23.04.18 - The Book of Satoshi

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2		The Book of Satoshi: The Collected Writings of Bitcoin Creator Satoshi Nakamoto
3		By Phil Champagne
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5		Amazon: Link
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7		#	Pg.	TC Highlight
8		1	Forward	The first words posted by Satoshi Nakamoto were eloquent in their simplicity as he announced his creation, which would go on to change the world, “I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party.”
9		2	2	A buyer making a purchase in BTCs has only to provide the merchant with personal information relevant to the purchase, for example, the shipping or email address, to pay. Compare this with a credit card purchase, which necessitates the buyer giving enough personal information to enable another party bent on fraud, a hacker or dishonest employee, to make fraudulent purchases with it.
10		3	2	Although 21 million BTC might seem insufficient with a global population of 7 billion people, the bitcoin currency is highly divisible. The smallest denomination allowed by the current software is 0.00000001 BTC (10-8 BTC), which has been defined as 1 satoshi and was named after the software’s putative creator, Satoshi Nakamoto. There are therefore 100 million satoshis in a single bitcoin, and thus the maximum supply of 21 million BTC will be equal to 2.1 quadrillion satoshis or, if you prefer, 2,100 trillion satoshis.
11		4	4	Six days later, on January 9th, 2009, Nakamoto published the source code of Bitcoin version 0.01 on SourceForge.net. As of this writing (March 2014), Bitcoin v. 0.8.6 is the latest version. Satoshi’s last post was published on the bitcointalk.org forum on December 12th, 2010. His last known communication is a private email sent a few months later to Gavin Andresen, current Lead Core Developer of the Bitcoin project.
12		5	11	Since the block chain contains the history of all outgoing and incoming payments associated with the payer’s Bitcoin address, miners, who also manage the Bitcoin network, can validate that the payer has sufficient funds to cover the payment. At any time, anyone can view the amount of bitcoins linked to (or, in an abstract way, held in) any specific Bitcoin address. See for yourself. Go to blockchain.info and enter the following address. 1GAMMGRXKCNUYYMANCJMACU3MVUNVJTVMH Under “Search”, the number of bitcoins associated with this address will be returned.
13		6	16	For a miner to have his block selected, he must have solved a problem associated with the block. This selection process is called “proof-of-work” as it implies the miner had to work for it. To fully understand the mechanism involved, we need to first understand a cryptographic concept known as a hash function.
14		7	18	Miners looking for the solution must usually calculate the hash millions of times to find the right pattern, but only a single hash calculation by other miners is necessary to validate it once it is found.
15		8	19	Several types of hash algorithm have been created, and Bitcoin uses two of them: SHA-256 for the proof-of-work and RIPEMD-160 for the Bitcoin address.
16		9	27	One typical argument raised against Bitcoin concerns the limit on the maximum number of bitcoins that will ever be created, which Satoshi Nakamoto set at 21 million. Once reached, what could prevent someone from increasing this limit? Nothing really, but he would need the cooperation of the majority of miners for this change to be accepted. Even were the majority of miners to agree to lift this restriction, if all did not agree, then a split in the block chain would result. Those in favor of lifting the restriction would use one version of the block chain while those not in favor would use a different version. In effect, we would have two virtual currencies rather than one, the “original Bitcoin” and a “Quantitative Easing Bitcoin”. Over the long term, one would hold its value longer and better and would therefore become the preferred version while the other would drop in value. What would be your guess as to which one would hold its value longer and retain the interest of users of Bitcoin? Personally, I have a very good idea which one.
17		10	28	Another major impact of Bitcoin is on the monetary front, specifically in the system’s ability to be money and not just a currency. A currency has the following properties1 : • Is a medium of exchange (used as an intermediary in trade) • Is a unit of account (can be counted, is quantifiable) • Is durable (long duration) • Is divisible (so to have smaller units) • Is portable (so as to be easily transportable) • Is fungible (mutually interchangeable, 1 unit of a specific value can replace another identical unit) Money has all the properties listed above and, in addition, one other: • The ability to preserve its value over the long term.
18		11	46	The fact that new coins are produced means the money supply increases by a planned amount, but this does not necessarily result in inflation. If the supply of money increases at the same rate that the number of people using it increases, prices remain stable. If it does not increase as fast as demand, there will be deflation and early holders of money will see its value increase. Coins have to get initially distributed somehow, and a constant rate seems like the best formula. Satoshi Nakamoto
19		12	55	AN “ORPHAN BLOCK” occurs when two miners satisfy the proof-of-work at approximately the same time. The two blocks created by the two miners are different since they may not contain all of the same Bitcoin transactions, in which case the transactions wherein the two “winning” miners transfer the block’s transaction fees to their accounts are also different. But only one of those two blocks will ultimately be added to the block chain, while the other will become an “orphan block”. Any transactions present in the orphan block but not included in the accepted block will be included in the next block for which miners are competing.
