Theory of Bitcoin: The Bitcoin White Paper second section on transactions

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The enlightening “Theory of Bitcoin” video discussion series continues this week with another look at the original Bitcoin whitepaper. Hosts Ryan X. Charles and Dr. Craig S. Wright take a look back to the time of Bitcoin’s creation, often contrasting expectations of those years with today’s realities—good and bad.

As with previous episodes, this discussion isn’t simply a line-by-line explanation of the whitepaper, but rather uses the whitepaper to inspire deeper conversation on the philosophies behind Bitcoin—the “why” of Bitcoin that everyone is searching for.

Why aren’t we anarchists?

Episode 4 covers a lot on whether Bitcoin (or any other “cryptocurrency” project) is a tool that subverts existing financial/government models, or seeks to coexist with them. And regardless of what we want Bitcoin to be—law-abiding or law-breaking—is any of it actually possible?

Were Bitcoin’s advocates the “wrong kind of people”? Charles asks, and where were the “right” ones? Why did people assume Satoshi Nakamoto was anti-banks and anti-government? And how have those old arguments evolved over the years?

Much of this episode is based on the sentence “We define an electronic coin as a chain of digital signatures,” including the paper-based history of this concept, why it’s important and why it has value, and why altering it fundamentally changes Bitcoin into something that can’t really succeed.

There’s also some discussion of central banks, hyperinflation, whether a single trusted central bank could perform the same function as Bitcoin (spoiler: it can’t, due to human nature) and why competition between central banks, and the currency units people used, is beneficial. True to form, Dr. Wright also adds some lesser-known French and Chinese history into the mix.

‘Playing devil’s advocate’

Charles challenges Dr. Wright by suggesting a few concepts that aren’t covered in the whitepaper, and asks why. A big one is Bitcoin Script, a language now essential for building complex Bitcoin-based services, but which isn’t mentioned in the paper. This is a result of realizing later on that Bitcoin needed improvements like a better set of controls for its variety of outputs, rather than having a different format/transaction protocol for each.

Additionally, given that cryptocurrency concepts were the domain of crypto-anarchists and anti-government libertarians in the past, is it really surprising that these people were among the first drawn to Bitcoin in its earliest days?

For example, and “playing devil’s advocate,” Charles points out that Wei Dai (inventor of b-money) gets a reference in the whitepaper—and Dai seems to be an anarchist. Dr. Wright’s answers are plausible, but probably warrant a deeper discussion at some point—he was only looking at their research and “Wei Dai is a really good computer scientist”; and research into cryptocurrencies was popular among crypto-anarchists in the 1990s, but had stalled by the early 00s, meaning it was “a no-go, no-fund area.”

But it’s part of the reason Dr. Wright has been so vocal, especially in the past few years, about creating a Bitcoin that could coexist with laws and financial institutions. Seeing the direction Bitcoin was headed without Satoshi Nakamoto, he had to bring a dose of reality—even if Bitcoiners didn’t like it.

“My life would’ve been a lot easier if I’d learned to keep my mouth shut,” he says, noting the cost to him personally and his family by going public.

This background also explains a lot about Bitcoin BSV’s strategy to attract large enterprise and government users. When there are several value-adding businesses built on Bitcoin, using tokens and units built on Bitcoin rather than the BSV unit itself, it becomes unstoppable. And you can still use BSV to buy a coffee, if you want.

Don’t make governments want to shut you down

Dr. Wright points out how easy it would be for governments to shut down Bitcoin, if they wanted. There’s a lot of propaganda around about Bitcoin being “censorship resistant” and “unconfiscatable,” but Wright says it would be trivial for governments to stifle it simply by shutting down exchanges, seizing domains and assets, and controlling gateways. The key, therefore, is having something no-one wants to shut down, because it’s compliant and too useful.

This counters all arguments that keeping Bitcoin “decentralized” by having millions of small individual nodes, another popular myth. There is a natural progression towards aggregation in any system, Dr. Wright says, even when using proof-of-stake.

“You may want all these little guys out there, but it doesn’t work that way. It will always end up in data centers.”

Others’ alterations to Bitcoin, like SegWit and Lightning Network, are only attempts to “build layers of obfuscation” to serve other agendas, or as Charles puts it, “trying to break the chain of signatures to make Bitcoin less traceable, less auditable.”

Dr. Wright, as always, is not afraid to name names. Watch the latest episode to find out who they are, and why they’re in his hall of shame. You’ll once again hear things you didn’t know before, find new perspectives, and finish somewhat wiser than you were at the beginning.

To watch previous episodes of the Theory of Bitcoin, check the Theory of Bitcoin: White Paper YouTube playlist here.