Bitcoin was designed as an immutable ledger of transaction, allowing perfect transparency for the world to verify transactions, and keep all accountable. Due to its private nature, some overlooked this purpose to instead see it as a digital currency divorced from government, untaxable and capable of illicit transactions. In his latest article, “Ledgers and Design,” Dr. Craig Wright sets them straight.
Wright begins by retelling the history of accounting, starting with the centuries old practice of ledgers in journals, and bringing it to the modern day with database solutions. The former was difficult to keep updated, and the latter was easily corrupted by those with ill-intent. He created Bitcoin to give the world the best of both worlds. “As with Bitcoin, a paper-based journal was not updated by removing or reversing an entry, but by creating a new entry in the registry or journal, correcting the error that had occurred in the system,” he writes. “Such a change would be visible, and the errors would be available for auditors to review.”
One of the common mainstream criticisms of Bitcoin, and Bitcoin SV (BSV) as a data ledger, has been its immutable nature. But Wright notes that the system was designed to allow correction. “Whilst Bitcoin nodes do not delete entries, it is possible to append records and for honest miners to reassign records and registry entries. Note, Bitcoin is not encrypted but presents clear text, which means that alterations to the database structure are possible.”
So far, none of this addresses the lies BTC advocates have spread that digital currencies can’t be seized. Wright notes that while Bitcoin prevents criminals from stealing funds, Governments maintain the tools necessary to stop criminal activity. “Bitcoin works using isolated UTXOs,” he notes. “As a result, somebody cannot send you tokens that are mixed with your own without your knowledge. When receiving bitcoin for payment, you can record the sale and the identity information of the person you have received the coins from. You can demonstrate that the sale and transfer of the bitcoin was done in good faith (bona fide) and without knowledge (of a recent illicit activity).”
One way Dr. Wright intended to alert Bitcoin users to stolen funds or network problems was through an alert key. That alert key has since been removed, but governments have proven they don’t need it to hunt down criminals. “Removing the alert key does not remove the legal requirement to validate the source of funds. Customer due diligence (CDD), know your customer (KYC), and anti-money laundering (AML) laws apply even in the absence of a simplified system that would allow for the reporting of proceeds of crime and stolen coins.”
He expands on just how much Government can do to overturn the actions of criminals: “Bitcoin is not encrypted. Consequently, if you want to look at ‘code is law’, know that governments can force a change of code. Know that court orders can force a patch of code. Know that Bitcoin was designed to be a commercial system…”
For those libertarians who wished Bitcoin meant an escape from the modern world, Dr. Wright has some bad news for them. “The promise of Bitcoin lay never in removing government,” he writes. “The promise of Bitcoin lay in micropayments and a system that delivered an honest ledger.”
Ultimately, with a perfect system of accounting, the corrupt and criminal actors who thrived in the past are quickly finding there’s no place to hide. “Welcome to Bitcoin; as I’ve said before, it is not a system that allows for dark web markets and crime, but rather one that economically disincentivises them, by increasing the cost and adding a permanent record, allowing every malfeasor to be tracked.”
New to Bitcoin? Check out CoinGeek’s Bitcoin for Beginners section, the ultimate resource guide to learn more about Bitcoin—as originally envisioned by Satoshi Nakamoto—and blockchain.