20		13	56	OK, suppose one node incorporates a bunch of transactions in its proof of work, all of them honest legitimate single spends and another node incorporates a different bunch of transactions in its proof of work, all of them equally honest legitimate single spends, and both proofs are generated at about the same time. What happens then? They both broadcast their blocks. All nodes receive them and keep both, but only work on the one they received first. We’ll suppose exactly half received one first, half the other. In a short time, all the transactions will finish propagating so that everyone has the full set. The nodes working on each side will be trying to add the transactions that are missing from their side. When the next proof-of-work is found, whichever previous block that node was working on, that branch becomes longer and the tie is broken. Whichever side it is, the new block will contain the other half of the transactions, so in either case, the branch will contain all transactions. Even in the unlikely event that a split happened twice in a row, both sides of the second split would contain the full set of transactions anyway.
21		14	67	IN WHAT IS POSSIBLY the most interesting post made by Satoshi, he explains how the block chain solves a problem in computer science known as the “Byzantine fault tolerance”, a more generalized version of the “Two Generals’ Problem”. In this problem, two (or more) persons need to share information in an unreliable communication environment, where messages sent can be lost or tampered with. The statement of the problem first appeared in the 1970s in network computing literature, and at that time the problem was considered unsolvable.
22		15	78	Is there a mechanism to make sure that the “chain” does not consist solely of links added by just the 3 or 4 fastest nodes? Cause a broadcast transaction record could easily miss those 3 or 4 nodes and if it does, and those nodes continue to dominate the chain, the transaction might never get added. If you’re thinking of it as a CPU-intensive digital signing, then you may be thinking of a race to finish a long operation first and the fastest always winning. The proof-of-work is a Hashcash style SHA-256 collision finding. It’s a memoryless process where you do millions of hashes a second, with a small chance of finding one each time. The 3 or 4 fastest nodes’ dominance would only be proportional to their share of the total CPU power. Anyone’s chance of finding a solution at any time is proportional to their CPU power.
23		16	94	Dustin D. Trammell wrote: Satoshi Nakamoto wrote: You know, I think there were a lot more people interested in the 90’s, but after more than a decade of failed Trusted Third Party based systems (Digicash, etc), they see it as a lost cause. I hope they can make the distinction that this is the first time I know of that we’re trying a non-trust-based system. Yea, that was the primary feature that caught my eye. The real trick will be to get people to actually value the BitCoins so that they become currency. I would be surprised if 10 years from now we’re not using electronic currency in some way, now that we know a way to do it that won’t inevitably get dumbed down when the trusted third party gets cold feet. It could get started in a narrow niche like reward points, donation tokens, currency for a game or micropayments for adult sites. Initially it can be used in proof-of-work applications for services that could almost be free but not quite. It can already be used for pay-to-send e-mail. The send dialog is resizeable and you can enter as long of a message as you like. It’s sent directly when it connects. The recipient doubleclicks on the transaction to see the full message. If someone famous is getting more e-mail than they can read, but would still like to have a way for fans to contact them, they could set up Bitcoin and give out the IP address on their website. “Send X bitcoins to my priority hotline at this IP and I’ll read the message personally.” Subscription sites that need some extra proof-of-work for their free trial so it doesn’t cannibalize subscriptions could charge bitcoins for the trial. It might make sense just to get some in case it catches on. If enough people think the same way, that becomes a self fulfilling prophecy. Once it gets bootstrapped, there are so many applications if you could effortlessly pay a few cents to a website as easily as dropping coins in a vending machine. Satoshi Nakamoto
24	X	17	100	The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.
25		18	157	Satoshi Nakamoto July 16, 2010, 04:13:53 PM SHA256 is not like the step from 128 bit to 160 bit. To use an analogy, it’s more like the step from 32-bit to 64-bit address space. We quickly ran out of address space with 16-bit computers, we ran out of address space with 32-bit computers at 4GB, that doesn’t mean we’re going to run out again with 64-bit anytime soon. SHA256 is not going to be broken by Moore’s law computational improvements in our lifetimes. If it’s going to get broken, it’ll be by some breakthrough cracking method. An attack that could so thoroughly vanquish SHA256 to bring it within computationally tractable range has a good chance of clobbering SHA512 too. If we see a weakness in SHA256 coming gradually, we can transition to a new hash function after a certain block number. Everyone would have to upgrade their software by that block number. The new software would keep a new hash of all the old blocks to make sure they’re not replaced with another block with the same old hash.
26		19	203	A MAJOR FLAW was discovered in the Bitcoin software/protocol that allowed a sender to send invalid transactions, one where the sender creates new bitcoins. By the time it was fixed, several millions of invalid bitcoins had been created. They were later erased from the block chain.
