That’s the big question that spawned my novel Satoshi No No. So, where is he?

First, some background

Satoshi Nakamoto — widely assumed to be a pseudonym — appeared online in 2008 with the Bitcoin whitepaper. The whitepaper described, in nine pages of terse but precise English, a clever new way to build a digital currency using a distributed, peer-to-peer network without the need for any central authority to issue the money. He wrote an elegant, working prototype, and invited other programmers to help him enhance the system starting in 2009. Satoshi led its development into a solid worldwide cryptocurrency network before handing it over to a public group of open source developers.

As one of the first persons to mine and use bitcoin, Satoshi amassed an estimated collection of 1 million BTC. As of December 2021, that fortune would be worth $46 billion US. Most of the coins have never been spent.

At first, it wasn’t that strange for Satoshi to keep his real identity secret. But when he announced that he had “moved on to other things” from bitcoin in late 2010, the mystery deepened. Each passing year proved the resiliency of the bitcoin network and increased the value of bitcoin in relation to fiat currency like the US dollar. But Satoshi didn’t touch his coins. Aside from his stash of cryptocurrency he also possessed the private key to the “genesis block,” the first ever bitcoin transaction, in which he had transferred 10 coins to Hal Finney, an early collaborator on the software.

If he touched his fortune, would anyone know?

The public nature of the bitcoin blockchain means that any attempt to spend Satoshi’s coins will be instantly noticed around the world. Or, if he merely wanted to prove his identity, he could use the private key of the genesis block coins, or any of his other coins, to cryptographically sign a message to the public.

Various enthusiasts constantly watch for transactions involving early bitcoin blocks that might belong to Satoshi. Since bitcoin is currently used far more as a commodity and store of value than as a currency, the number of transactions worldwide is still relatively low; it is small enough that no transaction can really go unnoticed.

Clues to his (or her, or their) identity

While he went by the Japanese pseudonym Satoshi Nakamoto, his flawless English prose, tinged with UK idioms, suggested that he was not Japanese, or at least not a native Japanese speaker. His whitepaper and coding style suggested someone with a solid academic and professional background, not a teenage hacker. He didn’t say much about his political views; he seemed to lean libertarian or quasi-anarchistic, but that was a common conceit in hacker culture. Perhaps the most valuable clue was the fact that each post he made to public forums was timestamped, and based on those timestamps, he kept waking and sleeping hours consistent with someone living in US Eastern Time.

While Satoshi assumed the persona of a man in his forum posts and emails, he never appeared in public or released a photo of himself. So it’s possible that Satoshi is a woman, a non-binary person, or a group of people. Designing the bitcoin software and protocol was an amazing feat for a single person, but as a programmer myself, I know how productive one can be, given inspiration, time, and resources. For better or worse, programmers and cryptographers tend, statistically, to be men — and relatively reserved men, at that. Furthermore, it would be unlikely for a group of Satoshis to remain cohesively anonymous over 10+ years and abstain from touching that much money. So the simplest explanation — that Satoshi is indeed one man — appears most likely to be the correct one.

In the years since his disappearance, Satoshi had been dubiously unmasked several times. Journalists and enthusiasts identified a handful of early bitcoin collaborators as possible candidates, to the point that many complained that the public fascination with Satoshi and their need to continually deny being him had taken time away from useful work on the bitcoin ecosystem. In a bizarre coincidence, a Japanese American named Dorian Satoshi Nakamoto, who lived near some early bitcoin developers, was fingered by Newsweek magazine, but further investigation showed that he had nothing to do with it. And other flamboyant characters, such as Australia’s Craig Wright, had claimed to be Satoshi for their own purposes; but of course, without supplying proof, these claims were met with derision by the cryptocurrency community.

Clues to his motive

The note in the first bitcoin block referred to a Times of London story about a central banking financial crisis. So perhaps Satoshi was motivated by an altruistic desire to give the world an alternative to fiat currency and the irrational exuberance of markets in general. Based on his writings, Satoshi really did seem to want bitcoin to become a viable currency for everyday payments. There was no sense that he wanted to be any more disruptive than a typical tech startup founder. He was not a crypto-terrorist, revolutionary, or anything of the sort.

