In a recent article on The Crypto Con, I took a deep dive into the official Satoshi Nakamoto origin story. In dismantling what we know of Nakamoto, I came to the somewhat controversial conclusion that Satoshi never existed. Rather, it is my view that Satoshi Nakamoto was always a persona created by a three-letter agency like the CIA.
What this means for Bitcoin is simple. If Satoshi Nakamoto owes his origins to a shady three-letter agency, so does Bitcoin itself. It should, therefore, come as no surprise that Bitcoin today is the very antithesis of what many believe Bitcoin to be.
The Bitcoin You Know Vs. The Bitcoin You Think You Know
There was a time when I believed wholeheartedly in Bitcoin and the wider cryptocurrency market. If you are like I was then, let me ask you a simple question: Are you running a Bitcoin node at home? Put more simply, are you actually part of the infrastructure Bitcoin depends on to process transactions?
The likely answer to this question is no. Neither will you likely be running a node for any other cryptocurrency in which you might have a stake. In fact, in my 10+ years working in the crypto space, I have yet to meet a single retail investor who actually runs a node.
Why helping blockchains like Bitcoin process transactions matters is simple. In the Bitcoin whitepaper, it was made clear that Satoshi Nakamoto foresaw a future where the majority of people using Bitcoin also participated in the maintenance of the Bitcoin blockchain itself.
- Rather than having mining farms, which today make it impossible for individual miners to make a profit mining Bitcoin, Satoshi imagined a future where almost all Bitcoin users were able to dedicate time to mining the currency.
- The more miners and node operators, the better. Bitcoin, after all, is simply a distributed transaction ledger, and the more distributed Bitcoin is, the more secure and impervious to attack Bitcoin as a transaction network becomes.
- The more people participating in the Bitcoin blockchain, the more equitable Bitcoin as a currency becomes. Likewise, the less volatile Bitcoin (in theory) becomes as more people have a stake in maintaining a fair market price. (Think less pumping and dumping by big Bitcoin whales.)
Cryptocurrency Today Parallels Flaws With the Existing Monetary System
In 2009, when Satoshi Nakamoto began mining the Bitcoin genesis block, he left a short note in microcode as he did so:
“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
Satoshi was also more than just a little skeptical of governments being able to print money whenever they so wish (thereby again debasing the value of existing currency supplies, whilst turbocharging inflation).
In the beginning, Bitcoin was a rock-solid solution to these two problems. For one, Bitcoin has a set finite supply. It is, therefore, impossible to print Bitcoin at will out of thin air or borrow limitless amounts of extra Bitcoin from shady central banks.
There is just one problem.
If we fast forward in time from 2009 to the present, we have a cryptocurrency market that bases itself on the same principles that Satoshi supposedly hated.
- Every day, new cryptocurrencies and tokens are created out of thin air, which fuel rampant speculation and bring about massive pump-and-dumps. However, this is apparently okay, as all such schemes fall under the banner of what cryptocurrency proponents call “decentralized finance” (DeFi).
- Bitcoin itself is also now largely institutionalized. While we still have independent Bitcoin whales, we are now seeing large institutions like MicroStrategy, BlackRock, Tether, and ETF providers (like BlackRock) dominate commercial supply. BlackRock’s ETF, iShares Bitcoin Trust, for example, controls 5.9% of the total Bitcoin supply.
- Bitcoin mining is now consolidated into ever-smaller groups. These are known as mining farms, and as well as making it impossible for independent miners to mine Bitcoin, reduced distribution of miners increases the possibility of security threats such as a 51% attack on the Bitcoin blockchain. – This is where (in a hypothetical scenario) 51% of people mining Bitcoin decide to reverse a Bitcoin transaction or alter the blockchain to redistribute funds as they so wish.
To demonstrate just how un-decentralized Bitcoin is at present, The New York Times revealed in 2023, that a whopping one-third of all Bitcoin mining was already consolidated among 22 different mining entities, half of which operate out of Texas. This is a far cry from Satoshi’s original vision of having mining equally distributed among anyone anywhere actually using Bitcoin.
What Does This Mean for You?
I’m going to say this bluntly. Bitcoin as a currency depends on two basic things. The first is belief that Bitcoin has value. The second is the integrity of the Bitcoin blockchain.
Sadly, we are at a point in time where more people than ever believe that Bitcoin has value. However, we are also at a point in time where few investing in Bitcoin know how Bitcoin actually works. In effect, people don’t know what terms like ‘decentralization’ really mean.
We are also at a point in time where some of the biggest players in the cryptocurrency space may be about to start exploiting the ignorance of some investors. Blackrock, for example, recently made a claim that at some point, the set total amount of Bitcoin to ever be created, may be increased past the current cap of 21,000,000 coins. Likewise, Binance has previously suggested that it may be possible to roll back the Bitcoin blockchain to reverse Bitcoin thefts and funds sent in error to wrong addresses. (Much like how current bank chargebacks work.)
Make no mistake, if Bitcon mining continues to consolidate amonst a select wealthy few, making such changes to the Bitcoin blockchain will be possible. However, this would see Bitcoin become no different to cash we have today, where funds can be frozen by banks (or big companies like Blackrock) whenever Bitcoin users fall foul of governments or law enforcement.
When this happens, the basic premise of Bitcoin as permissionless and decentralized will be completely broken. Moreover, make no mistake, the more we see large hedge firms, investment firms, and governments start taking an interest in Bitcoin, the closer we are to seeing such institutions redefine how Bitcoin works whether we like it or not.