27		20	236	It’s the same situation as gold and gold mining. The marginal cost of gold mining tends to stay near the price of gold. Gold mining is a waste, but that waste is far less than the utility of having gold available as a medium of exchange. I think the case will be the same for Bitcoin. The utility of the exchanges made possible by Bitcoin will far exceed the cost of electricity used. Therefore, not having Bitcoin would be the net waste.
28		21	238	Posted by Gavin Andresen, August 10, 2010, 09:26:14 PM Quote from: throughput on August 10, 2010, 12:27:30 PM So, Bitcoin motivates behavior of stealing computing power from innocent computer owners. Sure, in exactly the same way the existence of credit cards motivates behavior of stealing credit card numbers from innocent credit card users. Or the existence of bank accounts motivates hackers to try to break into your system to find out your bank account number. existence of cars motivates some people to steal gasoline from innocent service station owners. I believe the benefits of Bitcoin will outweigh the harm, and I further believe that I am capable of making that moral judgment. I might be wrong, and I might regret I ever got involved, but if I only ever did things that I was 100% certain were going to work out for the best I would never accomplish anything new and interesting.
29		22	281	Posted by satoshi, August 27, 2010, 05:32:07 PM As a thought experiment, imagine there was a base metal as scarce as gold but with the following properties: • boring grey in colour • not a good conductor of electricity • not particularly strong, but not ductile or easily malleable either • not useful for any practical or ornamental purpose and one special, magical property: • can be transported over a communications channel If it somehow acquired any value at all for whatever reason, then anyone wanting to transfer wealth over a long distance could buy some, transmit it, and have the recipient sell it. Maybe it could get an initial value circularly as you’ve suggested, by people foreseeing its potential usefulness for exchange. (I would definitely want some) Maybe collectors, any random reason could spark it. I think the traditional qualifications for money were written with the assumption that there are so many competing objects in the world that are scarce, an object with the automatic bootstrap of intrinsic value will surely win out over those without intrinsic value. But if there were nothing in the world with intrinsic value that could be used as money, only scarce but no intrinsic value, I think people would still take up something. (I’m using the word scarce here to only mean limited potential supply)
30		23	312	RE: WIKILEAKS CONTACT INFO? Posted by satoshi, December 05, 2010, 09:08:08 AM Quote from: RHorning on December 04, 2010, 10:17:44 PM Basically, bring it on. Let’s encourage Wikileaks to use Bitcoins and I’m willing to face any risk or fallout from that act. No, don’t “bring it on”. The project needs to grow gradually so the software can be strengthened along the way. I make this appeal to WikiLeaks not to try to use Bitcoin. Bitcoin is a small beta community in its infancy. You would not stand to get more than pocket change, and the heat you would bring would likely destroy us at this stage.
31		24	345	Speaking of heirs, I got a surprise in 2009, when I was suddenly diagnosed with a fatal disease. I was in the best shape of my life at the start of that year, I’d lost a lot of weight and taken up distance running. I’d run several half marathons, and I was starting to train for a full marathon. I worked my way up to 20+ mile runs, and I thought I was all set. That’s when everything went wrong. My body began to fail. I slurred my speech, lost strengthin my hands, and my legs were slow to recover. In August,2009, I was given the diagnosis of ALS, also called Lou Gehrig’s disease, after the famous baseball player who got it. ALS is a disease that kills moter neurons, which carry signals from the brain to the muscles. It causes first weakness, then gradually increasing paralysis. It is usually fatal in 2 to 5 years. My symptoms were mild at first and I continued to work, but fatigue and voice problems forced me to retire in early 2011. Since then the disease has continued its inexorable progression. Today, I am essentially paralyzed. I am fed through a tube, and my breathing is assisted through another tube. I operate the computer using a commercial eyetracker system. It also has a speech synthesizer, so this is my voice now. I spend all day in my power wheelchair. I worked up an interface using an arduino so that I can adjust my wheelchair’s position using my eyes. It has been an adjustment, but my life is not too bad. I can still read, listen to music, and watch TV and movies. I recently discovered that I can even write code. It’s very slow, probably 50 times slower than I was before. But I still love programming and it gives me goals. Currently I’m working on something Mike Hearn suggested, using the security features of modern processors, designed to support “Trusted Computing”, to harden Bitcoin wallets. It’s almost ready to release. I just have to do the documentation. And of course the price gyrations of bitcoins are entertaining to me. I have skin in the game. But I came by my bitcoins through luck, with little credit to me. I lived through the crash of 2011. So I’ve seen it before. Easy come, easy go. That’s my story. I’m pretty lucky overall. Even with the ALS, my life is very satisfying. But my life expectancy is limited. Those discussions about inheriting your bitcoins are of more than academic interest. My bitcoins are stored in our safe deposit box, and my son and daughter are tech savvy. I think they’re safe enough. I’m comfortable with my legacy. Hal Finney
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