What is and how Bitcoin came about

The history of Bitcoin goes back as far as 1982 when the cryptographer David Chaum authored a white paper that expounded on the idea of decentralised digital money that is not backed, generated or managed by any state authority or central bank.

After him, many other inventors have come and contributed to development and growth of this idea. They include people like Adam Back, who in 1997 invented the hashcash that is used as proof of work by Bitcoin, Wei Dai of B. money and Nick Szabo, who started Bit gold.

The Founder of Bitcoin

Bitcoin is an open source payment system. It continuously accepted and relied on volunteers to support and develop it. Bitcoin community members are always called upon to use Bitcoin wherever possible, install software to their computers and make them nodes in the system, help to mine for more blocks, write or edit code, update the wiki, donate to projects and spread the message across the globe.

Therefore, no one individual can take credit for the growth and achievements of the network since its inception in 2008. However, as the interest around the Bitcoin grew, and as the developers started to deal with more and more problems, they had to unite in some organisation. It is how The Bitcoin Foundation appeared in 2012, as a non-profit entity. The members of the foundation are carefully chosen, but sometimes, mistakes are made. Along the preeminent members of the Foundation that were involved in illegal activities, we can distinguish Charlie Shem, the founder of Bitinstant which was arrested at the beginning of 2014, and Mark Karpeles, which was the reason for the bankruptcy of the most famous Bitcoin exchange website, Mt Gox.

However, the name Satoshi Nakamoto has always stood out among all of its contributors. Ironically the name belongs to a person who has the least known face among not only the core developers of Bitcoin but also those who have had significant influences on the development of the digital money concept, in general.

He is the figurehead of the Bitcoin network around the world. It is despite reports that he stopped his active participation in the year 2011.

His anonymity has left many around the world guessing who he might be and why he has chosen to stay out of the public limelight. Ordinarily, one would expect him to be out and bask in the glory of the success of this disruptive piece of technology in the short time it has been around. Indeed, as expected, this has led to many conspiracy theories cropping up in both the internet and the traditional media around the globe all in an attempt to decipher the real identity of the one middle person in the network.

Insiders have too, to some extent, contributed to the mystery. Some fellow core developers like Gavin Andresen have also admitted having never met, seen or heard his voice, but only exchanged correspondences on email or chats as they developed the network together over the years. But where did it all start? The first and significant link between Bitcoin and Nakamoto, which essentially puts him at the centre of the network, was a white paper he authored and published in late 2008.

This white paper is the one that laid the foundation for Bitcoin before the launch in 2009. Also, he has been linked to the patenting of the idea and registering a domain name for Bitcoin.org, which is, though not the official website of Bitcoin, its face on the internet. He is also among the first people to mine extensively from the system, and he was estimated to own close to $400 million worth of Bitcoins by the end of 2013.

On the other hand, there are those who continue to believe that the name Satoshi Nakamoto is a pseudonym used by someone who, for one reason, or another, do not want to come into the public limelight. Some of the names that different Nakamoto researchers have mentioned as possible real identities behind the name include a graduate cryptography student at Dublin’s Trinity College by the name Michael Clear, Finnish game developer Vili Lehdonvirta and Nick Szabo of Bit gold. A genius Japanese kid as a possible person behind the mask has also come up in some reports.

Furthermore, there are those who have theorised that Satoshi Nakamoto is not an individual but a group of developers, hackers or government institution. Groups mentioned include the government of the United States, of course through the secret service, and one that is composed of Neal King, Vladimir Oksman, and Charles Bry. The position of Bitcoin.org on this matter is summarized in this one sentence found in the Frequently Asked Questions section, “…the identity of Bitcoin's inventor is probably as relevant today as the identity of the person who invented paper.”

This position emphasises the idea and not the person behind it, but it also creates more mystery about the topic. As long as we don’t know who invented the bitcoin, the assumptions and suppositions will continue to be debated on Bitcoin forums.

Newsweek expose on Nakamoto’s identity

On March 6, 2014, Newsweek published an investigative story by the freelance journalist Leah McGrath Goodman that concluded that the inventor of Bitcoin is a 64-year-old resident of temple city, Calif, who is a naturalised Japanese American.

The article has become a source of controversy with the weekly news magazine standing behind the writer and insisting that the story is based on credible facts, and it is one major step in making the public get to know Bitcoin. According to the article, Dorian Prentice Satoshi Nakamoto was born in Beppu, Japan and moved to the United States with his mother, Akiko, and two brothers in 1959. His mother had just divorced his Buddhist priest father and remarried. Ms Goodman portrays the man as either obsessed with secrets, slow in taking credit for his achievements or fearful of being identified as the one who designed the internet money system.

Mr Nakamoto studied physics at the California State Polytechnic University, Pomona. He has had a long career and worked for various employers including Hughes Aircraft (part of Raytheon), RCA in New Jersey, Software engineer for Nortel Networks and Federal Aviation Administration. Apart from his love for technology, his family and those who have interacted with him say he also has a passion for model trains.

He has married twice with one son, Eric, who is a 3D graphic designer, from the first marriage and five others with his separated wife, Grace Mitchell. He and Grace used to work together on military equipment projects. In her two month journey to uncover what she believes in the true man behind Bitcoin, Leah collected freely available data from the internet and public institutions. She also interviewed some people, including Nakamoto’s wife, children and brothers. She also sought to interview Mr Nakamoto himself, but she was not successful except for some email exchanges she had with him at the early stages of her investigation.

