Who Is Satoshi Nakamoto – And Why Did He Invent Bitcoin?
Bitcoin was created by an anonymous person (or group) in 2009. The creator(s) went by the name Satoshi Nakamoto.
2009 was near the peak of the housing crisis, and that is no coincidence. Satoshi was obviously not happy with bailouts and the state of financial systems. So, being an excellent coder, he came up with a bold plan to change things with open source (free) software. Thus, bitcoin was born.
Nakamoto summed up the why of bitcoin in his launch announcement to a cryptography discussion group:
The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.
Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.
Reading Satoshi’s posts is the best way to understand why bitcoin was created. Let’s look at another example of his early writing:
As a thought experiment, imagine there was a base metal as scarce as gold but with the following properties:
– boring grey in color
– not a good conductor of electricity
– not particularly strong, but not ductile or easily malleable either
– not useful for any practical or ornamental purpose
and one special, magical property:
– can be transported over a communications channel.
If it somehow acquired any value at all for whatever reason, then anyone wanting to transfer wealth over a long distance could buy some, transmit it and have the recipient sell it.
Maybe it could get an initial value circularly as you’ve suggested, by people foreseeing its potential usefulness for exchange. (I would definitely want some.) Maybe collectors, any random reason could spark it.
Here’s one more:
A rational market price for something that is expected to increase in value will already reflect the present value of the expected future increases. In your head, you do a probability estimate balancing the odds that it keeps increasing.
He foresaw all of this. The demand, the speculation, the price increases… Today roughly $2 billion worth of bitcoin changes hands daily.
Satoshi – whoever he may be – is undoubtedly a genius. Bitcoin is one of the most admired pieces of software ever designed. It is battle-tested, and the cryptography has held strong.
Satoshi created bitcoin to be a game changer, an alternative to the current monetary system.
The system is elegant. Satoshi knew he needed an incentive for people to adopt his technology. So he built a system with rewards for both miners (who secure the network and process transactions) and users (who hold and spend the coins).
Bitcoin gets harder to mine over time, as the difficulty increases automatically. It also gets harder due to increased competition from new miners.
Early adopters are richly rewarded, and they help spread the word. They have an incentive to hold long term, because if it catches on in the mainstream, they know the price will be higher.
Satoshi was active on message boards until December 2010, when he disappeared without a trace.
Wherever he is, I like to think he’s smiling. Bitcoin is now worth nearly $5,700, and I believe we’re headed for mainstream adoption – or something close to it.
If it happens, we’ll likely go from less than 1% bitcoin ownership in the U.S. to something like 30% in the next few years. Throw in Asia, Europe and South America…
And the price will necessarily be orders of magnitude higher than it is today.
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These are simply outstanding opportunities. Some of these coins are much smaller than bitcoin, but they have a chance to surpass it in the near future.
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About Adam Sharp
An active investor in more than 80 startups, Adam brings his extensive experience, research, due diligence and industry connections to guide readers through the exciting new investment space known as equity crowdfunding. As a former financial advisor, he also has extensive experience with internet marketing and financial writing. Adam has worked as a consultant for leading web properties with millions of visitors per day. He has built three profitable web businesses. And he now regularly shares his knowledge about investing in startups, cryptocurrency and cannabis in his free daily e-letter, Early Investing.