In October 2009 the world economy was one year on from the greatest financial crisis of modern times, the ripples of which are still being felt a decade later. Bitcoin wasn’t created as a direct reaction to that sub-prime triggered meltdown (work had started at least two years before) but Satoshi Nakomoto’s blueprint for a ‘peer-to-peer electronic cash system’ promised freedom from the vulnerabilities that took the prevailing, centralised financial system, to the brink of total collapse.
In order to create this new cash system, Satoshi gave birth to an entirely new digital currency unit (bitcoin) and a system for regulating its supply and maintaining a record of transactions - the Bitcoin Blockchain. Though a great deal of headlines are written about the value of the currency unit, the implications of the Blockchain are much more profound.
How the Blockchain creates immutable records
The Blockchain creates an immutable timestamped record - a ledger - the veracity of which is reached by consensus among a distributed network of computers, utilising an ingenious combination of mathematics and proof of processing power.
In the case of bitcoin (little b = digital currency unit), the Blockchain keeps an accurate record of its transactions (debits & credits) without a central arbiter, potentially painting banks entirely out of the picture of future world finance.
The word ‘immutable’ refers to something that is ‘unchanging over time or unable to be changed’ and is a quality that is surprisingly hard to achieve in a world where centralised power is the norm.
To corrupt a record in the Bitcoin blockchain would to an immense amount of time and money; a majority of the network would have to approve the change, so the number of participants grows so does its strength. “All of Google today would represent less than 1% of all of mining [bitcoin operations worldwide]. The sheer degree of what is happening in [bitcoin] mining is not being appreciated by the press,” said Balaji Srinivasan, a researcher for 21inc at Blockchain conference in 2015. “If they turned off all of their data centers and pointed them at Bitcoin (mining network), they would be less than 1% of the network.”
Combating the ability of centralised power to control digital information was the focus of the Cryptographic movement - Cypherpunks - from which Bitcoin emerged.
As early as 1992 Stuart Haber and W.Scott Stornetta1 had discussed techniques for time-stamping a digital document:
“The prospect of a world in which all text, audio, picture, and video documents are in digital form on easily modifiable media raises the issue of how to certify when a document was created or last changed. The problem is to time-stamp the data, not the medium. We propose computationally practical procedures for digital time-stamping of such documents so that it is infeasible for a user either to back-date or to forward-date his document, even with the collusion of a time-stamping service. Our procedures maintain complete privacy of the documents themselves, and require no record-keeping by the time-stamping service.”
And in the wider context of any recorded information, the challenge of preserving truth is a central theme across history as well as many dystopian visions of the future.
Control of information - historical perspective
“A ledger consists simply of data structured by rules. Any time we need a consensus about facts, we use a ledger. Ledgers record the facts underpinning the modern economy.”2
In the Ancient Near East, clay tablets baked with cuneiform - one of the earliest systems of writing - were used as early ledgers to record units of rations, taxes, and workers production. The fact that only a few fragile, incomplete examples remain shows the difficulty our ancestors faced in creating a record that would endure the tests of time.
A ledger is generally used for one of several purposes: recording ownership, identity, status, authority and economic & social relationships. It is the latter that inspired one of the most famous examples of ledger - double entry bookkeeping. Its exact origins aren’t known, though it is thought an early system began in 11th/12 Century Korea, and in North Africa, before becoming popularised by the merchants of Medieval Italy. The fundamental purpose of double entry bookkeeping is simple:
Assets = Equity - Liabilities
But where there is only one physical record, the gatekeeper of that record is a powerful position, and can pervert or obfuscate the truth. History is littered with relevant examples but as the power of the global financial institutions has grown and consolidated, so have the consequences for everyone else. Just look at recent accounting scandals such as the collapse of Enron or the 2008 sub-prime crisis.
The written word
The written word dates back about 5,000 years, before which all record was subjective and passed on verbally, therefore subject to interpretation and change - spoken language can drift in terms of memory and meaning. Even Aboriginal stories3, thought to be the oldest historical records available to us today, could be lost if the tribes were to disband. Without written record it was possible, therefore, to erase a civilisation’s history through conquest or by suppressing thought and culture.
Once written language emerged, if the media could be preserved, the physical record would stay the same, though this didn’t, of course, guarantee an objective snapshot of history. As the saying often attributed to Winston Churchill goes, "History is written by the Victor".
