous creator of Bitcoin, has captivated the cryptocurrency community ever since its invention in 2008. Given the recent HBO documentary, Money Electric: The Bitcoin Mystery, which focuses on the identity of Satoshi Nakamoto and peddles the hypothesis that former Bitcoin developer Peter Todd is the enigmatic figure behind Satoshi Nakamoto, I thought it’d be a good time to share my hypothesis surrounding the identity of Satoshi Nakamoto. Personally, the idea of Satoshi Nakamoto being an individual seems neither feasible nor grounded in reality to me. Rather, I believe it is most likely that Satoshi Nakamoto is a pseudonym for a significantly large group that worked together to develop Bitcoin. Before going into my hypothesis, I’ve provided a brief yet comprehensive background explainer describing the processes, systems, mechanisms, and technologies comprising the design of Bitcoin.
Technical Background on Bitcoin
As the first decentralized cryptocurrency, Bitcoin was meticulously designed to operate through a network of interconnected nodes in a peer-to-peer (P2P) system. Each node participates in verifying and recording transactions using advanced cryptographic techniques. Bitcoin utilizes a blockchain—a decentralized, cryptographically secured distributed-ledger where each block contains timestamped transactions and the hash of the previous block, forming an immutable chain that ensures transparency and tamper-resistance.
Transactions are secured using cryptographic hash functions, specifically the SHA-256 algorithm, which originated out of the U.S. National Security Agency (NSA) and published in 2001. This algorithm transforms input data into a fixed-size string of characters, making it computationally infeasible to reverse-engineer or alter the original data without detection. Each block in the blockchain references the hash of the preceding block, creating a continuous and unalterable chain of information.
Consensus across the network is achieved through a mechanism known as Proof-of-Work (PoW). In this system, network participants called miners compete to solve complex mathematical puzzles, which involve finding a nonce (a random number) that, when combined with the block's data and passed through the SHA-256 hash function, produces a hash that meets a predetermined difficulty level—typically requiring a specific number of leading zeros. This process is computationally intensive and demands significant computational power, ensuring that adding new blocks to the blockchain is a resource-intensive endeavor.
Bitcoin mining serves two crucial functions: validating transactions and introducing new bitcoins into circulation as a reward for the miners' efforts. The mining difficulty adjusts approximately every two weeks to maintain an average block creation time of about ten minutes. This self-regulating system controls the supply of Bitcoin and secures the network against malicious activities by making it prohibitively expensive to manipulate the blockchain.
By integrating these technologies—decentralized P2P networking, cryptographic hashing, consensus mechanisms, and mining—Bitcoin establishes a robust and secure system for financial transactions without the need for centralized authorities or intermediaries. This innovation effectively disrupts the traditional centralized commercial banking system by providing a transparent, decentralized alternative that is resistant to censorship and manipulation.
In an embodiment of Joseph Schumpeter's concept of creative destruction, Bitcoin represents a technological revolution that redefines the financial industry. Schumpeter described creative destruction as the "process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one." Bitcoin harnessed this power of innovation to challenge and potentially supplant the highly centralized power of traditional banking institutions, which have historically held sole responsibility for managing financial transactions. By designing a system where consensus is achieved through decentralized computation rather than centralized oversight, Bitcoin exemplified the disruptive impact of creative destruction in modern economic systems during the Information Age.
Satoshi Nakamoto: A Different Hypothesis
Many speculative hypotheses have emerged surrounding the identity of Satoshi Nakamoto, most commonly attributing the identity of Nakamoto to individuals such as Nick Szabo and Hal Finney. Unfortunately, all of those hypotheses are absurdly delusion. Satoshi Nakamoto is not a single person. Rather, I’ve given profoundly too much thought to develop a more grounded approach to what lies behind the pseudonym of Satoshi Nakamoto. Rather than any individual, I’ve arrived at the hypothesis that Satoshi Nakamoto is much more plausibly a collective comprising members of the PayPal Mafia and cryptographers from the NSA’s East Coast Cryptography Division within one of the many 1,300 buildings on-site at the NSA Headquarters in Fort Meade, Maryland. I arrived at this hypothesis after a great deal of consideration surrounding the intricate intertwining dynamics between the development of Bitcoin, the 2007-2008 financial crisis, and the subsequent moral hazard that plagued the banking system.
The 2007 financial crisis exposed the fragility and inherent risks within the global banking system, particularly highlighting the concept of moral hazard where large financial banking institutions engaged in reckless behavior, confident in the belief that they were “too big to fail.” This led to a systemic problem where banks took excessive risks, knowing that government bailouts would mitigate the fallout of their failures, thereby distorting market incentives and undermining economic stability. In the eventual fallout, there was a growing recognition of the need for a more resilient and transparent financial system, one that could inherently address these moral hazards without relying on centralized authorities prone to corruption and inefficiency.
Enter Bitcoin, a decentralized digital currency introduced by Satoshi Nakamoto in 2008. Bitcoin was meticulously designed with a self-correcting mechanism to control and mitigate inflation, embodying a deep understanding of economic principles necessary to address the challenges of the existing financial paradigms. The technical architecture of Bitcoin, including its blockchain technology, reflects a sophisticated approach to creating a robust financial system that operates independently of centralized institutions. This innovation did not arise in a vacuum but rather as a direct response to the failures observed during the financial crisis, aiming to provide an alternative that ensures more transparent and robust financial system.