In fact, Mr Nakamoto called the police when she went to interview him at his home. Despite many suggestions in these meetings, including him saying he was no longer involved in what she was asking, and that other people were in charge, neither he nor his family members categorically admitted that he was the man she was looking for. The writer also assumes that there is more than one Satoshi Nakamoto, some alive and some dead, in the North America alone, which suggests that that the Bitcoin Satoshi Nakamoto may still be under cover.

There was an exchange of accusation between Leah and Mr Nakamoto, who believed, she had infringed on his rights and portrayed him inaccurately. Many Bitcoin community members also came out to register their disappointment with the article writer and deny that the person exposed was the Nakamoto behind Bitcoin.

The reasons of Bitcoin

While the face of the real Satoshi Nakamoto is in dispute, two things about Bitcoin are acknowledgeable; one is the fact that it is solving an existing problem and two is the impact it is having around the world. The Problem: the traditional currencies are overrated. Sure, we will use those for tens of years, but it is obvious that something needs to change.

The financial recession showed that the US Dollar is not safe anymore, and the current monetary system will only lead to another recession. The Bitcoin might not be the exact concept that could replace those, but it is the first attempt of this kind. Eventually, the authorities will have to give virtual currencies more attention and to use those as alternatives for traditional money.

Many Bitcoin enthusiasts will say the first reason the invention was long overdue is the failing of the banking system. Traditional banks have served economies around the world for centuries, from the times of goldsmiths taking gold from people for safe keeping and issuing them with notes in its place, which traders started accepting as a mode of payment.

Consequently, one person with a note delivered by a Goldsmith will use it settle debts with another. The one who is paid will present the letter to the goldsmith and claim the gold indicated. These are the notes that evolved to become paper money and electronic money. On the other hand, goldsmiths became banks and worked with state authorities to set up central banks that regulate, print and manage money.

Over time banks have grown very powerful and, at the same time, they have developed weaknesses that are making doing businesses, especially in the era of internet, cumbersome. Some of the causes of the high cost of fiat money transactions include high service charges and the constant threat from fraudsters and dishonest individuals. Also, fiat currencies have erected barriers to the international flow of money flow of cash.

It has continuously hindered trade among individuals across borders. Each transaction, even those done online, must go through a bank to be completed. It has become an issue with an interconnected world on the internet. The Solution: This is why the likes of David Chaum, Adam Back, Wei Dai and Nick Szabo chose to seek for solutions in the digital code.

It, however, became apparent from the outset that getting rid of banks will only be possible if there is a fundamental change in generation and management of money. Digital money became the best alternative to the fiat money. For this concept to become a reality, several basic concepts were put: the Bitcoin needs to be decentralised, with no governmental control on it, and completely anonymous.

Bitcoin is the first digital or cryptographic currency that has grown to challenge the position of the fiat or government backed currency. The government does not back the money but a code. Also, the network behind the Bitcoin, which everyone is free to join, spreads the control of money to many[i].

Another reason behind the support for Bitcoin is that banks also have turned out to be concentration of too much power of money in the hands of a few, which primarily make the rest of the world population dependent and at the mercies of these a few people who decide how much money should be in circulation and when to generate more or less of it. This is different with Bitcoin because no one as an individual or as a particular group owns the system, but it is owned by all those who use it. It means that if the whole world population turned to using the internet money, each one of them becomes a part owner[ii].

Moreover, since there is no authority to stop, slow or accelerate the generation the Bitcoins, production of more units of Bitcoins is predetermined. The addition of new values, or mining, is worked out by a network of computers that work together but are not in control of any one person or authority.

For the Bitcoin to be mined at a pre-established rate, a variable named Difficulty was introduced in the mining algorithm. It is adjusted automatically every two weeks, and it makes sure that the reward is distributed to all the miners that contributed to the blocks. Each block mined comes with a fixed reward of 10 Bitcoins. A block is generated once every 10 minutes. If a single computer extracts the entire block, the 25 Bitcoins will go to the respective miner. If one million computers mine for the same reward, each one of those will get a small portion of the prize.

Also, unlike the paper money, Bitcoins are less susceptible to fraud since every transaction is time stamped and verified by everyone who is interested.

To exchange fiat money between individual and banks relays much on trust, which either locks some people out of the system or makes transactions take a long time to complete. On the other hand, Bitcoin does not require trust for anyone to carry out a transaction. The idea is to let cryptography take care of the security. The cryptocurrency has served to reduce significantly the transaction expenses and the bureaucracies that have made using the traditional currency expensive, especially in the era of the borderless internet.

Reservations

This new form of payment does not lack in enemies and those who do not trust it. There are many, people, organisations and government who view Bitcoin as a disruptive technology and an unstable scheme that could go down with billions of dollars worth of people's money. There are even those who believe that this is a loophole that organised criminals will exploit in their endeavour to run away from the law enforcement agencies. However, some authorities around the world recognise that this is a technology that cannot be wished away.

A good example of this realisation is when the former Federal Reserve chairman, Mr Ben Bernanke acknowledged to the American house of Congress that virtual currencies have a long promise. This is an indication that crypto money will gain acceptance with time.

Even if they are surrounded by controversies, ups and downs, spikes and arrests, the altcoins are here to stay. Even if you are not interested in getting involved in this virtual financial world soon, it is important to understand the phenomenon of Bitcoin, and what could it mean for the entire world.
[i] There are concerns that the Bitcoin mining power is already centralized by large companies using hundreds of ASICS miners for bitcoins. If this is true, the entire concept of Bitcoin is threatened. http://fieryspinningsword.com/2013/10/02/asic-will-not-centralize-bitcoin-mining/ [ii] Auroracoin is the altcoin that takes this concept a little further. http://www.cryptopips.com/news/icelandic-revolution-auroracoin-new-democracy/