As written communication developed we see the emergence of early ledgers.
In medieval Europe, for example, the church was so powerful because it controlled a large workforce of devoted monks, who spent an enormous amount of time in creating and transcribing books, and maintaining control of the politics of religion. Before the invention of the printing press by Johannes Gutenberg in 1440, the process of writing a book was painstaking and labour intensive making the end product scarce and very expensive to produce and own. Martin Luther's Protestant reformation of Christianity certainly wouldn't have enraptured Europe without the technology to quickly distribute his ideas.
It is for this reason that there is no use immutable record of history. Written historical records require careful interpretation, and comparison, and are always open to contention. But what if control of history is so complete that it becomes meaningless?
Who controls the present, controls the past
One of the best dramatisations of the danger of history being perverted for political end is the novel, 1984. In his most famous work, George Orwell conceptualised a frightening vision of world where truth is a shifting sand dictated by the whims of Big Brother.
The novel’s central character, Winston Smith, works in the euphemistically named Ministry of Truth, which is actually dedicated to constantly generating new versions of history depending on what suits the apparatus. This idea is summarised in the famous quote from the book: “Who controls the past controls the future. Who controls the present controls the past”.
Smith’s job is to ‘control the past’ by continually altering physical historical records - such as newspaper articles - to ensure they align with the constantly changing perspective of BB, and destroy anything which inconveniently contradicts it.
At a central point in the book Smith holds in his hand a physical record that can destroy the façade of Big Brother. It is a picture of three powerful ex-Party members who are suddenly deemed traitors; an inconvenient truth that must be erased.
Knowing that what he holds might be the last remaining chance to expose the duplicity of Big Brother, Smith pauses in thought before dutifully dropping it into the incinerator specifically placed beside his desk, to destroy that objective piece of history forever.
Given his fear over the perversion of history, Orwell is likely to have been enthusiastic about the idea that information can be immutable.
Doublethink & Double Spend
1984 suggested even mathematical truth could be challenged with the idea of Doublethink, the act of simultaneously accepting two mutually contradictory beliefs.
Bitcoin is the antithesis to that, the protocol works because there is agreement on one accurate record - the magic is in the way agreements is reached. The system of incentivising ‘miners’ to solve complex mathematical problems and agree an unchangeable consensus on who owns bitcoin (the money) is without reproach. The difficulty comes when you try and agree consensus on concepts that aren’t so black and white.
Truth in mathematics is binary
Choose a contentious theme like religion, philosophy or politics and look at the reversion history on Wikipedia pages and you get the idea of how consensus is hard to reach. The evolution of smart contracts does however, shows that in a short space of time there can be consensus on complex agreements through a decentralised network. Who knows what will follow.
Bitcoin was however, created to focus on decentralised solution to a very specific problem faced by centralised payment systems – Double Spend - and that is where it derives utility.
Double Spend simply relates to currency units being spent twice. If that happens, then the currency can be counterfeited. If that happens, fraudulent currency devalues the original system. Prior to Bitcoin, the Double Spend problem was solved by use of an intermediary, through which all transactions flow but which also has final authority. A centralised bank or government for instance. Despite what you might think, or be able to see on your monthly statements, that function doesn’t come for nothing. There are both explicit fees and the less tangible cost associated with supplying a large amount of personal information.
Online gambling 2.0
Bitcoin changed all that, and one of the first industries to recognise the immense value of a decentralised payment system was gambling.
There is still a huge amount of friction in the process of quickly and cheaply getting funds in and out of your online sportsbook account, as well as trusting the transactions are accurate. In solving Double Spend, bitcoin - and other cryptocurrencies - represent a revolution for betting; an online gambling 2.0.
The internet revolutionised gambling
With Satoshi unavailable for comment, we can only speculate on how far the disruptive power of Bitcoin might be felt, but the line that he chose to sear into the first block of his newly created Blockchain gives a huge hint. It was a line from a British newspaper, “The Times 03/Jan/2009 Chancellor on brink of second bailout of banks”. As Bitcoin’s creator simultaneously released his creation into the wild and stepped back into the shadows, he made both a comment on the precarious nature of the financial system that his new idea was designed to replace, while at the same time illustrating the Blockchain’s ability to preserve a critique of it. No matter how inconvenient that headline might become, the Bitcoin Blockchain’s immutable power will preserve it forever.