The PayPal Mafia
The PayPal Mafia, a group of former PayPal executives and employees who have gone on to found or develop significant tech companies, possesses the entrepreneurial spirit and technical expertise required to conceive and implement such a groundbreaking system. Members such as
Peter Thiel (online money transfers company, PayPal Holdings)
Max Levchin (PayPal Holdings; payments & cryptography company, Confinity Inc.; point-of-sale installment loans company, Affirm Holdings)
have a proven track record of innovation in fintech, creating platforms that offer alternative forms of commercial banking. These ventures effectively decentralize financial services, reducing the risks associated with overly centralized banking systems. The PayPal Mafia’s endeavors in creating secure, user-friendly financial technologies align seamlessly with the principles underlying Bitcoin, suggesting a natural progression towards the development of a decentralized currency.
The U.S. National Security Agency (NSA) Cryptographers
Simultaneously, the involvement of cryptographers from the NSA’s Fort Meade Cryptography Division adds another layer of sophistication and security to the equation. The NSA is renowned for its advanced cryptographic research, and its experts possess the deep knowledge necessary to design secure and resilient protocols. The combination of the PayPal Mafia’s fintech expertise and the NSA’s cryptographic prowess would create a formidable team capable of developing a decentralized financial system that addresses both technological and economic vulnerabilities. This collective effort would ensure that Bitcoin is not only secure and scalable but also economically sound, providing a viable alternative to the traditional banking system.
Aligned Motivations & Incentives for Collaboration
The motivations behind such a collaboration are rooted in a shared vision to create a more stable and transparent financial system. The moral hazard associated with “too big to fail” banks creates a compelling incentive to develop a decentralized currency that mitigates these risks. By offering a product that enables the separation of commercial banking from investment banking and reducing the concentration of financial power, Bitcoin offers a solution that enhances economic robustness and reduces the likelihood of systemic failures. This plan aligns with the strategic interests of both the PayPal Mafia and the NSA, who benefit from a financial system that is less susceptible to the fail points of economic dependence on overly-centralized power and excessive risk-taking from a small amount of large commercial-investment banks by diversifying the financial and economic stability to be dispersed over a larger number of fail points through a decentralized framework that disperses risk to the financial system and the economy as to split the impact of any single point of failure such that it results in less damage to our financial and economic systems than if this risk remained overly-centralized under a small number of banking institutions.
A Delusion of the Great Man Theory
In considering the hypotheses focused on individuals, other speculated identities for Satoshi Nakamoto, such as Peter Todd, present significant challenges. While Peter Todd is a respected figure in the cryptocurrency community, known for his contributions to Bitcoin’s development and security, the notion that he alone could have single-handedly developed Bitcoin underestimates the complexity and breadth of expertise required. Bitcoin’s creation necessitated not only advanced cryptographic knowledge but also a profound understanding of economic theory and financial systems. The collaborative efforts of a group comprising both fintech innovators and top-tier cryptographers provide a more plausible explanation for the multifaceted nature of Bitcoin’s design and implementation.
The timeline surrounding the development of Bitcoin is also telling. Emerging in the wake of the 2007 financial crisis, Bitcoin was introduced at a time when the need for a decentralized, transparent, and resilient financial system was acutely felt. The immediate response to the crisis by large financial institutions highlighted the vulnerabilities of the existing system, creating a ripe environment for an alternative like Bitcoin to take root. The rapid development and deployment of Bitcoin during this period suggest the involvement of a highly skilled and motivated group capable of responding swiftly to economic challenges with innovative solutions.
Individual-based theories always fail to account for the breadth of Bitcoin’s capabilities and the foresight embedded within its protocols. The collective intelligence and diverse skill sets of the PayPal Mafia and NSA cryptographers offer a more comprehensive foundation for developing a system as intricate as Bitcoin. Their combined experience in creating secure financial technologies and understanding the economic imperatives of a post-financial crisis world make the collective hypothesis more compelling compared to singular attributions.
The theory that Satoshi Nakamoto is a collective comprising members of the PayPal Mafia and cryptographers from the NSA offers a pragmatic and reasonable explanation for the creation of Bitcoin, especially when one considers the timing of its development. This hypothesis not only aligns with the technical and economic sophistication required to develop such a groundbreaking system but also resonates with the strategic motivations emerging from the financial crisis and the ensuing moral hazard issues. While individual theories like that of Peter Todd remain…entertaining, the collective effort of these highly skilled groups provides a more comprehensive and plausible narrative for the enigmatic figure of Satoshi Nakamoto. Understanding Bitcoin’s genesis through this lens underscores the profound connection that links technological innovation to economic necessity, emphasizing the collective venture to develop more stable and transparent financial and economic systems.
Author’s Note
While I mention Elon Musk, Peter Thiel, and Max Levchin as members associated with the PayPal Mafia, I want to clarify explicitly that I only mention these individuals as prominent examples of members associated with the PayPal Mafia who are representative of the type of individuals whom possess the skill sets and experience pursuing ventures in financial technology companies that would be necessary to contribute to the creation of a financial technology like Bitcoin. I want to clarify that I’m not hypothesizing that any of these specific individuals were directly involved in the creation of Bitcoin, rather that they speak to the industry experience and subject matters that are common themes amongst members, whether publicly and non-publicly, are affiliated with the PayPal Mafia.
~The Void~
10/09/2024