In 2009, Satoshi Nakamoto released open source software by which peer-to-peer transfers of digital wealth, called bitcoins, flashed over an immutable and transparent ledger called the blockchain. Cryptocurrency has served as one of the most significant financial disruptions of the last decade but the emergence of Satoshi Nakamoto is, like his bitcoin creation, enveloped in anonymity. The revolution he started, however, has become highly visible in recent years, changing the way people, businesses and governments approach currency and financial transactions.
Sparking an Idea
Satoshi Nakamoto, a pseudonym for the individual or team that developed bitcoin, rose to prominence in the metzdowd.com cryptography mailing list with the publication of “Bitcoin: A Peer-to-Peer Electronic Cash System” on October 31, 2008. In it, he detailed his ideas for a currency system that eliminates the need for central control and cost-increasing third parties while increasing privacy and fidelity for users. Nakamoto also made the underlying code open source, emphasizing his ideals of unfettered exchanges of information and value.
As digital currencies, bitcoin and the like serve as borderless, seamless solutions to transactions of any size and between any party. These are systems of innate checks and balances based on blockchain technology (link to “How Does a Blockchain Transaction Happen?” when it goes live), a technological innovation in its own right. The cryptocurrency credo can be broken down into three basic categories.
Taking control of currency away from a central figure such as a bank allows individuals greater financial autonomy. Decentralization enables parties to request and send payment to one another without the need for financial institutions that often impose limits, longer transaction times and high fees. This axiom also helps eliminate the risk of currency manipulation on a macroeconomic scale since no single entity controls the value or supply of cryptocurrencies.
The use of digital wallets, as well as both private and public security keys, helps maintain users’ privacy, a measure that Nakamoto found necessary to protect people from governments, companies and other individuals that may abuse such financial data.
This privacy doesn’t translate to opacity, however. The blockchain’s proof-of-work mechanism creates (mines) bitcoins and other cryptocurrencies while simultaneously checking current transactions against previous ones to ensure their value and validity. It then adds them to the global ledger that’s accessible to all involved parties, creating a highly transparent system. This happens across the network at the same time, keeping everyone on the same page and eliminating double spending.
An Ongoing Revolution
Satoshi Nakamoto mined the first bitcoin block, known as the Genesis Block, on January 3, 2009, which contained 50 bitcoins. The process took six days, a far cry from the 10 minutes it takes today (link to “How Long Does It Take to Produce a Bitcoin?” when it goes live). Included in this initial entry on the transaction ledger is the notation: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” a reminder of the 2008 global financial crisis that pushed Nakamoto toward an alternative currency solution.
This first real-world bitcoin transaction occurred in May 2010 with the purchase of a pizza for ₿10,000. Today, however, cryptocurrencies number in the thousands and Bitcoin prices have risen as high as $19,783. Consumers, businesses and governments alike have taken notice of cryptocurrency’s successes as well as its potential. The nature of currency transactions will continue to evolve as this new landscape unfolds.
Lauren Treadwell is a fintech writer and enthusiast specializing in cryptocurrencies, blockchain technology, innovative investment strategies and financial service startups.