But the biggest clue to his motive may be that he has not yet sold any significant portion of his original coins. This suggests that either he’s independently wealthy and has no need of the billions he could get for them, or he’s still so committed to the Bitcoin project that he doesn’t want to do anything that could upset its stability. And that brings me to my final point:

My own best guess

It’s truly astounding to me that Satoshi’s coins have been left essentially untouched for over 10 years. Years ago, I thought it would make a great story if somebody stumbled on a discarded bitcoin digital wallet that held Satoshi’s original keys, explaining his absence from the blockchain.

Imagine you are Satoshi, a reclusive genius who invented this amazing thing, got rich, and then lost your password. Or maybe your hard drive crashed, and you had no backup. Or maybe your computer got lost in a move. Whatever. It’s all gone. You had moved on from the Bitcoin project in 2010, anyway, to more interesting things. But then, after a few more years, Bitcoin really takes off. Your coins are soon worth millions, and then billions! If you came forward now without your original keys, how could you prove you were the real Satoshi? Wouldn’t you only be inviting ridicule?

This was always something of a joke to me — how could anyone be so careless? But the years went on and nothing changed, and then I eventually wrote and published my novel, and still nothing changed, and I started to think it wasn’t so farfetched.

Another possibility is that at some point, Satoshi sold his stake in bitcoin to a buyer who wishes to remain anonymous. But the problem with this theory is that the nature of bitcoin means that one cannot simply hand over a wallet. The buyer could never know for certain that the original owner did not retain a copy of the private key. The only reliable way to sell a wallet is to properly transfer the bitcoin to a new wallet and publish the transaction on the blockchain for all to see. And this hasn’t yet happened.

The final, more somber possibility, is that Satoshi is dead. Perhaps he died without leaving an executor, and his data fell into the hands of a benignly ignorant bureaucratic process as his personal assets were disposed to the government and auctioned to an unsuspecting bidder who simply wiped the drives. Or perhaps he did have an executor or heir, but they didn’t fully understand the magnitude of what he had left behind.

One thing is certain: the more time passes without any clue to Satoshi’s whereabouts, the more dramatic it will be if he ever steps forward. But that same passage of time also makes it more and more likely that he, like the bitcoin in a wallet with a forgotten password — and like all of us, eventually — is gone.

Satoshi No No is a techno-thriller that hinges on mistaken identity, but I also tried to make it a novel about ideas. One of the pet ideas of its protagonist, Chip, is that intellectual property (IP) laws are a net negative for society. IP laws comprise patents, copyrights, and trademarks, many of which exert a drag on freedom and innovation . Chip is no libertarian, and neither am I. But I’d like to briefly explain why I put those words in his mouth.

IP laws amount to restrictions on free expression: you can’t distribute a song that you know without the permission of the copyright holder; you can’t sell a product that you have built without the permission of the patent holder. While we might think of the digital representation of these things as tangible goods that have the legal protection of property rights, they are, in fact, just information. Both a song and a product blueprint are specific ideas that can be expressed as a series of zeros and ones. The fundamental difference between IP and physical property is that the information that makes up IP can be reproduced perfectly and perpetually without any loss of the original. Information wants to be free.

Where is the benefit?

I have to acknowledge that, a priori, I think we shouldn’t have restrictions on expression unless we can demonstrate a large and tangible benefit to society. So: where is the benefit to society?

After a thorough historical and economic analysis, many scholars have concluded that IP laws actually stifle technological progress and prolong harmful monopolies. The most relevant work on this is probably “Against Intellectual Monopoly” by Boldrin and Levine. You can read their latest version online free at http://www.dklevine.com/general/intellectual/againstfinal.htm or order the paperback off Amazon (I have no connection to the authors.)

Forestalling some common objections

One major argument against loosening IP laws is that it would reduce the economic incentive to produce expensive, life-saving drugs. But Boldrin and Levine show that the majority of funding for drug research breakthroughs is already socialized, as it probably should be. Drug companies are mostly using patents to let them keep overspending on marketing that should not be needed or wanted in an evidence-based field. Patents are also abused to create trivial reformulations of generic drugs to squeeze out competitors, or for simple profiteering. As the United States and other countries continue to increase the socialization of health care, there will be increasing pressure to bypass patent protection and directly fund the development of the most important drugs.

