10 years ago today, in an unknown location, a mysterious figure whose identity is still unknown, tapped a key on his keyboard, spurring his CPU into action. In doing so, Satoshi reified his vision for a decentralized digital cash that he’d published 3 months earlier. The fan in his computer began spinning to keep the CPU, burning from the burden of work it had been given, from overheating. The CPU in Satoshi’s computer was searching for a special pattern, much like a digital needle in a haystack, that would secure Bitcoin’s first block. ere is that needle:
It is the hash of Bitcoin’s “Genesis Block”, which created the first 50 bitcoins ever to be mined (by a quirk of Bitcoin’s protocol these 50 bitcoins can never be spent).
With a brilliant leap of imagination, Satoshi had done what no one else had been able to do, and which many thought impossible. He had ingeniously incorporated Adam Beck’s Hashcash design as a way of securing transactions on a network not controlled by anyone. By burning energy in search of digital needles-in-haystacks, Satoshi’s proof-of-work design allowed, for the first time ever, scarcity to be brought to the digital realm: scarcity seems like such a simple concept, but do we really understand it? Sometimes we need to reframe a concept before its full potential can be unlocked. How was the concept of scarcity unlocked for the digital age?
At least as long ago as the 16th century, economists (in particular the Spanish School of Salamanca) understood that scarcity played a very important role in how money gained its value. Money was more valuable where it was scarce, and less valuable where it was abundant. The modern Austrian school inherited the mantle of “hard money” economics from the School of Salamanca and one might have imagined that Austrian economists would have been the first to anticipate and understand the emergence of Bitcoin. Alas, it was not so. Why? Murray Rothbard, the irrepressible student of the great Austrian economist Ludwig von Mises, even went so far as to assert that money can ONLY arise if it begins as a useful commodity, such as gold or silver. Ever since Rothbard’s interpretation of the Misean regression theorem, the scions of the Austrian school have associate scarcity with the physicality of gold: It’s real. It’s tangible. It has intrinsic value. The intangible nature of Bitcoin completely befuddled many Austrians. In the late ’90s, Nick Szabo invented Bit Gold which was a critical step on the path to making digital scarcity possible. His invention was based on a brilliant reframing of the concept of scarcity as “unforgeable costliness”.
Instead of viewing scarcity in terms of a dearth of some physical substance, Nick Szabo imagined scarcity as the property of being expensive to produce and for this cost to be hard to fake — or said another way, easy to verify. We can see that this reframing of scarcity also applies to precious metals: it is extremely costly to produce gold — gold is the product of the cosmic collision of stars — and it’s very easy to verify that something is in fact gold, and thus required massive energy to produce. With the new reframing of scarcity in mind we can then ask: in the digital realm, where most things seem easy to copy or inexpensive to churn out, how do we create something that requires a large cost to produce and whose cost is easy to verify?
Adam Back made the ingenious leap in his invention of Hashcash in 1997. He recognized that hashing — the one-way transformation of arbitrary data into a fixed sized, essentially random, bit string — could be used to produce a digital signature that required energy to produce. Satoshi Nakamoto built on the ideas pioneered by Szabo and Back to create the first truly scarce digital good: bitcoins. Nakamoto’s invention would never have been possible without the reframing of the seemingly simple concept of scarcity.
Since the creation of Bitcoin’s genesis block on January 3rd, 2009 at 6:15pm (GMT), the Bitcoin network has seen the steady and remarkably reliable creation of blocks for a decade, allowing millions of people to store and transfer value without let or hindrance. While many are obsessed with making price predictions about Bitcoin in 2019, one thing we can actually predict with high certainty is that Bitcoin blocks will continue to be created approximately every 10 minutes with remarkable reliability. As the Bitcoin network continues to function reliably well into the next decade, there will be near-universal confidence that it will be available forever, much as people believe the Internet is a permanent feature of the modern world.
Slowly but inexorably the world’s population will come to recognize the benefit of opting out of the status quo monetary order and returning to a world of true individual financial sovereignty. Sound money is the norm of human history and we will return to it with Bitcoin. The century between the gold standard and the Bitcoin standard — the fiat money interregnum — is the real anomaly of history. 10 years hence we will look back at the now 20 year old Genesis Block and recognize its creation as the beginning of a new monetary epoch. With the tap of a key on his keyboard Satoshi set in motion a sequence of events that set our world financially free.