In the arts, IP mostly concerns copyright law, but we’ve seen that many of the best and most enduring works of art were created without copyright protection. Do we really believe that the human drive to create art, music, and literature would be stifled without the largely illusory incentive provided by copyright profits? The vast majority of artists — including yours truly — never expect significant income from their copyrighted work, and yet they still create content.

People will always be driven to create beautiful and useful things for the sheer joy of doing it and for the recognition it brings. Furthermore, no matter what IP laws are on the books, they are irrelevant to the historical question of who first invented something. The first person to publish their invention on record gets that crown.

Trademarks are mostly OK

Arguably the weakest and therefore least offensive type of IP law is trademark. Here I actually have no strong objection. Trademark infringement, if you boil it down, is simply a specific type of fraud: it’s deceiving the public into thinking they are dealing with a genuine product or agent of a company, when in fact they are not. A lot of needless bureaucracy has grown up around trademark registration and legal defense, but at its heart, trademark law simply aims to protect the public and achieve clarity in the markets. If trademark law existed without patents or copyrights, a company would be free to copy and improve on their competitor’s products as long as they didn’t try to label them in a counterfeit way.

Why does it matter?

Our attitude toward IP law reflects the tension between the rights and roles of society and those of individuals. Even if we don’t personally collide with IP law, we should be aware of all that it implies for freedom and equality in the digital age.

Besides the common label of Bitcoin^* as a “scam”, we’ve heard the other epithets: “fake money,” “pyramid scheme,” “bubble,” “racket,” “Ponzi scheme,” and so on. When a new financial instrument appears, it’s natural to be skeptical of its legitimacy, particularly when its valuation sees a volatile and exponential rise over a short time. This attitude is often encountered by the characters in my new novel, Satoshi No No.

To the uninitiated, Bitcoin – and cryptocurrency in general – might appear even more dubious than the average money making scheme. Its fully digital nature, obscure mathematical underpinnings, and association with criminal enterprise all conspire to make Bitcoin a tough sell to the casual observer. But take the time to understand Bitcoin and, even if you don’t embrace it, you’ll understand why it has survived and thrived.

No central authority

It’s hard to scam people when there is no one controlling the scam. Unlike a traditional MLM or Ponzi/pyramid scheme, there is no hierarchy in Bitcoin, no individual or group enshrined at the top. The structure of Bitcoin, its network protocol and mathematical model, guarantees that any entity who wants to subvert it must contribute more than 50% of the world’s CPU resources to running it. This computational barrier is nearly insurmountable in a world with data centres on every continent; and game theory predicts that if anyone ever attempted it, the rest of the Bitcoin community would simply fork their own blockchain and exclude the bad actor.

It’s true that, compared with fiat currency like the US dollar, bitcoin’s lack of a central “bank” to control its supply makes it volatile. But this lack of central regulation is a feature, not a bug, of the design. Central banks around the world have often failed spectacularly at their job of moderating economic volatility. Of course, we need strong central banks to maintain the financial stability of traditional fiat currency. But Bitcoin can be thought of as a safety net or hedge against irrational exuberance by fiat currency regulators. And lack of central regulation allows bitcoin payments to circumvent unfair or oppressive regimes.

More fundamentally, there are numerous widely accepted commodities that have no intrinsic value and no central authority to control their supply or vouch for their authenticity. For example, we know that famous paintings have no practical utility, can easily be forged (the forgeries often unknowingly exhibited for decades), and have no central arbiter of worth, but we still assign them value. Bitcoin can be thought of as commodity just as much as a currency, and its value is, of course, entirely dependent on the collective opinion of anyone who can buy it.

Digital money is real money

The United States in 2018 had about $1 trillion in physical cash compared with about $14 trillion across all personal chequing, savings, and other liquid deposit accounts. This difference had grown as salaries, investments, and large purchases were increasingly paid by check, direct deposit, credit card, or other intangible means. So even before bitcoin came along, most money was effectively digital. Bank account balances, stock and bond ownership, all of it is digital. And every year, billions of digital dollars are fraudulently stolen, misplaced, or forged. But that’s still real money.

Bitcoin is also digital, but because it’s stored on a global blockchain rather than a collection of for-profit banks, it’s harder to steal or forge. You can guess or crack someone’s wallet password, if they choose to keep their bitcoin in an online wallet and don’t take basic steps to protect it. But you can’t break into a vault somewhere and take it. And you can’t counterfeit it.

Do the math

Intuitively, the first question many have after they understand that bitcoin is digital and has no central authority is, “Why can’t I just copy my bitcoin the same way I copy an MP3 of a song, and spend it as many times as I want?” The answer, basically: “Because math.”

Bitcoin is built on several important mathematical concepts that also underpin secure online communications and e-commerce: hashing, public key cryptography, and peer-to-peer networking. Without going deep into the math behind these concepts, it’s enough to say that they are solidly established and have withstood decades of careful analysis and persistent attack.

Bitcoin operates as a decentralized network of independent nodes. All nodes run software speaking a common protocol and playing by common rules. Every transaction — every coin sent or received — is broadcast to the entire network. The user behind each node’s wallet is identified, not by name, nor by a government-issued social security number or by a bank account number, but by a cryptographic public key — a long string of random numbers. The user has a private key that corresponds to their public key, which they use to digitally sign each transaction.

Each node has an equal opportunity to monitor the public ledger of all transactions — called the blockchain — and verify that no other node had falsified a transaction, fraudulently invented new coins, or “double-spent” a coin or fraction of a coin. Thus the only way to defraud the network is to control more than 50% of its nodes — or, more precisely, 50% of all nodes’ CPU power — and as previously explained, that’s not a feasible strategy.

The protocol dictates that coins are earned by spending CPU power to “mine”, or verify blockchain transactions in a process called “proof of work”. The miners’ proof of work involves using a mathematical formula called a one-way cryptographic hash to process millions of variations of each transaction to zero it out. Hashes are easy to confirm but hard to guess. This protocol leaves it essentially up to random chance which miner would “win” the next coin by verifying a transaction — except, of course, that those who devote more CPU and electrical power to the network are more likely to win. But in a zero-trust environment, democracy by wattage is the most fair way to play.

Other cryptocurrencies

If we accept that Bitcoin is not a scam, what about other cryptocurrencies, such as Ethereum? Most cryptocurrencies have similar features and goals, so it’s fundamentally inefficient for many of them to co-exist. A market striving for compatibility is going to eventually eliminate most cryptocurrencies. As an analogy, there are only a handful of top-level credit card payment networks: Visa, MasterCard, and a few others. With cryptocurrency there’s even less room for alternatives to proliferate successfully long term, because there is no cartel controlling the transaction fees, and therefore no one for a newcomer to displace; or more accurately, newcomers are continually displacing the incumbents.

There are some technical reasons that Ethereum is probably superior to Bitcoin, particularly its flexibility in storing smart contracts on the blockchain, and its higher openness to reduction of transaction fees. I believe that Bitcoin and Ethereum will remain the two most important cryptocurrencies for decades.

That said, we should be extremely cautious about the myriad new cryptocurrencies springing up in the last few years. Many of these are, as discussed above, redundant; and some are just as fraudulent as pump-and-dump penny stocks.

OK, so what?

If we accept that Bitcoin and Ethereum are not scams, what should we do? I don’t think we should go out and horde great quantities of them. Nor do I think we should make them a large part of our investment or savings portfolios, because unlike a stock or bond, cryptocurrency is not a growth or income-based instrument. I subscribe to the couch potato philosophy of investment. But I do see a small place for cryptocurrency, perhaps 5%-10% of a typical portfolio, to aid in diversification. (Up till now, cryptocurrency has often moved in value roughly in line with the stock market, but I believe that once more people understand it, they’ll see it as a hedge against traditional markets.) And if someone is rich enough to branch out from broad index investing and into individual company stocks, I could see it being profitable to increase that crypto share up to 20%.

* In keeping with https://bitcoin.org/en/vocabulary, I will try to capitalize Bitcoin when describing the entire project, its protocol, or community; I’ll use a lowercase “b” when describing bitcoin simply as a currency.